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Get out NOW! - (but check your case carefully)

Discussion in 'Retirement' started by diddydave, Nov 19, 2019.

  1. diddydave

    diddydave Established commenter

    Having looked more deeply into the 'hypothetical calculation' I have come to the startling conclusion that (almost) EVERYONE who is no longer in the final salary scheme should take a break from the TPS NOW! (*note I take no responsibility if I am wrong - do your own research to see if it works for you)

    Having just had a discussion with TPS the two schemes (final salary and career average) are treated separately. Because of this I conclude anyone who has final salary benefits but is no longer in that scheme should, if they haven't already, opt-out for a month immediately for the following reasons:

    1) Future service in the career average scheme isn't affected (you lose one month's value to your CARE pension)
    2) Your number of years service is already fixed (to the point where you entered the CARE pension)
    3) Your best final salary link will be preserved
    4) Your 3-in-10 salary will be worked out in two ways, 2009-2019 (ten years back from when you opt-out) AND whatever your last 10 years will be when you actually stop work - you get the best of these! (This is the main reason for opting out for a month now)
    5) I have checked that opting out for a month DOES trigger the hypothetical calculation.
    6) The comparison of pensions does not include the CARE benefits - so the final salary cannot go down by taking a month out now. And neither can your overall salary once combined.

    I would repeat you should do your own checking and get in writing from TPS confirmation of the above points.
     
  2. jonnymarr

    jonnymarr New commenter

    Point 4. Wow. That seems overly-generous & quite weird.
     
  3. diddydave

    diddydave Established commenter

    It's the crucial point and absolutely mind-boggling that I didn't see it in 2015 when I moved over to the CA scheme...I can see almost no situation where taking a month out of the CA scheme if you have a final salary portion doesn't make sense.

    From the transcript of my conversation with TPS (I put the case of moving to CA in 2015 and taking a break in 2016):

    "ok - the pension you accrue in career average is unaffected by the years we use to calculate your final average salary - once you move across to the new scheme you cease to accrue service towards the final salary formula. According to your above scenario - if you were to retire now you would have career average pension accrued from 2015 put into payment. Your final average salary would either be created from the last 365 days from today - the best 3 consecutive years in the last 10 from today OR the best 3 consecutive years in the last 10 from your break in 2016 - so we would (based on the info you have provided) create 3 separate final salary figures and use the one that create the most beneficial pension"
     
    Dorsetdreams and jonnymarr like this.
  4. letap

    letap Occasional commenter

    If final salary is re-instated for those on final salary in 2012 than the hypothetical calculation from the break will not take into consideration the potential final salary service acrued after the break.
     
  5. diddydave

    diddydave Established commenter

    Possibly, though the promise not to be made worse off could lead to some interesting conundrums.
    In the hypothetical if the average salary at the break is lower than the average salary at the end then all of the service IS counted.
    Either way the risk of 1 month out for fixing what could be a 10% increase in your pension value seems reasonable...and you still get the 'best' calculation, just that with a break you get three versions and not two.
    For me if I'd taken the break at the start of the career average arrangement my pension would be 10% higher.
     
    letap likes this.
  6. diddydave

    diddydave Established commenter

    I went through my history to check the effect and if I'd taken the break in 2015 at the point where I moved onto the career average scheme my final salary pension would be £1600 more and my career average one £60 less...
     
  7. HannahD16

    HannahD16 New commenter

    Confused.com here. I’m unsure what DD’s analysis would mean for me personally but let’s use hypothetical scenario below with simple rounded off figures to see if I can get it:

    Teacher with 18 years in final salary scheme and moved to CARE in 2015. FS NPA at 60. CARE NPA 67. Teacher wants to retire at 60 collecting FS pension only at that time to avoid AR on CARE pension.

