What would YOU do? Pensionwise

Retired_I.F.A.

No problem.It's me who needs to apologise, for not making it clearly understood.

Salary sacrifice is best shown with actual figures side by side showing a before and after picture. To do this I used to have it on a spreadsheet in turn on a palmtop computor. I no longer have it but can rewrite it for you no trouble just not today as I've other thing to do
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PM me or post your tax code, the amount your comfortable with paying and I'll post the figures. Actually I'll see if I can get the spreadsheet hosted as no doubt others will find it useful.

Actuaries are the mathamaticians who worked out the cost to the college of providing the teachers pension scheme for the college's teachers.
They came up with the 19.1% of salary as the answer. In their calculations they had to assume a future rate of return they'd get from investments.
Actuaries when doing such sums tend to be a bit conservative, if they think 10% is a reasonable expectation they are more likely to work on a lower figure. The lower the figure the higher the cost.
So in my opinion (totally worthless btw as I'm no longer authorised to give advice) yes a total of 19.1% of salary going into a personal scheme of your own should provide a better retirement than the final salary scheme.

The teachers pension scheme provides a death in service lump sum of 3* salary (least it did last time i looked at it) but that goes out the window if you leave the scheme. But in a personal plan the life insurance can remain there even if you leave the job and in some plans even if you stop contributing. With the teachers scheme you get this cover regardless of your health whereas with the personal plan you have to answer health questions. So if you are in poor health now and find insurance cover under the pesonal route has a loaded premium or even declined then the teachers scheme would be better.

bit clearer ?

Andy_L

However that 19.1% has been calculated by the government actuaries who are frequently criticised in the press for under valuing the cost of public sector pensions.

The report that came up with the £100bn black hole in public sector pensions calculates the value of the employers contributions as 25-30% (male-female). Mind you he does make some questionable assumptions to get to that (eg pay rises of 2% above rpi for the full 40 year career)

fimonkey

Thanks so much Retired IFA. If it's not too much trouble I would really appreciate your help with the salary sacrifice thing. I'll pm you the figures when I get home this evening (and see my payslip).

No rush, however, I have until April to decide which scheme to join.

Thanks once again

Fi

Retired_I.F.A.

No need for me to write the spreadsheet after all. I googled "salary sacrifice calculator" and found Standard life have on anyone can use for free online.

http://www.adviserzone.com/calculators/salarysacrifice.php

Retired_I.F.A.

Just remembered one scenario that might steer you towards joining the final salary scheme regardless of the question "is it worth more or less than the 19.4 % cost" which at the end of the day you have to decide.

In a final salary scheme it's not really what your pay is now revalued by rpi or rpi+2% whatever that really determins the pension it'll pay out but its the pay on which you retire on. (best 3 consecutive ys in last 10)
So what are you chances of being promoted to dept head or head teacher in those latter years?

Inflation aside you could be on 30k and paying contributions based on that till your in your 60's then see a hefty rise due to promotion say to 50k and have a pension based on a 50k final salary although only having contributed to one for the majority of employment based on a 30k salary.

On the other hand you may end up working part time for those latter years in which case you could transfer out beforehand.

Swings and roundabouts isn't it? There is no definate best route. If it were any other final salary scheme other than a public sector one in your shoes i'd be inclined to go the personal route. but with underfunding not being such an issue with public sector schemes it's a judgment call only you can make.

fimonkey

Hmmm this has reared it's head again as it's time to make a decision... Anyone got anything more to offer please?

Is it true that I can
a) Join TPS with associated salary drop
b) Join stakeholder
c) Invest in my own pension?

Are there any other offers open to me please?

Many thanks

fimonkey

Retired_I.F.A. wrote: »

For a figures sake lets say thats £100 p/m. What you then should do is work out the gross pay required to reduce your nett pay by the £100 thus a difference of "x". Add to x the NI savings of the employer "y" and the 5% of your current salary to give you "z", the employers gross contribution.

Sorry this doesn't quite make sense. For figures sake, say I can 'afford' £200 pm, and my Gross salary is £31Kpa. How would those figures fit into the above please?

Many thanks in anticipation

Steppy

Hiya,

I just need to clarify something... I'm new to this stuff.

Is the teachers pension a 1/60th final salary pension?

If so and your salary is £31k per year, and assuming that you don't get a pay rise ever again... ;-)

It should go like this...

10 years service at £31k per year = £31k / 60 * 10 years = £5166 per year.
20 years service at £31k per year = £31k / 60 * 20 years = £10333 per year.
30 years service at £31k per year = £31k / 60 * 30 years = £15500 per year.
34 years service at £31k per year = £31k / 60 * 34 years = £17567 per year.

Now my question is what pension will you get if your employer is only prepared to pay 5% of your salary as contributions? Have they given you any forecasts or illustrations of what you'll get if you don't decide to top-up the pension by an extra 9.1%? If not than can you ask what you'll get if you have 10, 20 or 30 years service?

At least you'll be able to measure what you will or won't get by making the extra contributions?

Cheers,

Steppy

fimonkey

Hi Steppy. Yes you're right, TPS is a 1/60th scheme. Many thanks indeed for your calculations.

There is no option to NOT top up the employers contribution if I decide to join TPS. My employer will contribute 5% to either a stakeholder, or TPS only. If I decide lto join the latter then I make up their shortfall.

I have just clarified the reduced NI thing and salary sacrifice (i.e by my salary being reduced it would cost the college less to employ me), and the salary sacrifice is not 9.1%, it is currently 7.17%. Apparently "This reflects the saving for the College of Employers NI, therefore the full cost of employing you is the same as if you were in Stakeholder Pension on full salary with a 5% contribution".

SO, to join TPS, I would 'sacrifice' (i.e. loose) 7.17% of my salary (which would go to make up the employers contributions of 5% + 1.93% NI saving + 7.17% sacrifice = 14.1%) plus 6.4% of my own contribution which = 13.57%

I'm not sure at this stage however if that 6.4% is from my salary AFTER sacrifice (ie the reduced salary) or before sacrifice. I'm waiting to hear back from my employers regarding this..

Hence, on a current salary of 31K, it would drop to £28,777.30 (31K - 7.17%). This is what the final pension would be calculated on, so say I have 33 years to contribute:

33 yrs service @ £28,777 = 28777 / 60 * 33 = £15827.35 pa in today’s terms.

Am I right?

2. If I take out a stakeholder whereby my employer pays 5% but I can afford to pay 13.57% of my non reduced salary, how likely is it that I can beat the figure of 15827.35pa? I know there are a lot of factors to determine/assume such as inflation and interest rates/returns on investments etc, but I’d like to keep it simple and in today’s figures if possible?

3. Many thanks so far TO ALL OF YOU WHO’VE ANSWERED AND HELPED. It is greatly appreciated and I’m slowly getting my head round this which is great, as I always thought it was far too complicated for me to understand.

Retired_I.F.A.

Never did get back to you on this one did I. Sorry. You should have nagged me, undestandable that you didn't though as your single

I'll have a shot at some number crunching and post again.