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Advice needed - early retirement

Discussion in 'Retirement' started by MGFGIRL, May 13, 2020.

  1. MGFGIRL

    MGFGIRL New commenter

    Hi I really need some advice,
    Summary of my situation...
    I started teaching full time in September 1988, no break in service until I left the profession in February 2015. So I have just over 26 years on my employment record. ( which I discovered was wrong, but I’ve been promised it is being updated)
    I moved to France in 2015 and although I have been teaching here, obviously nothing has been added to my contributions.
    I am 55 in February and I am considering taking early retirement. Please please can someone explain my options. I guess I could contact someone for advice professionally but even with that I don’t know who....
    Many thanks
     
  2. Yoda-

    Yoda- Lead commenter

    You need to phone Teacher Pensions or at least register on their website.

    You can get them to give you an estimate of your pension if you were to take it on a certain date.

    The first question I would ask would be as to whether your pension is all under the original 1/80th scheme. 2015. I believe was when career average pensions were introduced.

    Be very careful about rejoining the teacher scheme if you planned to teach again as you would have had a break of service and your pension may be changed from the 1/80th Scheme to the career average. You would need to check this with Teacher Pensions.

    I wish you well. Do your research into retirement and what you need to finance it. Don't forget your pension will be taxed as income.

    I hope this is of some help you will need to check all of it as I take no responsibility for its accuracy and I am not a financial advisor. I did take my pension early.
     
  3. diddydave

    diddydave Established commenter

    Bear in mind I am not an adviser, just a teacher in a similar position - though I stopped teaching in 2017 not 2015 - and so my comments are opinions only.

    You left in Feb 2015. That is before the change to the career average was made so all of your service is in the final salary scheme. You cannot lose this or change it to the career average scheme (not that you would want to anyway). If you were to teach again in the UK your new service, because you have had a 5-year break, would now be in the new career average scheme. This does not affect your final salary benefits...but there is a good chance you wouldn't increase your pension anyway because of the way the scheme works.

    To get your details register and login to the teachers pensions website: teacherpensions.co.uk - your 'benefit statement' will show you what your pension is worth at the moment. It will be up to date - but if you have missing service it will be missing from this as well. That can ONLY be rectified by your employer so you will need to get them to fix that. Any missing service will be shown on the statement as a 'break'.

    In the UK most teaching unions have guidance on who to get advice from. Wesleyan were linked with some and their advice to me was free - they also didn't try to push their products so they would probably be a good bet.

    However, there isn't that much to it and as you are not teaching in the UK at the moment the statement will have most of what you need. To work out how much your missing 'years' are worth the easiest way is to work out what proportion they represent of the years they think you have. So if you have 2 years missing and they have used 26 years then divide the pension by 26 and multiply it by 28 (26+2) to see what it should really be.

    As for taking it early the reduction factors are on the website, but I have put them in a spreadsheet here if you want to take a look: https://docs.google.com/spreadsheets/d/1MmQ1h1AwCoC5IggRdVai4L0aBu5j0subZHCkVe3JNOw/edit?usp=sharing
    If you take it at 55 you get 81.1% of it, but because you are paid for 5 more years you are better off until you reach 78/79...and then you become worse off.
     
    Yoda- likes this.
  4. tonyuk

    tonyuk Occasional commenter

    I am trying to figure the worse off bit. Is this because you are taking the money now? How does the 78/79 work out I dont get it....sorry being very stupid probably.
     
  5. diddydave

    diddydave Established commenter

    No problem, it's a bit like the proverb that "a bird in the hand is worth two in the bush".

    I'll give a concrete example.

    Suppose your 'full' pension at 60 would be £10,000 per year.

    But you take it at 55, so instead of £10,000 you get £8110 per year.
    This means that when you reach 56 you have had £8110. So you are that much better off than not having had it.
    At 57 you've received two lots of £8110, so you are £16,220 better off than if you hadn't taken it at 55.

    and so on until you reach your 60th birthday.

    So on your 60th birthday you have had 5 lots of £8110, a total of £40,550. That is how much 'better off' you are at that point...

    and that is the 'most' you will be better off because from now on, if instead of taking it at 55 you had waited until 60, you would be getting £10,000 rather than £8110. So each year after 60 you are losing £1890 from the 'better off' total. £40,550 divided by £1890 tells you how many years it will take to 'use up' the benefit and that is 21.45 years.

    However, there is also the lump sum to consider and because this is 3 times the pension the difference in taking it at 60 is equivalent to 3 of those years, so in effect it takes 18.45 years to catch up...so 18.45 years after you reach 60 (i.e. you are 78/79) then you have used up all of the benefit of taking the pension early and from that point on as each year goes by you start to be 'worse off'.

    Hope that helps but if not ask again and I'll try again ;)
     
    Yoda- and baitranger like this.
  6. tonyuk

    tonyuk Occasional commenter

    Great perfect that helps. I'm guessing that if I did the take the pension and start work again one day later "trick" this would still apply (obviously minus the tax) as you are drawing down the pension early.
     
  7. diddydave

    diddydave Established commenter

    Yes. The tax thing is interesting as once your pension goes above the tax allowance for the year then the amounts being considered are reduced by 20% so it can change the years it take to catch up.

    For instance if your pension @55 is exactly on the tax allowance for this year of £12,500 then no tax is paid but, so long as the tax structure was the same 5 years later, the 'extra' you'd get on the pension would be reduced by 20% due to it being taxed.

