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Advice on opting out of TP to protect best 3 years

Discussion in 'Retirement' started by ulysees, Jul 22, 2019.

  1. ulysees

    ulysees New commenter

    I'm looking for some advice about this. Just spoke to Teachers' Pensions people and they have advised me to opt out for one month , say September 1st and then opt back in on October 1st. This break in contribution apparently protects my best three years and the higher inflation rate used to calculate my average salary for my pension.
    My best three years are 2009-2012 so if I don't do this now my average salary will go down. I am contemplating early retirement at 59 (next year) , so this seems like a no brainer, but I am wondering if anyone has done this and can verify that it is right?
    I am a bit nervous about the whole thing and there seem to be lots of wise voices on here.
  2. ulysees

    ulysees New commenter

    Forgot to also ask will opting out affect my status as a protected member of the final benefit scheme or will I have to opt in as part of the career average scheme?
  3. diddydave

    diddydave Established commenter

    It's going to be very tricky getting any definitive advice on this but I would suggest that you use the TP messaging service to get a written record of any guidance they have given you.

    As a protected member your calculations should be fairly straightforward, have you done the calculations to see what effect the extra year has on your final salary pension?

    You can ask TPS for your revalued salaries for the last 10 years and then it's easy to compare the 'n'/80ths of 2009-2012 against (n+1)/80ths of 2010-2013.
  4. diddydave

    diddydave Established commenter

  5. Dorsetdreams

    Dorsetdreams Occasional commenter

    Really? We need to know much more about this.
  6. ulysees

    ulysees New commenter

    Thanks diddydave
    I did manage to get the again and was told I’m protected in this scenario so it doesn’t affect my scheme I’m still on the final salary scheme . The only issue is if anything was to happen to me that month there would be no death in service grant! I’ll have to watch my step!
    Still not sure what to do , but I know that my highest salaries were during those years and I dropped a TLR at the end of 2012 so it looks like it’ll be better for me to do this. I’ll try and get it in writing but when I tried to message them it just didn’t work not sure why but will try again as that’s sound advice . Thanks again
  7. diddydave

    diddydave Established commenter

    We took out life insurance for the years between giving up work and claiming to cover that potential disaster!

    I'm not sure the extra 1/80th (or 11/12ths of an 80th) would be worth messing about opting out and in again so I'd probably just opt out and put the pension amounts into a private pension that I could cash in once I'd given up work. Might even delay taking the pension until April the next year to get the most out of the personal tax allowance.
  8. PeterQuint

    PeterQuint Lead commenter

    If you opt out for one month you'll be protected.

    For one month.

    Your best 3 years from the last 10, that's your last 120 months contributing.

    If you opt out, the clock stops ticking.

    When you opt back in again, it starts ticking again.
  9. paulstevenjones

    paulstevenjones New commenter

    I’m a little surprised that TPS are now giving such candid direction.
    catmother likes this.
  10. Dorsetdreams

    Dorsetdreams Occasional commenter

    That is what I thought: you have to be out for 5 years to freeze the final salary benefits. But if there really is a loophole, we need to know. Something similar was mentioned on this forum a while ago but I was too sceptical to comment. Yet @ulysees seems convinced.
    catmother likes this.
  11. letap

    letap Occasional commenter

    A colleague of mine was given the same advice by the TPS and Weslayan - however this was contradicted by a financial advisor.
    Still worth investigating - especially if you were on a higher salary early on in your career.
    Dorsetdreams likes this.
  12. diddydave

    diddydave Established commenter

    Yes, I think I recall something along those lines as well. There was the 'hypothetical' calculation but that gives no benefit as it only uses the service up to the break in service (so why would you pay in for another year!): https://www.teacherspensions.co.uk/...582ca2f&hash=D701B5E70943045034C9D5F424F5A8FC

    My advice (not an expert!) would be:
    1) Get in writing any assurance that seems to contradict what we've seen on the website. I've certainly not seen any way of locking in the 3-in-10 without either a 5-year break or taking the pension immediately (and then starting a career average pension)
    2) Work out what you'd get by opting out at the end of August 2019.
    3) Compare it to what you'd get at the end of August 2020
    4) If it is less just opt out to be sure.
    5) If it is more decide if it is worth the extra, bearing in mind that it is an index linked amount.

    Other things to consider:
    a) You could, with the agreement of your employer, take a 1-day break in service in September and claim your pension this year and then start a new career average pension. You'll probably not work long enough though (min 2 years) to qualify for any benefits.
    b) If you take the pension early, e.g. this September, I believe (and check this with an expert!!!) that you can still put big chunks (up to 100% of your earned income - max £40,000) into a private pension. There is a reduction in the amount you can put in IF you take money out of other types of pension but I believe the TPS one doesn't affect this. This may be a tax-efficient method as you'll have the lump sum to live off.
  13. ulysees

    ulysees New commenter

    Thanks for all your advice
    I am also not totally convinced despite @Dorsetdreams comment , so have taken your advice @diddydave and asked for clarification and verification in writing. I’m not going to do anything until I am sure of the benefits or not as the case may be.
    My original plan was to apply for early retirement for August 2020 anyway and if I’m right , something I think you said on another thread @diddydave was that , even if I lost one of the highest salaries in the highest inflation bracket they use to calculate the average salary used I’ll still have 2 years at that rate and I don’t think it’ll mean I lose too much.
    Dorsetdreams likes this.
  14. ulysees

    ulysees New commenter

    I’m not very good with working out the intricacies so I’ll need to get one of my relatives to help (brother in law is an accountant -hopefully he’ll help me make sense of the calculations you suggested above)
    Hope everyone is keeping cool today !
  15. diddydave

    diddydave Established commenter

    I'd say that's a very good idea...use your exact figures to work out the numbers in pounds and pence under both scenarios. I did go through a day-by-day calculation with my spreadsheet to see what the impact would be on different finishing and opting out days - in the end my wife was a few pounds better off staying in until she finished so that's what we did.

    Having thought about it a little more I would not be surprised to find that what you have been told is the 'hypothetical' calculation where it protects the 3-in-10 but doesn't credit you with the subsequent service.
  16. emerald52

    emerald52 Star commenter

    Remember that private pensions have no employer contributions and do not link to final salary.
  17. diddydave

    diddydave Established commenter

    Yes, but that's the same with the TPS final salary scheme, the contributions (yours and your employers) have NO link to the final pension - it's purely the years of service and the best 3-in-10 salary.

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