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Deferred Pension Question

Discussion in 'Retirement' started by Devon Dumpling, Mar 11, 2020.

  1. Devon Dumpling

    Devon Dumpling New commenter

    Good evening

    Having moved to Scotland I'm trying to decide whether to transfer my pension or have 2 separate ones.
    I think I'm better off not transferring it (think - finding this hard!!) but only if I correctly understand my deferred English pension.

    My latest statement shows that my pension is in 2 parts. One part is '80th final salary' and one part is 'career average'. Am I right in thinking that if I leave it alone and don't transfer it, then these values won't go down. They'll go up with inflation, but they won't go down. The reason I am questioning this is because of the final salary part. Will it stay the same? I thought it depended on my earning within the 10 years prior to retirement.... Which is why I am confused.

    Thanks for any advice... Don't want to get it wrong!


    (I did post previously about my transfer, but I'm still trying to understand the blasted stuff!)
     
  2. diddydave

    diddydave Established commenter

    You are not going to have a clear picture because the current rules have GOT to change and will be backdated due to the court case on age discrimination that the government lost - so no-one knows yet how the schemes will be affected.

    It also depends on how the transfer treats your service thus far.
    Is the final salary link maintained?
    If you have had any breaks in service will the hypothetical calculation be carried over as well? (I've seen this result in a significant difference!)

    The other element is how your 'career average' portion is to be treated. If it is left in the scheme that you are leaving then it will grow by inflation but it will NOT get the 1.6% extra increase each year. However, it is very likely that this part of your pension will be replaced by being put back into the final salary pension if that is what the outcome of the industrial tribunal recommends.
     
  3. diddydave

    diddydave Established commenter

    Once you leave the scheme your 'final salary' AT THAT POINT IN TIME remains the same...and that is the best of:
    a) Your last 12 months, or
    b) The average of the best 3 consecutive years in the previous 10 years (revalued to the time you leave the scheme)

    This is used to calculate the pension to the point you leave, using your service to that time. This pension figure then WILL go up each year by inflation.

    The problem is that we cannot see into the future. If you were in the last few years of your teaching career to gain an impressive promotion, or if teaching were to receive several years of above inflation pay rises then you may lose out by locking your pension to the service and salary at the point you are transferring because those years of service won't be used with the higher salary that you finally end up with. If, however, you feel that you are at the top of where you want to be and don't believe teachers will get inflation busting pay rises then it may well be better to split them by starting a new pension at this point.
     
  4. Devon Dumpling

    Devon Dumpling New commenter

    Argh I'm so confused!!

    Thank you both so much for taking time to write me such detailed responses. I really appreciate it as I am struggling to get my head around all this and it's driving me nuts.

    I'll add some more detail.

    I have been teaching for 16 years, approx 15 under old pension. I'm late 30s. Under my old pension I had a tlr 2b for about 7 years, plus a SEN bonus for 4. I never had a break in teaching.

    I have now moved to Scotland for a quieter life. I have no intention of moving above teacher level and getting promotion again, and may even drop to 4 days a week in a year or so! The move has all been about a better lifestyle.

    My English pension has a nra of 60 for the 1/80th final salary. But my Scottish offer is for nra 65 - 5 years is a long old time!

    Fortunately I don't need to decide until July, but I'm so anxious I'll get it wrong.

    Thank you lovely people once again!
     
  5. diddydave

    diddydave Established commenter

    Just the one of me :)

    My gut feeling is that you would be better off starting the Scottish one anew and leaving the English one where it is. As they stand both schemes are 'good' so it is unlikely you will make a significant difference in jumping one way or the other but I will explain why I think what I do.

    1) You are not looking for a significant promotion and you have some 'good' salary levels in the last 10 which means your final salary pension in the English one will be worked out quite favourably. (Inflation and the hypothetical calculation will be your friend in this one),
    2) Your single year in the career average isn't worth much and there is a very good chance it will be counted as part of the final salary scheme anyway once the tribunal forces through the change. So the 1.6% bonus is pretty insignificant.
    3) You gain greater flexibility in when you take your pension. You will be able to treat the English and Scottish pensions separately. That would allow you to take the English one 'early' whilst still working and paying into the Scottish one or various other combinations.
    4) The English one doesn't lose any value by being left, indeed the way that the inflation index-linking works it would probably be better.

    Of course it does depend on what kind of transfer they've offered, if your 16 years have been turned into 25 years and they are including some protection regarding your recent *high* salaries it may not be the best option.
     
