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Advice on pulling out of the teacher pension.

Discussion in 'Pay and conditions' started by f0xsplit, Jun 25, 2011.

  1. Both myself and my partner are both scale 4 teachers and are considering our options if the proposed pension changes come into affect.

    We would be paying around £200 each into the pension scheme which wouldnt pay out until we were 68, and be 17% less than it is now.

    We are considering pulling out of the scheme, paying the money (which would be £400 between us) off the mortgage a month. We would therefore pay the mortgage off more quickly, get a bigger house quicker which we would again pay a large amount per month off. We would then consider going part time during our early 60s, working 2-3 days a week, this would fund our spending.

    I am extremely concerned about scrimping and scraping during my 'golden time' of life (27-50 odd) when I should have money available to go on holidays, have children etc etc and for what? So when I retire at the age of 68 I will be too old to enjoy the money, end up spending it on a retirement home and being next door to someone who has been state funded to be there!

    I am going to seek some professional advice on the matter, but thought I would ask opinions of people on here. Sensible responses are much appreciated!
  2. I would have thought
    No pension payments + gettting larger house = paid off larger house + no money in retirement
    pension payments + smaller house = paid off smaller house (more or less) + money in retirement.
    Will you not need some income to live off in retirement? Even if it is going to be peanuts.
  3. Morninglover

    Morninglover Lead commenter

    Under your plan you will be b&ggered if house prices fall...
  4. If you end up paying £400 gross in pension contributions your net pay would decrease by around £220 if tax and NI allowances remain the same. Its still a lot but you need to consider all the benifts. Not all 68 year olds are in retirement homes. For those who are not there is a big difference between those that live on the £100 a week state pension and others who have an additional pension.
    There are also benifits that would be paid to your partner and children if anything happened to you.
  5. phlogiston

    phlogiston Star commenter

    My parents very much enjoy living off their pensions - they phoned me earlier this evening having arrived safely on holiday. Father is 78.
    I am very glad that I paid into my pension when younger. At the moment it also has some fairly useful life insurance benefits (Death in service ). I have never met a retired teacher (or anyone else) who wishes they had saved less.
    I also had no choice about scrimping and saving in my "golden time". It's what everyone on the planet has to do (except a tiny minority like Prince William and David Cameron). Compared to many on this planet we are enormously wealthy.
    Trading down houses for living money is bad because when you trade down, the solicitors, estate agents, taxmen et al will get their hands into much of the profit, and you may well find that what is left will not fund many years retirement.
    Houses are probably overvalued at the moment - we may well either have a hefty dose of inflation or a long term property slump.
    I feel an enormous rage that our sociiety is loading massive debts upon younger adults through student loans, stupid house prices, tuition fees and the like, but your pension is not something you should contemplate swapping for a few hours on the beach.
  6. Crowbob

    Crowbob Established commenter

    And what happens if one of you needs residential care? You will soon find your lovely big house disappearing...
  7. jubilee

    jubilee Star commenter

    Paying into the pension means that youm pay less tax as tax is levied on the amount left over after the pension payments have been deducted.
    Paying into the pension menas paying the reduced, contracted-out National Insurance. If you opt out of the pension your NI rate will increase by 1.6% on all pay over about £500 per month.
    Personally I'd rather pay a higher contribution to a pension that will support me in retirement than pay more in NI and more tax, even though take-home pay will obviously still be less when contributing to a pension.
    Your joint £400 per month in to the pension would not leave you with £400 more in take-home pay if you opted out as you'd be taxed at your higest income tax rates on the money and would pay the extra 1.6% NI on more than just the pension payment amount. Expect around another £66 in pay deductions each per month (if your highest rate of tax is 20%), so around £134 more in take-home pay each. For anyomne paying 40% tax, the pay deductions would increase.
  8. hmmm thanks for the replies. We are going to sit tight at the moment anyway and see what happens. Interesting that most people who don't have pensions are along the lines of 'just pull out' and people who do have pensions say to stay in it.

    The good thing about the pension being a career average is that in the final couple of years I could reduce hours and it wouldnt have as big an impact as if it was a final years one like before.
  9. Morninglover

    Morninglover Lead commenter

    And if all teachers are going to carry on until 65+ many may want/need to do this. Also the career average is better for those (usually women) who take a career break...
  10. With all due respect to the good souls on here, why not get in touch with a specialist teacher pension advisor such as Wesleyan Assurance - they are salaried so offer good advice because they are professionals. While you consider that - what would you do to cover the 14% employer contribution if you opt out?
  11. jubilee

    jubilee Star commenter

    It's not better for women to have their pension calculated on a a career average rather than on a final salary basis. They will still be on a higher pay point at the end of their careers and their (generally) fewer pension years are currently calculated on that higher final pay point.

