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buying extra pension years - how much does it cost?

Discussion in 'Personal' started by ScotSEN, Jan 1, 2011.

  1. ScotSEN

    ScotSEN Senior commenter

    I am not a pensions expert but having taken advice from an Independent Financial Advisory decided to take out a stakeholder pension. There a tax benefit in that you don't pay income tax on this so for every £1 you pay you effectlively get what ever the basic rate of tax is as well paid into your pension.
    I did think about buying extra years but it seemed very expensive also I like the idea of a stakeholder as I could carry on paying into it regardless of whether I continue in teaching or not. The way things are looking in my LA at the moment, much though I'd like to stay teaching till I'm old enough to retire that might not be an option.
    As for the mortgage I'd say if you can pay off more then do so. When we took ours out interest rates were quite high and when they came down we were able to carry on paying the higher amount every month. Evnetually we were able to up our over payments and were able to pay off the mortgage about 3 years early. Check with your provider what you can do and ask about any charges.

  2. jubilee

    jubilee Star commenter

    As the OP has been paying into the TPS since she was 26, she'll be in the old TPS. The new one came in on 1st Jan 2007 for new entrants.
    The OP will be able to retire and take HER full pension at 60 (65 for new TPS contributors). That means 34 years in the pension. You need 40 years to retire on half pay BUT she will get a lump sum payment too on retirement (a multile of Final Salary) and will almost certainly have paid off her mortgage by then.
    Her annual paension will be 34/80 X Final Salary.
    New TPS pensioners will not get an automatic lump sum and must trade part of their annual pension if they wish to get a lump sum at 65. They get a pension based on 60ths (so 34/60 X Final Salary for instance).
    The OP could, of course, work beyond 60 to gain the extra years in the pension or save in an ISA or other savings account, or accelerate the mortgage repayment and then save for retirement.
    It's not actually possible to buy added years in the TPS now. They have a scheme where you buy extra annual pension. You decide that you want £1k more per year in pension, for instance, and they tell you how much more you need to pay from salary to fund it. You DON'T get Employer contributions for that extra payment, so it is all funded by the employee.
    I doubt that the man in question is from the Teachers' Pension Scheme. The TPS has always been quite clear to me (when transferring pension etc) thaat they DO NOT GIVE FINANCIAL ADVICE!
    I suspect that he works for an insurance/pension provider that has Teacher in the company name, such as Teachers' Assurance, with whom I have my house and contents insurance. That is nothing to do with the Teachers Pension Scheme.
    He is probably offering a Stakeholder pension or Additional Voluntary Contributions (AVCs) which are based on Stock Market investments and which do not give a guaranteed /set payout.
    The OP should bear in mind that annual pay will increase every year as progress is made through Threshold onto the Upper Pay Spine and further promotions may take place which will enhance the payout at retirement, even with only 34 years in the scheme.
    It is generally people who Opted Out of the pension in their early career years who need to be thinking of ways to boost the pension.
    As for accelerating mortgage payments, I'd advise looking at the small print of the mortgage. With some, the extra amounts only reduce the mortgage at the annual review date and you're better off saving the extra money in a savings account and then making a lump sum repayment before the anual review.
    Also, beware of restrictions on repayments. You might actually fall foul of Early Repayment PENALTIES and be CHARGED for giving them back too much! Speak to someone at the motgage companyto safeguard your interests before altering the minimum payment being made.

  3. catmother

    catmother Star commenter

    That's is what I think too,Jubilee. We all suspect that the teaching pension will not be as good as it is now in a few years time but I cannot imagine someone from the official pension fund being all doom and gloom about their own scheme as no changes have been annouced as yet. I think that man is trying to sell to OP a private pension and not proper extra years into the teachers'pension. Nothing wrong with it if that's what the OP want to do but it looks as if "the man" is putting pressure on OP by panicking her and confusing her.
  4. There was a comment that AVCs have stood still, can't believe that, the stockmarket moved up 9% this year and a lot more last year and AVCs are linked to the market. Sure, it peaked at 6500 some years back, so it has fallen from the peak, to 5900 now, but by paying monthly, you get the benefits of each monthly gain too.
    I have a different dilemma. I took out a TP, then started a second one, intending to work in supply until 65 and gain 3 extra sercice years.(5x 0.6 years) I have got about as far as 0.67 years, and the supply work has dried up to the point I now don't think I can accumulate 1 year's service by 65. I was wondering whether I would be allowed to or should make the difference up to the minimum year if I fall short of a year. I suspect I will not be the only supply teacher in this situation.