    So using the previous figures (ignore the fact that they are both below the tax limit for the moment) then the £1890 extra you'd get @60 would be, after tax, £1512.
    That would then mean that £40,550 would be divided by £1512 and not £1890, giving 26.8 years.
    Less the 3 for the lump sum would mean you would be 83.8 before you started being 'worse off'.
     
  8. diddydave

    diddydave Established commenter

    But of course if the £40,550 was on top of other income and was itself all taxed at 20% you are back to the previous figures of 18.45 years to draw level...
     
  9. tonyuk

    tonyuk Occasional commenter

    Thanks for that. I would suspect that with pension and work I would be in the higher tax bracket but even so I would assume it is better to go earlier and get more of the pension as at 60 I would go and not get taxed!
     
  10. Luvsskiing

    Luvsskiing Established commenter

    The money calculations are important and dd's explanations are excellent, but I'm sure you have worked out that it's also about quality of life. It's been quite shocking seeing my parents decline over the last five years. Up to about 70, they were fine, active, took holidays, visited friends and travelled. Now one is bedridden, incontinent, confused and depressed and the other is away with the fairies. Both need help with absolutely everything.

    You've worked hard all your life and have built up a pension, savings and a house. Make sure you allow some time to enjoy it all :). There is (or was) a wonderful life beyond teaching .....
     
    Prim, brook123lyn and eljefeb90 like this.
  11. baitranger

    baitranger Senior commenter

    These are interesting calculations, but perhaps they miss the key question, which is whether OP can actually manage on the reduced pension or whether he needs to work until he's older in order to have a pension that will enable him to pay his bills and buy food.
     
  12. diddydave

    diddydave Established commenter

    One thing that can be considered if you are pushed into the higher (40%) tax bracket is whether you will be in that bracket once you retire. If not then you might want to look at ways to move the income from those years where it would be taxed at 40% to the retirement years where it could be taxed at a lower rate. This does depend on being able to see into the future to some extent so there are no guarantees!

    For instance, if this year you had £10,000 in the 40% bracket then you'd get £6000 to take home in your pay packet and the Government would take £4000.

    If instead you put that £10,000 into a pension (private or AVC etc) then when you retire so long as your income is £10,000 below the higher tax bracket you could take it all out and you get 25% of it tax-free and pay only 20% on the rest...so £2500 tax-free and you pay £1500 tax on the £7500, meaning that you would 'take-home' £8,500...that's significantly more than the £6000 you would have got by not putting it into a pension.
     
  13. diddydave

    diddydave Established commenter

    Very good point...and reminds me that I did put up a web page of such considerations here : https://edividers.co.uk/contemplating-retirement-my-path-and-other-notes
     
    HannahD16 likes this.
  14. a_venkatesh

    a_venkatesh New commenter

    Very much agree, having seen may parents in decline recently. Very little value in having lots of income or assets when you can't leave your chair. If you do have savings, they will be used up by care costs. Planning to spend it while I can spend it on enjoyable things.
     
    Prim, brook123lyn and wayside34 like this.
  15. heldon

    heldon Occasional commenter

    One life, live it!
    Now I am away from the chalkface, I realise now how coiled up I was. Life is now much better!
     
    Prim and brook123lyn like this.
  16. fairhurstn

    fairhurstn New commenter

    Hello I wonder if you could help with filling in the retirement form. I am a deferred member re the teacher's pension scheme. I opted out of the scheme 30/09/15. I spoke to teachers pension about the following question:-
    Your last day of pensionable service. I was told to put in 31/08/2020. I would have thought it was the same as above i.e. 30/09/15. Can anyone help?
    Second question. I have been on a 0.6 contract for many years. Can I return to the 0.6 contract with a day's break in service, subject to managements agreement?
    Regards
    Neil
     
  17. diddydave

    diddydave Established commenter

    I'd say go with what TPS have told you - they should know what they are doing.
    My understanding (and I am not an expert) is that 'pensionable service' does not mean that you are in the TP scheme but that you are in a job that *could* be in the scheme. I also believe that, unless you have reached your NPA, you cannot take your pension whilst in a job that could be in the scheme - so you do need a break in contracts to coincide with the day you take your pension.
     
  18. pauljoecoe

    pauljoecoe New commenter

    Interesting point - relates to a post I have just put up. I was just in the middle of my application and got confused by this one. I went for 31/08/17 as that was the last time I worked in the UK and was paying into the TPS. I wouldn't class teaching abroad as 'could be in the scheme'.

    The form says this: Please enter your last day of pensionable service before your retirement. This will be the last day you are paid up to in pensionable employment and may be different to the last day you attend work.

    Any thoughts?
     
  19. wayside34

    wayside34 New commenter

    I would have done the same 31/08/2017.I retired 18 months ago at NPA I put my NPA as last day as I was a supply teacher doing very little work ( which was fine ) I was in service but not contributing to the scheme as I was protecting my last 10 years full time. I had a hypothetical calculation which went well for me.
     
  20. diddydave

    diddydave Established commenter

    I don't think there will be any issue as I would say that this is just a way for them to check they have included all the relevant data...primarily aimed at those who are claiming benefits in the month(s) immediately after finishing work, typically where someone finishes in July but won't 'retire' until September, so that they do not miss out that final August contribution.
     

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