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help in future pension forecast

Discussion in 'Retirement' started by cedars1948, Oct 13, 2019.

  1. cedars1948

    cedars1948 New commenter

    I would like to retire at 55 - this would be at the end of the school year.
    I find working out what my pension difficult. I have just come back into the scheme after two years out (I was made redundant). The figure I received for my final salary part (which is most of it) was down this month.
    My question is how much further will it fall (or not) by the end of the year.
    The figures - my best three years they say are : 01/10/09-30/09/12 at the moment the final salary is saying £23,322
    thank you
  2. diddydave

    diddydave Established commenter

    Unfortunately you could be in a vulnerable position, one you may be able to rectify if you act quickly BUT you must get professional, experienced advice - I'll make some suggestions but please don't think I'm an expert. There's also a very definite air of uncertainty due to the changes that are going to have to happen due to the court case the government lost.

    Time is of the essence as you may be able to 'opt-out' and have it backdated to the start of this academic year but you can only do this within 3 months...so after 1/12/2019 it will be too late to consider this option (note I say 'option' it's not advice that you should!)

    Your final salary portion is always going to go down unless you've had any out of the ordinary pay increases in the last 10 years due to the below inflation pay rises that have been the standard. You are also not adding any extra service to that calculation because service was frozen on 1 April 2015 (BUT.. to make this more complicated this is the part that is under review because of the court case so could change).

    The only advice I could give would be to work out what your final salary pension would be if you hadn't gone back to work - your statement on the TPS website for last year should give you an idea, though personally I would make my own calculations. Also don't forget that the pension amount on your 2018 statement will need to be increased by the inflation figure to compare it to this year. You can get your revalued salaries from TPS if you ask them, but if you want a quick idea I used a spreadsheet (just make a copy for yourself) https://docs.google.com/spreadsheets/d/10x-lKLuc0PXi9C5JftanxmFVVh0PxNYKYEa70xljn38/edit?usp=sharing

    Compare that to the current statement and if it's significantly worse consider opting out and backdating that opt-out to the start of your current contract so your best 3-in-10 is frozen for 2007-2017. You should be able to see what 'salary' was used on the TPS statement for those years. A call to the TPS may be needed to confirm that this will happen.

    Trouble is that with any of this there is a big question mark over the scheme because of the court case so any numbers that are used could easily be wrong. If they decide to put us back on the final salary scheme then you're not in a good place either as you've two years missing service and your 'salary' used for the calculation has gone down.

    If your pension is falling then opting out makes sense.

    Consider how to maximise your tax position by putting money into the AVC scheme or a private pension.
  3. phatsals

    phatsals Established commenter

    It's very possible your statement is incorrect. You've had a 2 year break in service, the figure is probably based on no break in service. So, for you your 'best 3 in 10' should go back to 2007-10, not 2009-12 when it does fall off a cliff.

    You need to check with TPS what exactly is your service being backdated to. I was in a position, before I opted out, of my figures dropping like a stone. I'd been part time for a long time therefore my 'best3' went over 6 years. My figures fell slightly for 2 years, then collapsed. It was very clear on the TPS site, even giving dates. The longer I stayed in, the less I would get, a perfect storm of no payrise, very low inflation

    When my pension came through, it was considerably better, they had then accounted for previous break in service and recalculated accordingly. It was a good 8% higher.
  4. cedars1948

    cedars1948 New commenter

    Thank you for your comments and help
    I had a look at my benefit statement for 18/19 and it said best three years from 1/9/08-31/8/11.
    If I opt out will that pension be frozen and if so how do I go about opting out
  5. phatsals

    phatsals Established commenter

    There should be a button on your TPS page, if not ring TPS. It's really very simple and quick to opt out.

    Not sure if the dates above are correct, that is from your 18/19 statement, it's now into 19/20. If you have been out of service for a couple of years, you have had a break in service. I don't think the automated system can cope with that very well - or even at all.
  6. diddydave

    diddydave Established commenter

    Do you know if that was due to the 'hypothetical calculation'? (This kicks in if you've had a break in service but I believe it ignores service after the break in working out the calculation which makes it pointless remaining in if that is the case - why pay more in for nothing extra?)
  7. diddydave

    diddydave Established commenter

    It may be worth checking your 'service record' to see if they've got your periods of work correct. I stopped in 2017 and my best three are 2007-2010...it's the same on all 3 of the statements I can see (current, 2017/18 and 2018/19).
    However because inflation is included in each one the pension increases by about £400 each year. This is something to watch out for as the 'fall' in your pension could be even more dramatic than you think.
  8. phatsals

    phatsals Established commenter

    I don't know what a hypothetical calculation is. I don't believe it ignored service after the break, it seemed to just halt it if that makes sense. Had it gone to before the break it would have had to go back a very long way. All I know is that when my actual figures came through it gave a salary of reference from a couple of years before, ie about 2004 rather than 2006. I also don't know if it accounted for more than 1 break in service, but I do know I was highly relieved and very grateful for it. 8% is a huge difference, but that is how much my projected pension had fallen over 3 years due to inflation etc.
    diddydave likes this.
  9. diddydave

    diddydave Established commenter

    Good to hear it went positive!
    The problem, as I've read it - and happy to be corrected if I've got this wrong - is that your best 3 in the last 10 is worked out, for the 3 as 3 x 365 (1095 days - which as you say for part-time workers can stretch over 6, 7, 8 or more years) BUT that the 10 years is simply the last year you were part of the TPS minus 10 - something that is likely to be a bigger problem for those who are coming back into the TPS after a break.