  12. PaulDG

    PaulDG Occasional commenter

    The pension could pay out before that. The 68 normal retirement means it won't pay out the full value until 68.
    But any alternative scheme is very, very unlikely to beat even the worst likely re-adjusted TPS. At the moment, there's a notional 14% "contribution" from the employer which you simply won't get if you pull out.
    So sure, retire at 60 under the new TPS and you'll get less than you would if the changes don't happen.
    But if you pull out of the scheme, you'll get a lot less whenever you retire.
  13. My advice would be to do nothing till interest rates start to go up - when they do it will be very fast.
    The teacher's pension, even if the changes go through, will be better than anything available in the private sector - for every £1 you put in the government puts in £2.5 and tax is defered. This is very hard to beat anywhere else in the long term.
    House price will steady or continue to drift down - people have no money, banks are not leading without significant downpayments, and there will be less people entering this country over the next 3-4 years. In terms of borrowing money, then the cheapest offer is always a mortgage - although you might want to switch your mortgage into a small local BS, as long term these are always the best.
    If the interest rate hike is killing drop out of LPS to keep your home, you can re-enter again normally - there is a danger the government will completely switch off PSP.
    If you do drop out of teacher's pension whatever you do, do not spend this money, dump it in a ISA - or into a fund for your children. At some point over the next 3-4 years interest rates will go up, and you will need spare cash/liquidity to handle that situation.
    Lastly, don't be fooled into thinking - hit 60+ and into my dottage etc - there is a reason why people are living longer .... oh and whatever you do, don't lose your job!

  14. "With all due respect to the good souls on here, why not get in touch with a specialist teacher pension advisor such as Wesleyan Assurance?"

    Because they haven't got a crystal ball and they can't advise you on what will happen in the future because they don't know.
    There are lots of people on TES saying that the Teachers Pension Scheme is a great deal and you shouldn't leave it. The problem with this advice is that it is based on historical data. It doesn't look forward. If we look at the Police and Fire Service schemes we could be looking at contributions approaching 15% within a few years. There is nothing to say that it won't go even higher. If we look at government proposals for retirement, they are already talking about 68. There is nothing to say that it won't go even higher.
    People should be wary about recommending the TPS to others when both the contributions and the payouts are in a state of rapid flux.
  15. PaulDG

    PaulDG Occasional commenter

    No, it's based on the fact that, currently, the employer is making a notional contribution of around 14% or more.
    Being out of work for a very long time (which is what retirement is) is expensive to save for and you're right, it's virtually certain that member contributions will go up further in the future.
    That doesn't matter. What matters is that employer contribution.
    With or without that contribution, you need to save for your retirement.
    Without it, you're going to need to put a lot more of your income into savings than you do now.
    People should be wary of walking away from a scheme that provides "free money".
  16. Informant

    Informant New commenter

    "Paying into the pension means paying the reduced, contracted-out
    National Insurance. If you opt out of the pension your NI rate will
    increase by 1.6% on all pay over about £500 per month."

    This is correct at present, but I believe we 're all in for the 1.6% increase from April 2012 (something to do with the second state pension being superseded by a higher basic state pension for everyone in a few years time). Members of contracted out pension schemes get ready for another stealth tax.
  17. "People should be wary of walking away from a scheme that provides "free money"."
    The people who are currently collecting their pensions paid into those pensions throughout their working lives. They aren't getting "free money." They are just getting what was agreed and what they worked for. You cannot assume that you will get the same deal. A figure for contributions was agreed only a few months ago and it is now being changed. You can have no way of knowing that it will not change again and change again. What looks like a good deal today could rapidly look less attractive and, once you have paid money into it you cannot get at that money until (and unless) you reach retirement age; whatever that might be by the time you get there. Life isn't all about saving for a pension and the country is awash with people who paid into private pensions and didn't get back a fraction of the money they were promised.
    "No, it's based on the fact that, currently, the employer is making a notional contribution of around 14% or more. "
    And do you seriously think they are going to carry on doing this? The agenda here is that the employee is going to be expected to fund the full cost of their pension. Employee contributions are being increased so that employer contributions can be reduced. The only way I see this going is that employee contributions will go up and up, employer contributions will reduce to zero and payouts will be reduced to allow the money-men to continue driving around in Ferraris.

  18. jubilee

    jubilee Star commenter

    You're mixing up the TPS non-invested pension with the private pension pots rune by money-men. There are no money-men in the TPS scheme as the money deducted from salary is not used for <strike>bets </strike>investments on the Stock Market.
  19. Middlemarch

    Middlemarch Star commenter

    Yes, you were definitely misinformed. It does pay to get advice from experts, rather than someone in the staffroom or down the pub.

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