    Salary has increased since 2015 with management responsibilities to £63000 in 2015 and will increase for another couple of years then plateau until age 60 at £70,000pa. So last three years salary expected to remain at £70000 as no further promotion desired and excepting any significant pay rises to the £70000. (Notional figures to keep it simple)

    As a teacher I know there is not supposed to be such a thing as a stupid question, but I’m not sure if taking a break now would serve any purpose. I’m assuming that the final salary used for calculating benefits would be the last 365 at your end-of-career salary, ie £70000? What would the advantage be if a break in pension now?

    Add in the Mc Cloud decision and what it might mean for restoration of FS benefits back to 2015 and beyond......

    In short, not sure If I properly understand the Hypothetical calculation and what it might mean in such a scenario above.

    Maths geniuses welcome to decipher that one!
     
  8. JanE60

    JanE60 New commenter

    Just discovered that under final salary arrangement my best year 2019 has fallen away and TPS tell me my projection is likely to fall further before I reach pension age next year. They suggest opting out for a month to protect current projection, then can opt back in. Risk is threat to nominee benefit should "something happen to me" during that month. TPS Opting Out form says there may be other risks, but doesn't specify! I currently only do some supply directly for a regular school. Anyone done this? Advice please?
     
  9. diddydave

    diddydave Established commenter

    I'll give it a go...not a genius, just your bog standard maths teacher...the 'benefit' is that you get an extra calculation for the 'salary' that will be used in your final salary calculation - this is most crucial for teachers who have been in the same pay scale for the last 10 years, in your example the 10%+ pay raise is not typical. As an aside it's also worth bearing in mind that if you do receive a pay rise in the last 3 years of 10% or more it will be restricted to just the 10% (so from £63,000 the amount would be £69,300 and not £70,000 for the purposes of working out your pension)

    Taking your last 3 years to be £70,000, £70,000 and £70,000 then the first thing to understand is that £70,000 won't be your highest of these 3.

    The one from 3 years ago will be revalued for inflation (say 2.5% for each year) so the last 3 years now become:
    £73,543
    £71,750
    £70,000
    The average of these is: £71,764 - so this is the value that will be used (unless any earlier years when increased be inflation beat this...for example your £63,000 from 2015 is now revalued to £67,113 so it's unlikely)

    Taking a break now means that the years 2009-2019 will be used to give you a final salary calculation. You will also get another final salary calculation when you do retire. You get the BEST of these.
    Also, under the current rules, if the salary calculation when you do retire is more than the salary calculation up to 2019 then all service from 2019 to the date you do retire IS counted - so if the McCloud decision puts people back into the final salary scheme you are not losing those years.

    Bear in mind that the rules are that you are given the BEST pension from all of the various calculations, so taking a month out does mean you miss out on 1/12th of 1/57th of your career average, but you lock in a calculation for your 'best 3-in-10' that means you get a third valuation to be given the best of.

    In the scenario you put forward the big hike in your salary in the last 3 years means that a break is much less likely to be of any benefit to you but for everyone who has years in the final salary scheme and who has received only the basic, below inflation, pay increases it is most likely to be quite a significant bonus - the longer they have to go to actual retirement the greater the bonus is likely to be (unless teachers get some pretty astounding inflation busting pay increases in the next few years)

    If you wanted to restore your career average to the amount it would have been to make up for the missing month then by opting for the 1/45th rather than the 1/57th it would take 4 months.
     
  10. diddydave

    diddydave Established commenter

    Isn't there a good chance you have already had a break because unless your supply role has been in constant pensionable employment you will have had periods of time where you were not part of the TPS?
     
  11. diddydave

    diddydave Established commenter

    Possibly the easiest way (though not totally accurate) to see what it means for you is to look at the benefit statement on the TPS website and under the summary of benefits look at the "Average Salary Breakdown".

    For each section multiply the 'Revalued Salary' by your number of years service (18 in your example) and divide it by 80.

    The revalued salaries if they go down as you get closer to today will result in a lower 'final salary' pension. If they go up (as in your example) then the pension will go up. You are at risk of losing money if the highest of these sums comes from the dates that are 10, 9 and 8 years ago.

