HELP, I dont understand Pensions

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mcoliver88
mcoliver88 Posts: 9 Forumite
in Pensions, annuities & retirement planning
Hi,

I need some advice from those who are more finance savy than myself. So currently I pay into a Teachers Pension of about 9.6% per month. However I have no clue how pensions work.

From what I understand, that I pay in each month and so does my employer. Which I can access when I retire at the age of 60. However I have just looked at my benefit statement and this has confused me even more.

So any advice, particularly from those who pay into the TPS would be great.

I have looked at the Money Advice service and and looked on here, but still not sinking in.

Thanks in advanced.
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  • JoeCrystal
    JoeCrystal Posts: 3,013 Forumite
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    edited 14 April 2018 at 8:47PM
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    Okay, first of all, the pension scheme you got is one of the best (and one of the most straightforward to understand in my opinion) in the country and very valuable. Secondly, there is a website online that is to help you with understanding TPS. https://www.teacherspensions.co.uk/members/member-hub.aspx

    With TPS, it is an unfunded, defined benefit pay-as-you-go occupational pension scheme operated by the Department for Education on behalf of the teachers. What part of the benefit statement you do not understand?

    PS: Here is the link to FAQs on your benefit statement. https://www.teacherspensions.co.uk/members/faqs/your-benefit-statement.aspx
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    It's my understanding that with the TP you can get it at the age of 68 (for career average). If you want it from the age of 58, it will be reduced...by about 25%, I think.

    Whilst I agree to an extent with JoeCrystal that there are some positives with the Teachers Pension, i'm not convinced that it is a 'good' investment as such. It's an option.

    It's essentially a cheap annuity. Yes the employer contributes towards this and yes you get tax relief. It grows by CPI (so it keeps up with inflation) + 1.6% a year for every year you continue to be in the scheme.

    However, cashing it in at 68 is really unrealistic. Even if you do, it'll take a long time to break even, let alone make a nice amount back. Fingers crossed we all live that long.

    Whether or not it's the best investment out there is really entirely another question. A friend of mine invested in property instead and has made far more than I will from the TP. He's now able to use the income from that to invest in a SIPP and get 40% tax relief as a result...

    Another friend works for a private company (programming) which has a very attractive pension scheme, plus a load of other financial perks e.g. a share buying scheme, contribution towards a house purchase.

    I think it's best seen as an option on the journey to financial independence. I've been in the scheme for about 9 years. I might purchase a bit more additional pension benefit later this year. Once I hit a projected statement figure of say 14 / 15k income a year, I'll reconsider whether or not i'll stay in.
  • Silvertabby
    Silvertabby Posts: 9,022 Forumite
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    Rejoice. You have the benefit of a public sector defined benefit pension scheme that private sector employees can only dream of.
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    Silvertabbly, I don't think you can compare the TP to all private sector workers - whilst that's the slant the government and media portray it, but it's very misleading.

    Several friends who work for the so called 'private sector' have very lucrative pensions combined with multiple other financial products (like free shares every month).
  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    Oliver1191 wrote: »
    It's my understanding that with the TP you can get it at the age of 68 (for career average). If you want it from the age of 58, it will be reduced...by about 25%, I think.

    'Your understanding'....'you think'...suggest you brush up on your knowledge of one of the best schemes in the country.
  • Dox
    Dox Posts: 3,116 Forumite
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    Oliver1191 wrote: »
    Silvertabbly, I don't think you can compare the TP to all private sector workers - whilst that's the slant the government and media portray it, but it's very misleading.

    Several friends who work for the so called 'private sector' have very lucrative pensions combined with multiple other financial products (like free shares every month).

    You're right, it isn't a sensible comparison - their pensions aren't backed by the taxpayer. The TPS is a fantastic scheme. If you're jealous of the other benefits provided in the private sector, get a job in it.
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    ”
    'Your understanding'....'you think'...suggest you brush up on your knowledge of one of the best schemes in the country.

    I'm always happy to be corrected Brynsam :-)

    What specifically are you suggesting that I am incorrect with?

    Incidentally, i'm not suggesting that this isn't a good public sector pension when compared to other public pensions. I'm highlighting that this may not be the best investment option. I have said that it is an option to consider - most likely in combination with other investments that can be made.
  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    Wasn't it Freud who talked about pension envy....?!
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    You're right, it isn't a sensible comparison - their pensions aren't backed by the taxpayer. The TPS is a fantastic scheme. If you're jealous of the other benefits provided in the private sector, get a job in it.

    Thank you for your thoughts Dox.

    The point i'm making is that you cannot compare teaching to all 'private sector' jobs. There are jobs in the vague 'private sector' which offer better financial incentives and there are those that do not. Which specific job would you say that teaching is comparable to?

    Logically, if the TP scheme is so great, why don't you join it? There are plenty of jobs available as there is currently a teaching recruitment and retention crisis.
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    Wasn't it Freud who talked about pension envy....?!

    Sorry, not with you.
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