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Buying additional pension...

Discussion in 'Retirement' started by richest1, Nov 24, 2018.

  1. richest1

    richest1 Occasional commenter

    Is it still worth buying additional pension from the TP scheme, blocks of £250 it says, when i retire in the summer of 2019 aged 60 on a final salary system?

    I am already buying back 6 added years by the old system, from 2002. I have 35 years of teaching in the service.
    I realise that the new option is not as good as the old one. So what I was wondering is there any financial benefit in doing this as opposed to just saving for the next few months?

    I intend to take my maximum lump sum next summer to gain the tax free benefits.
  2. catmother

    catmother Star commenter

    Can you do both? Still be buying years in the old system and buy into the new one too? I assume you're a protected member and your whole pension is in the old system?
  3. richest1

    richest1 Occasional commenter

    Yes the pension is the old protected one. I thought you could get into the new pension too?
  4. Sundaytrekker

    Sundaytrekker Star commenter

    My thought is that if you are currently a higher rate tax payer and will be until you retire then it is effectively a 20% boost to any money you can put in. However, remember there are costs and rules about how you can get it out again. It could be worth it but is usually used over a longer period.
  5. richest1

    richest1 Occasional commenter

    Im not a higher rate taxpayer.
  6. Sundaytrekker

    Sundaytrekker Star commenter

    Then maybe a harder decision. You’ll save tax putting it in. You’ll pay tax getting it out except on any lump sum amount from it. So maybe a little saving there.
  7. richest1

    richest1 Occasional commenter

  8. Sundaytrekker

    Sundaytrekker Star commenter

    And whatever they pay for your additional pension is guaranteed for life. So back to the conundrum of none of us knowing how long we will live. The longer you live, the more worthwhile it will have been.
    emerald52 and Dorsetdreams like this.
  9. emerald52

    emerald52 Star commenter

    If you die early you won’t need a pension! Go for what ever makes you feel secure.
    Sundaytrekker likes this.
  10. Dorsetdreams

    Dorsetdreams Occasional commenter

    I have not done any sums (and I couldn't - I don't know what you will be charged for those £250 blocks) but my gut instinct is that, if you are concerned about the long-term value of your pension, you would be better off saving the cost of the addition to your pension now, and use that money for whatever you intend to use your maximised lump sum for. And go for the minimum lump sum, maximum pension. I realise that the tax implications weigh heavily in your thoughts, both in saving tax now, and in not paying tax on the lump sum. This may be a distraction. The value you are intending to take from your pension by having the maximum lump sum might, in the long term, be much larger than you can gain by buying extra pension. If you are able to get the information and do some comparisons, please do post back and let us know what you conclude.
  11. catmother

    catmother Star commenter

    I'm still not convinced that OP can continue to buy years back in the old system and buy more in the new one at the same time. For starter,they are not in the new pension,secondly,I thought that, in the buying in in old system, there was a set maximum number of years that you could buy back (can't remember but there a calculation of some kind).
  12. richest1

    richest1 Occasional commenter

    TP have confirmed I can be in both. But because little time left in teaching, buying extra is best via paying by a lump sum for me,

    So buying in an extra 1k pension costs me 20k.

    Dont think I will bother. I will be 80 plus before I will get any net benefit.
  13. emerald52

    emerald52 Star commenter

    20k is the upfront cost. You get 20% back in tax relief so that reduces it to 16k. The higher pension means you get a bigger lump sum so if 1k pension extra that is 3k lump sum - so cost now 13k. That extra pension is eligible for cost of living upgrades so that is an extra benefit. Your 20k savings have to be put against these benefits. Hard to get big interest now.
  14. richest1

    richest1 Occasional commenter

    Good points thanks.
  15. phatsals

    phatsals Senior commenter

    I don't think the £250 pa purchase includes any lump sum. It is paid separately and is simply that, £250 pa index linked, not an addition to Final Salary NPA 60.

    For me, it wasn't cost effective at around £4500 for £250pa. I can get better returns from investments and still have the lump sum if I need it
  16. Sundaytrekker

    Sundaytrekker Star commenter

    When I took my additional pension I had the choice of taking the (multiples of) £250 per year or a reduced amount and converting some to a lump sum. I took the full amount as income.

    If the OP is considering £1000 of income, I think that will be without an extra lump sum. It would be reduced to something around £750 a year to get the £3000 or so lump sum.

    The amounts quoted rise every year with inflation.

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