    The hypothetical calculation was designed to 'protect' members who had a break by working it out in two ways. Firstly to the actual date of retirement (or benefit claim date) and secondly to the date of the break and then you get the better of the two. However, the 2nd method doesn't include any of the service from after the break - if that's the case with @cedars1948, and that appears possible as their pension is falling, then what is the point of them paying in to the scheme for this year. This is why it's important that they work out the exact numbers for their situation as soon as possible otherwise the 8-10% they are paying into the scheme could be wasted. https://www.teacherspensions.co.uk/members/planning-retirement/calculating-benefits.aspx
  10. phatsals

    phatsals Established commenter

    I understand what you are saying, but I'm not sure the TPS calculator is correct when it comes to breaks in service. Mine gave very specific dates, based, exactly as you say, back 10 calendar years, but 1095 consecutive days within that.

    I've copied part of my award letter here, I don't know if that's of any use to you. I know you are really good at calculating all the factors and variables in the pension.

    The method that produced the highest amount has been used. Where an asterisk appears beside this value it indicates that the most beneficial award has been produced when the salary at an earlier break in service has been used and pensions increase applied from that date to the date of your retirement.

    Does this make sense to you? It didn't to me.
  11. diddydave

    diddydave Established commenter

    If you have an * then it sounds very much like they did the hypothetical for you. They work out your pension to the break in service day and then increase it by inflation.
    You can ask them for the calculation but as a quick and dirty method you could work out roughly how many years and days service were actually used from what you already know. If that 'service' figure is up until your break in service rather than your 'full' service then you'll know that they did use the hypothetical calculation...and if so I'm afraid all those pension contributions that you made in the years after that break didn't buy you anything extra.

    I think you can work it out, though if you took early retirement you'll need to work out first what the 'full' pension would have been.

    The years would be: Your 'full' pension multiplied by 80 and divided by your salary of reference
  12. phatsals

    phatsals Established commenter

    My full service was counted, from before and after the break.
  13. diddydave

    diddydave Established commenter

    It may be worth checking the calculations and numbers for yourself carefully then as I have heard of them pursuing repayment for 'their' errors.
  14. phatsals

    phatsals Established commenter

    Sorry but what you say doesn't make sense. Are you suggesting that, say, someone has a break in service after 10 years for a year, comes back and works for 5 they would only be entitled to 10 years service? I don't believe that to be true at all.
  15. phatsals

    phatsals Established commenter

  16. phatsals

    phatsals Established commenter

    From taking a good look at the factsheet, I suspect what you mean is when someone returns to a lower paid role. On that basis you are correct, if that higher salary, for fewer years, gives a higher pension figure then later service is discounted.

    However, it doesn't apply if your current salary is lower than the one at break of service. Then all your service counts. On that basis, the OP, like me, probably as incorrect figures on TPS.
  17. diddydave

    diddydave Established commenter

    Sounds right, I've not looked very far into it as I haven't had a break in service myself...was concerned that they'd revalue the salaries at the break up to the current day but as you say the factsheet makes no mention of this.
  18. cedars1948

    cedars1948 New commenter

    Thanks again
    I used the spreadsheet - one question I have as I don't really understand this type of format.
    It says 3 years average £68,294 and 1 year later £64,799. I just wondered what this meant
  19. diddydave

    diddydave Established commenter

    This is where I worked out what the current best 3-in-10 average salary would be (the one headed "Best 3 year average") and what it would be if I waited 1 year (headed "(1 year later)").

    Now I'll throw in some figures and assumptions but PLEASE do these for yourself - don't use mine to persuade you one way or the other - as you need to be sure that what you do is right for you. Particularly as the time you've had out isn't something I can comment on.

    However, if you are a protected member, i.e. fully in the final salary scheme and I assume you've had a 30 year career to September 2019 then your pension, before AAB, could be:

    30/80 * £68,294 = £25,610.25
    but if you work another year then the average salary drops and it becomes:
    31/80 * £64,799 = £25,109.61

    If this scenario you are actually worse off by £500 a year AND you will have been paying that extra year's pension contribution for the privilege of being made worse off.

    NOTE: Sorry, I've just noticed that you're a transition member which muddies the calculations much more and is beyond any certainty as the scheme is having to be altered due to the court case...afraid it may be a case of anybodies guess!!
  20. artbinki

    artbinki New commenter

    As a transition member if the court case on the 18th of December doesn’t go in our favour then I hope you realise that if you take early retirement before 60 as a transition member you are forced to take both your final salary and your career average salary at the same time with the career average one being massively exponential we reduced I’m just wondering if you’re aware of that. You can only take pensions separately as a transition member of the age of 60 so the only other Option is to stop working but don’t claim your pension until your 60 and get another job instead

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