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  • FIRST POST
    • mcoliver88
    • By mcoliver88 14th Apr 18, 8:12 PM
    • 7Posts
    • 0Thanks
    mcoliver88
    HELP, I dont understand Pensions
    • #1
    • 14th Apr 18, 8:12 PM
    HELP, I dont understand Pensions 14th Apr 18 at 8:12 PM
    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.
Page 2
    • hyubh
    • By hyubh 15th Apr 18, 12:53 AM
    • 2,222 Posts
    • 1,710 Thanks
    hyubh
    Is it misleading to compare the private sector and teaching in this way, though? You might be working for a company that offers several other financial products and get a generous employer-matched contribution + 40% tax relief.
    Originally posted by Oliver1191
    'Employer-matched' DC is not at all 'generous' compared to TPS DB - even on its own terms (which systematically underplay the true cost of the pension promised earned), the employer contribution is far higher than the employee, not merely matched. Moreover, '40% tax relief' is irrelevant, because that isn't in the gift of the employer - if a teacher is a higher rate taxpayer, then then they too will benefit from 40% tax relief

    When considering whether or not the TP is a good investment, surely it needs to be evaluated in terms of your goal that you are trying to achieve relative to the risk and opportunity cost that you are willing to undertake.
    Are you seriously suggesting it is reasonable for a teacher to opt out of the TPS...? If you are, care to elucidate an example scenario where it made sense...?

    It concerns me sometimes on threads like these that they become highly emotionally charged, with people basing decisions on their strongly held emotion, rather than a well-reasoned view. Equally, on some threads, views are dismissed, rather than debated. If a well reasoned argument can be made, we should be prepared to change our views accordingly.
    Go on then...
    • Dox
    • By Dox 15th Apr 18, 1:09 AM
    • 861 Posts
    • 650 Thanks
    Dox
    Indeed. Also, that it depends on your investment goal. If your goal is financial independence, then there may be better ways to do that. If you want security, then the TP could be a good option. If you need to buy a house, then the TP isn't of much use.
    Originally posted by Oliver1191
    OK, you've bought the house...what are you going to live on in old age? Are you in the hopelessly out of touch minority who believe downsizing will provide both home and income. I can only hope you are better informed about whatever subject it is you teach.
    • msallen
    • By msallen 15th Apr 18, 1:19 AM
    • 865 Posts
    • 959 Thanks
    msallen
    Please Oliver1191, have the courage of your convictions and opt out now. I and every other tax payer will owe you a debt of gratitude (rather than a pension).
    • Dox
    • By Dox 15th Apr 18, 1:51 AM
    • 861 Posts
    • 650 Thanks
    Dox
    Hi,
    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.
    Originally posted by mcoliver88
    Getting back to the original question...could you tell us which bit of your benefit statement has caused the confusion? Perhaps we could focus on trying to answer your question rather than getting sidetracked.
    • Oliver1191
    • By Oliver1191 15th Apr 18, 8:36 AM
    • 53 Posts
    • 15 Thanks
    Oliver1191
    I refer you to post #1 where you wrote the thread title 'HELP, I dont understand Pensions'.
    Thank you McDavid. I didn't write the OP.

    'Employer-matched' DC is not at all 'generous' compared to TPS DB - even on its own terms (which systematically underplay the true cost of the pension promised earned), the employer contribution is far higher than the employee, not merely matched. Moreover, '40% tax relief' is irrelevant, because that isn't in the gift of the employer - if a teacher is a higher rate taxpayer, then then they too will benefit from 40% tax relief
    Thank you hyubh. As mentioned on an earlier post, it's not helpful to compare the financial benefits of different jobs when evaluating whether or not the TP is a good investment option for you. I gave the example of CGI, where they offer other financial incentives in addition to a pension. I think some of the posters are right when they say this 'sidetracks' us.

    It is possible for teachers to achieve the 40% tax rate. More so in London. However, this is rare - the majority of teachers I've worked with are usually between M1 and M6, with most somewhere in the middle. Around 40% of teachers leave the profession within 5 years, so by default they wont achieve the higher rates of pay. A lot of teachers struggle financially (though not all).

    Are you seriously suggesting it is reasonable for a teacher to opt out of the TPS...? If you are, care to elucidate an example scenario where it made sense...?
    I think it very much depends on your circumstances and your goal. In my case, I am currently choosing to stay in the scheme (I may even buy additional pension benefit) as I want to achieve a specific income goal. Once I achieve this, I will re-evaluate. This gives me a sense of security. It wont necessarily remain the best financial option as my goals will likely change over time.

    Until recently, I was working with an Assistant Headteacher who had been advised to leave the scheme and invest elsewhere. She had already built considerable assets (e.g. a house in London worth 600k, existing pensions and her husband's assets). She wanted other financial assets as she had no intention of working until 68. To be fair, i've yet to meet a colleague who does.

