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Current global finance and pension

Discussion in 'Retirement' started by TeeGeeH, May 11, 2020.

  1. TeeGeeH

    TeeGeeH New commenter

    Good afternoon, I am in the process of completing my teachers pension application form and will retire 3 months before my NPA at the end of the academic year. I have read the past threads on lump sum vs pension and just wondered if the present financial situation changes anyones balance of reasoning between large lump sum or pension if your in the position of not needing to clear debts etc.
  2. diddydave

    diddydave Established commenter

    If only we had a crystal ball...

    In the absence of that it is a question of how much risk you want to take and where you believe the greatest risks lie.

    The pension as it stands is index-linked and is backed by the Government, so it is probably one of the safest options. The risks there are that the Government changes the law to target the index-linking or simply changes the tax system to take a bigger proportion of it.

    If you convert it to a lump sum you take full responsibility for it and all of the risk. I did do some projections and comparisons on it a while ago and because you have to beat inflation I believe you would need to find investments that paid around or just over 10% per annum in order to 'beat' the index linked pension. The risk here is that your investments fail or that inflation jumps. The government could change the law to take a bigger or smaller amount from such investments.

    My wife is particularly risk-adverse when it comes to money so, for her pension, we went for the standard lump sum and didn't commute any of her pension for a larger amount.
    Prim likes this.
  3. TeeGeeH

    TeeGeeH New commenter

    Wow that was a quick reply ! Many thanks. Its definitely the case that everything is riskier and the government will have to find targets, I did some calculations that tended to show I would be better off subsidising any 'gap' from investing the lump sum and gradually reducing that investment until I was in my mid to late 70s, even taking into account CPI and tax. In very general terms have I got that right ? I'm no mathematician or economist. I would think its even hard to know what investments might be like in September / October
  4. diddydave

    diddydave Established commenter

    I cannot tell if you are right or not. One piece of advice I had on investments was not to risk more than you can afford to lose, so if you can live comfortably on the reduced pension then its just down to personal choice.

    The maths is quite simple, for every £1 you give up you get £12 in a tax-free lump sum. Now if your pension is over the tax threshold that £1 is actually, at today's tax rate, costing you 80p. 1200/80 = 15. So So from that I would say it takes 15 years to get the equivalent amount of money.

    That said, the £1 each year will be increased by CPI whereas your lump sum's increase (or decrease) depends on the performance of how you invest it. If you spend some of it on everyday items, i.e. making up the 'gap' as you put it, then you have less to 'perform'. It has to increase by the inflation figure just to stand still...so around 2% a year. If you want to spend some without degrading it's value then you need to earn a higher figure. Many financial advisers reckon that 4% is a target return, allowing you to spend 2% of the lump sum...but then it is taxed, so add on another 1% to allow for that. So can you invest it with a return of 5%+ then you will stay ahead...so it's clear that you cannot get this kind of return from just putting it into a bank account or ISA.
  5. TeeGeeH

    TeeGeeH New commenter

    Many thanks again. That was pretty much my conclusion and that to make it work requires a riskier investment. One that many of us would only make in a managed fund with some form of charges, thus further eating into the gains. I can't even spend it on some great travelling at the moment.
  6. AlwaysAdaptable

    AlwaysAdaptable New commenter

    All my pensions TP, and 2 pensions from elsewhere totall £21,000 +. Thinking of taking all in September 2020. Already filled in the online TP form. The circumstances I am leaving a not nice. New head has made my life hell in the first 6 weeks of taking on the new role. Infact she started before she was even in post. So why do I feel like I am missing out on something. My friends are saying I am lucky that I can make a quick getaway and don't have to put up with what is going on now. But I still have this hankering for teaching and that is why I am dragging me feet when it comes to applying for the 2 non-teaching pensions.
  7. phatsals

    phatsals Senior commenter

    Now that's just a bit daft. You can claim those and still teach if you felt like it, take the money and run. If you're taking ARB do supply somewhere, but trust me, you'll soon get over it :)
    Treacle3 and AlwaysAdaptable like this.
  8. TeeGeeH

    TeeGeeH New commenter

    You reach a point where you accept its part of the cycle. New Head, pushes everyone around, wants to make their own appointments, looks at whose expensive. Then it happens again....and again...new boss....same as the old boss in the words of the World Health Organisation.....oh no lockdown is getting to my brain. another day of constant email and laptop madness.
    Dorsetdreams and AlwaysAdaptable like this.
  9. heldon

    heldon Occasional commenter

    Take your pensions, then take at least 6 months, then decide whether you miss the classroom. Plan in advance what you will do with your time, find out what makes "you" tick rather than being defined by the job.
    Nebka likes this.
  10. AlwaysAdaptable

    AlwaysAdaptable New commenter

    phatsals likes this.
  11. TeeGeeH

    TeeGeeH New commenter

    I'm glad to have made a smile, I know from experience how painful it can be. I've made part of the mental jump now, where the biggest thing consuming my attention, before I finish it, is how big to make the lump sum. I need the first 4 to 6 months, off the madness of the secondary school hamster wheel, just to discover what I want to do next so I don't want to make a decision I regret.
  12. Luvsskiing

    Luvsskiing Established commenter

    If you can, take the pensions. Stop work for a bit to reassess. There comes a point where you know you should go, you don't like the Head, you are always exhausted and constantly fighting to stay ahead and it's tough as you get older, problems sleeping, little social life, stress related medical problems. But we keep resisting going!! Once retired, however, and you step back, you start to see clearly. You are far more in control of your own destiny, you get much healthier and go to live in a better place. You can mix and match new things, follow the sun, live a little. When I went, I took six months out, found I regained some mojo and then took short contracts in different schools, and it was great knowing if they mucked you about, you could just give notice and go. But the absolute best thing I did and do, is voluntary work in slums in both India, Cambodia, working with little ones with nothing, day to day existence, hunger, uncertainty. So rewarding, humbling, you are forced to learn new things, appreciate each day, how possessions are a drag on happiness, how little you really need, you find what really makes you happy. Plenty of opportunity to really live. Your career is just a stepping stone to the really important and most meaningful part of your existence.
    Last edited: May 12, 2020
    the hippo and AlwaysAdaptable like this.
  13. AlwaysAdaptable

    AlwaysAdaptable New commenter

    Luvsskiing Thank you. I didn't dislike the head when she joined and I don't think she disliked me. In her mind it is all about how much I cost. You are right, a time comes when you just go and do something more fulfilling. There is life after school.

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