    Even with the McCloud judgement pending only time from the point on from any 'opt-out' may not be counted as your 10 years includes up to now. So if they put the final salary scheme back in operation to 2022 you are risking 2 years and even then under the current rules if you work long enough for your actual salary to overtake the revalued one those years will be included in the calculation. Also if it turns out that including those 2 years extra service but with a lower final salary amount would give you a better pension then you get the better pension.
     
  12. JanE60

    JanE60 New commenter

    Since leaving full-time post at the school last December, I've been on their books and paid into TP for all the days I've worked. I actually haven't worked for them this term (they're using more TAs), but surely the fact that I'm registered for TP with them means I haven't had a break? Just wish I'd known about all this earlier in the year! Do you think the month break is the way to go for me?
     
  13. diddydave

    diddydave Established commenter

    Difficult - have a look at the TPS website and ask them directly for confirmation if your service is considered continuous or if you have had a break - they will be able to tell you straight away if your service record indicates a 'break' and if they will use the hypothetical calculation when they work out your pension. Use the secure message system when you are logged in and just ask "Can you look at my service record and tell me if I have had a break that means you will use the hypothetical calculation when working out my pension please?"

    It may be that when you finished in December that your contract to do supply didn't start until 3rd, 4th, 5th of January - i.e. the actual start of term so that may be the 'break' that is required...if, by mistake, the school actually started you immediately following the December 31st end of contract on January 1st that you could ask them to 'correct' this error and for it to be the 1st day you actually did any paid work for them.
     
    Last edited: Nov 20, 2019
  14. diddydave

    diddydave Established commenter

  15. paulstevenjones

    paulstevenjones New commenter

    I have looked at my statement online and am also convinced that this is the best idea. Many thanks. I am going to opt out for one month. Fingers crossed I do not die and leave my family in penury.
     
  16. diddydave

    diddydave Established commenter

    We left early and took out life insurance for the same sum just to be sure.
     
  17. SingToAng

    SingToAng New commenter

    So my best three years of revalued salaries go from April 2014 to March 2017. If I'm going to retire in 2021 I'm thinking this makes no difference to me? (Given that my salary will not be anywhere near what it was as I have taken a job which does not pay as well).
     
  18. mjfp509

    mjfp509 New commenter

    @diddydave

    My wife, a transition member, opted out of the teacher's pension in 2018 to preserve her best 3 years in 10 (she was a deputy head from 2008-2011) to avoid her much bigger salary then dropping off. She hasn't paid into it since.

    She only works 2-3 days a week now as a normal teacher. She was under the impression that her pension would be based on her actual salary (best consecutive 3 years inthe last 10 before she retires) hence why she was advised to opt out in 2018 otherwise she would have had her pension based on her part-time career average wage when she retires and would be worse off than continuing paying into the scheme? She has approx 6 years left in teaching if she can manage it !

    So what you saying is that she could start the teacher's pension scheme again, accruing extra pension contributions, and her pension would still be based on her 2008-2011 much larger salary?

    Does it state this anywhere on the Teacher's Pension website as it just seems to suggest your pension is based on the best three consecutive years in the last 10, for example?

    Thanks.
     
    Last edited: Nov 21, 2019
  19. diddydave

    diddydave Established commenter

    Yes that sounds correct, you'd have to work until 2024 to lose those best years.
     
    SingToAng likes this.
  20. diddydave

    diddydave Established commenter

    As always get confirmation from TPS directly but yes that is what I see from this document on the hypothetical calculation:
    https://www.teacherspensions.co.uk/...582ca2f&hash=D701B5E70943045034C9D5F424F5A8FC

    I would say it is very clear that she can opt back in now and her final salary scheme will use the best 3 years from 2008 to 2018, when she had the 'break'. Also, if she has a career average portion by opting back in now it will get the 1.6% boost that is given to contributing members above inflation.
     
    mjfp509 likes this.

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