Worth doing?
Happymonday
Posts: 30 Forumite
My wife is a part-time teacher and opted out of her DB scheme last November because she plans to retire in the next 12-24 months and the teachers scheme DB's are based on the last 10 years of contributions. Continuing in a part time capacity would have eroded her DB's. She is only working 3 days a week and her salary is £24k. I have suggested to her that by putting 5% away in a separate scheme would still be worthwhile as it would still help to reduce her tax. However, if she is just working for the next 12-24 months is this really worthwhile due to any charges associated with setting up a new scheme? Advice appreciated.
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She could start paying into a SIPP and get the tax relief and be able to withdraw it starting at 55 if she wishes to. There are plenty of threads on this forum about doing this and benefiting immediately from the tax relief added by HMRC.
It seems to me a strange DB scheme if she gets a higher pension from stopping paying into the scheme when she goes part-time.0 -
In a number of schemes a number of years ago, if you earned say £25k a year for a 5 day week and you went down to 3 days. The scheme after a year or three considered your salary now £15k a year and the pension you received after that period was based on the £15k earnings.
These days a lot of schemes still consider you earn a full time salary of £25k a year but you only get 60% of a years pension allocated for the years you are working 3 days a week. This to me is a better result.
You would have to check again with the pension administrator exactly what happens and not listen to anyone else.0 -
Happymonday wrote: »My wife is a part-time teacher and opted out of her DB scheme last November because she plans to retire in the next 12-24 months and the teachers scheme DB's are based on the last 10 years of contributions. Continuing in a part time capacity would have eroded her DB's. She is only working 3 days a week and her salary is £24k. I have suggested to her that by putting 5% away in a separate scheme would still be worthwhile as it would still help to reduce her tax. However, if she is just working for the next 12-24 months is this really worthwhile due to any charges associated with setting up a new scheme? Advice appreciated.
There are many SIPPs with no setup charges. Have you investigated or were you guessing there were setup charges?
So yes its definitely worth contributing. Also, if she retires before she gets SP or employers pension she could then withdraw the 25% tax addition she get on her contributions without paying any tax on it.
So why only 5%? Why not 50%?
And even if not employed (once she does retire) she can still pay in £2880 and get it bumped up to £3600. As can you.0 -
The Teachers' Pension glossary says:
So the part-time status appears to be irrelevant.Final Average Salary
The salary used to calculate a member’s final salary pension benefits based on the most beneficial of the following; either the last 365 days salary or the best 3 years’ salary over the previous 10 years plus any applicable inflation. If a member has part-time employment, their full time equivalent salary will always be used in the calculation.
As long as the best 3 years' salary over the previous 10 years aren't about to drop out of the calculation (ie they were something like 2008, 2009 and 2010) then it would seem she could be in the scheme without affecting the final pay figure used to calculate the pension.0 -
Opt back in again as soon as she can!0
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Also there are personal and stakeholder pensions , which are simpler than SIPPs for an inexperienced investor . Also with no set up charges .There are many SIPPs with no setup charges0 -
Happymonday wrote: »My wife is a part-time teacher and opted out of her DB scheme last November because she plans to retire in the next 12-24 months and the teachers scheme DB's are based on the last 10 years of contributions. Continuing in a part time capacity would have eroded her DB's. She is only working 3 days a week and her salary is £24k.
I'm afraid that this was a very bad decision as that's not how the TPS works. Salary for pension purposes is always based on the full-time equivalent.
Even if it were true it's unlikely to have made any difference as it's either based on final salary or the average of the best 3 years in the last 10 years adjusted for inflation. When I retired almost 5 years ago, my final salary was not the best one to use for calculation purposes.
Your wife should opt back in ASAP. Let's hope she can rejoin her original scheme ( assuming she has protection) and will not have to go onto the CARE scheme with the higher NRA.0 -
Many thanks- and yes I was guessing!0
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drumtochty wrote: »
You would have to check again with the pension administrator exactly what happens and not listen to anyone else.
Perfectly easy to check on the scheme's website - and what OP says is accurate.
What you say is also accurate. It used to be how the TPS operates, but that is no longer the case.0 -
Should have spoken to the TPS prior to making this decision which is, in my opinion, the wrong one. My comments are based on being part of the TPS for over 30 years.0
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