    On the other hand, about 4 years ago I was working with a young teacher who was choosing not to pay into the scheme as she was saving to buy a house with her partner. She was low on the M scale, so I felt that she should stay in. She wasn't really interested in investing - for people who aren't the TP is a good safety net so you don't have to worry. However, she felt that it was more in her interests to come out - she pointed out that if she didn't own a home, a pension of the value she would accrue would essentially be worthless (because it wouldn't come close to covering her living costs).

    OK, you've bought the house...what are you going to live on in old age? Are you in the hopelessly out of touch minority who believe downsizing will provide both home and income. I can only hope you are better informed about whatever subject it is you teach.
    Thank you Dox (if a little harsh ;-).

    I don't know the wealth that the OP has - I suppose this might change their view of the TP.

    Please Oliver1191, have the courage of your convictions and opt out now. I and every other tax payer will owe you a debt of gratitude (rather than a pension).
    Thank you msallen. As I said, my goal is to achieve a specified income, so for now I am choosing to stay in the TP. This may change in the future.

    I know that most posters on this thread are strongly in favour of the TP. Although I've offered a different opinion, I am not strongly against it. I am very much in the middle.

    The TP is an investment option. There are several benefits that come with it (we haven't mentioned the in service death-grant, for example). Whether or not it's a good investment option depends on your goals and attitude to risk. If you're not 'in' to investing, then the TP is a safe bet that provides a degree of security for some people.
    • Nebulous2
    • By Nebulous2 15th Apr 18, 8:51 AM
    • 1,968 Posts
    • 1,186 Thanks
    Nebulous2
    The TP is an investment option. There are several benefits that come with it (we haven't mentioned the in service death-grant, for example). Whether or not it's a good investment option depends on your goals and attitude to risk. If you're not 'in' to investing, then the TP is a safe bet that provides a degree of security for some people.
    Originally posted by Oliver1191
    Death in service, dependents pension, ill-health pension, guaranteed pension with CPI rises all for 9.6% gross for the OP. 17% employers contribution to the fund in my local authority area. Pension can be taken from 60 with an actuarial reduction or from 55 with employers consent.

    It isn't an either or option. Anyone who is not in a defined benefits scheme needs to be saving a fair bit more than 10% gross to come anywhere close to the benefits. If you want more than it offers pay more.

    Regard the TP as a foundation "file and forget" and build any additional investment on top; AVCs, ISA's, property or shares with the aim to build capital or additional funds for retirement.

    Opting out at any point for 99% of people is likely to be the biggest financial mistake they ever make.
    • jim8888
    • By jim8888 15th Apr 18, 9:35 AM
    • 52 Posts
    • 40 Thanks
    jim8888
    Hi Oliver1191
    I hope you get the answers and information you're looking for. I've had some fantastic advice from these boards over the years, and it annoys me when I see people trying to make facetious comments or observations when all you're doing is asking for some simple guidance. Keep posting, and ignore all the time wasters trying to show how smart they are. Good luck.
    • Oliver1191
    • By Oliver1191 15th Apr 18, 9:49 AM
    • 53 Posts
    • 15 Thanks
    Oliver1191
    Regard the TP as a foundation "file and forget" and build any additional investment on top; AVCs, ISA's, property or shares with the aim to build capital or additional funds for retirement.
    I agree with you Nebulous2, it is a good option. It's the one I am currently pursuing. I'm lucky, though, as i've been in leadership for a long time so have more ability to invest.

    Whether it's right for everyone is harder to say. Although it is made to sound a 'dream' option, for teachers the situation is more complex on the ground. It really depends on each individual's circumstances, their goals, and their attitude to risk.

    It was a mistake to raise the pension age to 68. It's rare for me to encounter colleagues who are older than 50 (other than those in senior positions). Where teachers are of this age, I have known several over the years who are genuenly really struggling to keep up. Teaching often involves an exceptionally high work-load and high level of stress. When I do meet colleagues in this situation, they appear to do themselves such harm just to try an keep going. All colleagues really should be able to pull their full pension from 55.

    It isn't an either or option.
    On this bit i'm not convinced. You might take a break from paying the TP and re-enter the scheme. You might want to do this if you have another goal that you would like to achieve.
    • PeacefulWaters
    • By PeacefulWaters 15th Apr 18, 9:56 AM
    • 8,318 Posts
    • 10,667 Thanks
    PeacefulWaters
    On the simple subject of pension provision, show me a large employer that provides a private sector pension as good as the TPS.
    • JoeCrystal
    • By JoeCrystal 15th Apr 18, 10:21 AM
    • 1,413 Posts
    • 874 Thanks
    JoeCrystal
    On the simple subject of pension provision, show me a large employer that provides a private sector pension as good as the TPS.
    Originally posted by PeacefulWaters
    And rather, still available to new employees as a better comparison.
    Last edited by JoeCrystal; 15-04-2018 at 11:10 AM.
    • NoMore
    • By NoMore 15th Apr 18, 11:15 AM
    • 219 Posts
    • 193 Thanks
    NoMore
    I feel sorry for the OP - mcoliver88 - he just wanted to understand his pension and has now been totally derailed by Oliver1191 responding about whether its worth it to stay in the TPS.