  5. Richie Millions

    Richie Millions New commenter

    Currently the average teachers pension is £10,000 p.a. Obviously many will get more but likewise many will get less. Currently salary at the end of your career is the determining factor. In decisions about baked beans this needs to be considered.
  6. I think what I'm going to do is pay extra into my mortgage. I have a very very small savings pot that is trying to save up for when my car finally bites the dust. Once I am older, wiser and have started reducing my mortgage payments then I can look into what to do with my pension. I like the thought of paying my mortgage off sooner than the full term. Currently I'd only have it paid off when I'm 57 and I'm hoping a miracle will happen and I'll be able to finish work before then. I look around me at teachers who are still going in their 50s and it's not something I want to find myself doing.
  7. ScotSEN

    ScotSEN Senior commenter

    I used to think that - till I hit my 50s but as I still love my job(most of the time!) I wouldn't want to stop. I do think I've still got a lot to offer(she says modestly) both to my pupils and colleagues. But it is each to his own.
  8. I think that's very lucky. I already feel a bit tired and jaded with aspects of the job. To keep the enthusiasm going for such a long time is a great credit to you. There are about eight teachers in my school over 50 and about half of them are full of energy for it and half of them just tired and clearly not wanting to be there - if that happens to me I want to be able to get out, I don't want to bring the children and other staff down with me.
  9. Beestoni,
    Sorry if this is nosey and off topic but your monthly mortgage payment made me gasp. Would it be worth considering having a lodger/friend who needs a room to live with you and supplement your income so these payments are less of a drain.
    I apologise if that's an unrealistic idea and I appreciate you weren't asking for this advice so am being a bit cheeky. i mean well!
  10. " I look around me at teachers who are still going in their 50s and it's not something I want to find myself doing." As sensible as this sounds, I'd be surprised if it will be easy to get out in the future, at least afford to get out. Maybe the best way would be to plan in advance a career "B" to take over. With the mortgage gone, the cost of living will drop considerably. But you won't be able to draw on the pension, who knows, maybe until 65 or later by then.
    I'm not sure the unions have picked up on the reality of the ever delayed retirement proposals. If the pressure of workload continues or even increases, many teachers just won't be reaching to the full retirement age in the job, so there will be much future financial hardship. There probably won't be the future downscaling into supply either.
    Due to divorce, I had to start all over again with purchasing a place early 50s. Mortgage to 70. Fortunately supply was better some years ago, and through a multiple of part time jobs, I paid off the mortgage with ten years to spare.
    I find teaching is still enjoyable in the autumn years, still with energy and with something to offer the profession. But working less than the full timetable is a good plan.
  11. jubilee

    jubilee Star commenter

    With the new TPS retirement age of 65, anyone wanting to retire at 55 ,AND take their pension at that age, would have their already 10 year deficient pension actuarily reduced by about 50% (5% for each year before retirement age that the pension is drawn down). That would be a financial catastrophe for most people.
    Working to age 60 will become the new early retirement age from teaching or teachers will continue to leave in their fifties but NOT trigger the pension until another few years (perhaps at age 60 with a 25% actuarial reduction) and fund the gap with less stressful work.
    I fancy being a rep on a campsite in France or Spain for a few summers with work on the Xmas post/Marks and Spencer etc in Nov/Dec.
    I'm hoping that the dire situation with supply teaching will improve for me in 2011 as the new English Bac league table kicks in. I'm hoping that I'll be in demand to teach MFL in schools that decide to boost their MFL provision before they can recruit for permanent posts. Also, they'll perhaps want a teacher, not a CS, for shorter absences of their MFL staff too.
  12. Wish you a Happy New Year, Jubilee.

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