  6. Devon Dumpling

    Devon Dumpling New commenter

    Oh sorry! I was so engrossed reading the information I thought you were two people! Careless of me.

    I really can't thank you enough for trying to help me sort this out. And such detailed responses too. You have really helped me try and get my head around it.

    Reading the transfer offer, they've offered 12 years under the final salary scheme, but with a nra of 65 (not the 60 of the English one). I am not teaching until 65!! The career average current 'pension credit' offered on the transfer is £60 per annum less than what is on my English statement.

    So, I do think starting a new Scottish one and leaving the English one is the best option for me.

    Once again, thanks so much! You are clearly incredibly knowledgeable regarding pensions!
     
  7. diddydave

    diddydave Established commenter

    mmm...at first glance losing 3 years and working 5 more sounds bad, but it may be worth getting someone to run through the exact figures with you.

    The NPA60 (English scheme) is the 80ths one so your 15 years are worth 15/80 x final salary
    The NPA65 (Scottish scheme) is the 60ths one, so your 15 years becoming 12 would be 12/60 x final salary.

    So it is 18.75% of your final salary compared to 20% of it.

    Now I cannot find the actuarial tables for the Scottish scheme but given that the English ones take off between 3-5% for each year that you go early I'm thinking that 'losing' 1.25% for 5 years difference is a bargain!

    Add that to my previous points and I still think not transferring is fairly sensible.
     
  8. Devon Dumpling

    Devon Dumpling New commenter

    Thank you!! I am going to stick with 2 separate pensions. You advice has been invaluable and I can't thank you enough! Wish I could buy you a pint for efforts!
     
  9. Ivanhoe

    Ivanhoe New commenter

    Devon Dumpling - as someone who is late 30s, can I ask how your English pension is nearly all final salary?
    I am assuming you started teaching in 2004, which means that you have a maximum of 11 years final salary up to April 2015. From April 2015 it should be career average up to your final teaching date in England?
     
  10. Devon Dumpling

    Devon Dumpling New commenter

    Good evening. Yes, what you say is correct. It switched in 2015.
     
  11. diddydave

    diddydave Established commenter

    ...but given the direction taken by the employment tribunal regarding the firefighter's case in regard of their interim decision to treat those recently retired, or about to, as having been back on the final salary scheme it is likely to be treated as fully in the final salary scheme up to at least the present date.
     
  12. bedby9

    bedby9 New commenter

    I'm hoping someone could help me. I currently teach abroad, and have been for 3 years. I know I can pause my current pension for 5 years and then start it back up upon return. But is this really beneficial? Or having 2 separate ones is not much different?

    Can I do longer abroad without shooting myself in the foot pension wise?
     
  13. diddydave

    diddydave Established commenter

    Normal caveat's about not knowing what the future holds and what changes will be made to the pension scheme in light of the court case - as well as not being an expert...but...

    There is no 'pause' limit as such, once you have more than 2 years of benefits they remain in place until you take them. You can take them 5 years or 50 years later (so long as you are old or ill enough)

    The 5 year period IS important in other ways though. If your benefits are all 'final salary' scheme (which as you went in 2017 there is a very good chance they will be (or you will be given a choice due to the court case for them to be that) then it affects how the final salary is worked out. If you miss more than 5 years then the final salary link is broken. Now this for many doesn't actually matter, it does matter for anyone who finishes with a much higher salary than the point at which they stopped paying into the TPS because it uses the salary at the break rather than the final salary. The reason though that this is often of no major consequence is that the pension is then increased by inflation from the time of the break which is equivalent of using a much higher salary than at the time you take the pension.

    For any benefits built up in the Career Average scheme they are increased each year by inflation. If you return to the TPS before 5 years have passed then they are also increased by a further 1.6% per year, but after a break of more than 5 years they are only ever increased by inflation. Now that could have a large effect but it is likely to be irrelevant as I believe that the tribunal will allow you to have all of your service in the other scheme anyway - which from my calculations is almost always better.

    In summary, I would suggest that not coming back to the TPS before 5 years is up only makes sense if you believe you will come back into a post that pays, or will pay by the time you leave the scheme again, significantly more than the salary you had when you left (adjusted for inflation). For instance a £30,000 salary in 2017 would today be equivalent to £32,205. (Multiply your final salary by 1.0735 to see your own figure)
     
    bedby9 likes this.

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