    Unfortunately that's not what the OP asked and at this stage is probably an unhelpful discussion as the OP doesn't even understand his current pension before he can evaluate whether he should leave (which he hasn't mentioned he's considering btw) and the OP is probably more confused now than he was when he started the thread.
    • hyubh
    • By hyubh 15th Apr 18, 11:20 AM
    • 2,222 Posts
    • 1,710 Thanks
    hyubh
    As mentioned on an earlier post, it's not helpful to compare the financial benefits of different jobs when evaluating whether or not the TP is a good investment option for you.
    Originally posted by Oliver1191
    Talking of the TPS as an 'investment option' is very poor use of language. Opting out will make no sense at all for the vast majority because the employer contribution (+ value of the government guarantee) will be straightforwardly lost (as well as the tax relief of course).

    I gave the example of CGI
    A rather random one it seems - the list of vacancies shown isn't for anything like teaching.

    where they offer other financial incentives in addition to a pension
    What, like the share purchase and profit participation plans highlighted at the link you gave...? Clearly irrelevant when discussing teachers.

    It is possible for teachers to achieve the 40% tax rate. More so in London. However, this is rare - the majority of teachers I've worked with are usually between M1 and M6
    You missed the point - the fact some people get 40% tax relief on pension contributions has nothing to do with the pension option given by their employer, it's to do with tax rates set by government for everyone regardless of occupation.

    Around 40% of teachers leave the profession within 5 years, so by default they wont achieve the higher rates of pay. A lot of teachers struggle financially (though not all).
    Again mostly irrelevant for assessing the value of TPS membership.

    Until recently, I was working with an Assistant Headteacher who had been advised to leave the scheme and invest elsewhere.
    By whom?

    She wanted other financial assets as she had no intention of working until 68. To be fair, i've yet to meet a colleague who does.
    Again, irrelevant to a decision to opt out.

    On the other hand, about 4 years ago I was working with a young teacher who was choosing not to pay into the scheme as she was saving to buy a house with her partner.
    Unfortunate.

    She was low on the M scale, so I felt that she should stay in. She wasn't really interested in investing - for people who aren't the TP is a good safety net so you don't have to worry.
    Again, your reasoning ignores the value of the government contribution and guarantee. Being 'interested in investing' and open to investment risk wouldn't justify opting out.

    a pension of the value she would accrue would essentially be worthless (because it wouldn't come close to covering her living costs).
    Hardly an original thought, but hopefully she's not a maths teacher...

    I know that most posters on this thread are strongly in favour of the TP. Although I've offered a different opinion, I am not strongly against it. I am very much in the middle.
    I'd stop digging if I were you... The fact you initially thought a private sector employer offering 'matched contributions' was better than (or at least as good as) the TPS does suggest you don't have the handle on things you think you have.
    • Dox
    • By Dox 15th Apr 18, 11:58 AM
    • 861 Posts
    • 650 Thanks
    Dox
    I feel sorry for the OP - mcoliver88 - he just wanted to understand his pension and has now been totally derailed by Oliver1191 responding about whether its worth it to stay in the TPS.

    Unfortunately that's not what the OP asked and at this stage is probably an unhelpful discussion as the OP doesn't even understand his current pension before he can evaluate whether he should leave (which he hasn't mentioned he's considering btw) and the OP is probably more confused now than he was when he started the thread.
    Originally posted by NoMore
    Quite - hence my post above asking OP to tell us what was confusing so that the actual question asked might get a relevant answer. OP, if you haven't lost heart, come back and ask!

    Alternatively, contact TPAS for free, impartial help - confused and bemused members of the public are exactly who they are best placed to help. http://pensionsadvisoryservice.org.uk
    • Oliver1191
    • By Oliver1191 15th Apr 18, 12:28 PM
    • 53 Posts
    • 15 Thanks
    Oliver1191
    I feel sorry for the OP - mcoliver88 - he just wanted to understand his pension and has now been totally derailed by Oliver1191 responding about whether its worth it to stay in the TPS.
    Firstly, I would like to apologise to mcoliver88 if the poster feels in this way. This was not my intent.

    I hope that when mcoliver88 reads the full thread, the OP will see that I've tried to offer my opinion respectfully. I've also responded to others' thoughts on my position respectfully. Thank you to Jim8888 who said that
    ...it annoys me when I see people trying to make facetious comments or observations...
    . It appears to me that rather than seek learning opportunities so that we can all improve our financial position, some people do not want to hear alternative views.

    So, let me give some links for them OP to pursue so that they can better their position.

    This is the NUT's page detailing some information on the TP and is useful:
    https://www.teachers.org.uk/pay-pensions-conditions/pensions

    This is the Teachers' Pension link - there is tons of info on here, so it's well worth exploring it: https://www.teacherspensions.co.uk/members/member-hub.aspx

    Hyubh, I would like to respond to some of your points. However as it is encouraging people to either be disrespectful or repeat comments (because they haven't read the full thread), I will leave it for another day.

    Hope you all enjoy the rest of the weekend.
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