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Impact of reduced salary on pension benefits

Discussion in 'Retirement' started by stepheningersprice, Oct 21, 2019.

  1. stepheningersprice

    stepheningersprice New commenter

    I have taken the opportunity to move from a very well paid SLT post £65000 to a teaching post £38000, having paid my mortgage and other debts off. Having worked on SLT for nearly 20 years, I want to protect the benefits built up regarding my pension and have had advised to take a break of one month from the pension schemed then rejoin. I intend to work as a teacher for another 10 years, to the age of 60.

    Any thoughts will be much appreciated.
  2. PeterQuint

    PeterQuint Lead commenter

    Yes, opt out after seven years.
  3. letap

    letap Occasional commenter

  4. diddydave

    diddydave Established commenter

    There's so many unknowns that I'd say you'd be best off getting (probably paying) for some professional advice, but here's some of my observations having been planning the exit strategy for around 5 years.

    1) Everything is a bit of a guess until the resolution to the age discrimination case is finalised.
    2) Ask why a break is advised. It's likely to be linked to the 'hypothetical calculation' - so it's worth understanding how those calculations are done, and whether your higher salary will be protected and whether any future service will not be counted as your significant drop in salary means it may not : https://www.teacherspensions.co.uk/...582ca2f&hash=D701B5E70943045034C9D5F424F5A8FC
    3) At 50 now you are likely to have a mix of final salary and career average pension amounts (but see 1 above). Only the final salary portion would benefit from protection.
    4) Paying more into a pension may be 'cheaper' because you can benefit from the tax relief at 40% for any amount over £50k earned this year (you are probably not in the 40% bracket though as pension payments @11.3% and 9.6% into the TPS are removed before income tax is calculated) If you have any 40% earnings this financial year then consider lump sum methods of buying additional pension.
    5) As PeterQuint says you may consider opting out in 7 years because your 'final salary' is the best 3 years in the last 10 once they have been revalued, doing this would mean that you 'keep' 3 years of your SLT salaries in the calculation. (But who knows what the rules will be in 7 years time!). So in line with what PeterQuint says perhaps waiting for 7 years to take a break might be the best course of action.
    Last edited: Oct 21, 2019
    letap likes this.
  5. letap

    letap Occasional commenter

    Excellent post by diddydave above.
    With regards to point 1 above - we should not be worse off ( in theory we should be better off due to the firefighters winning their court case and the recent revaluation of the pension scheme suggesting benefits should be enhanced).
  6. stepheningersprice

    stepheningersprice New commenter

    Many thanks for the help
  7. tonyuk

    tonyuk Occasional commenter

    I have done pretty much the same thing. I took a break in service to protect my pension and this is now locked down. The only problem being that the new pension scheme runs till 65/7 (cant remember which) so if you go at 60 then you get a decrease but at least your best three are safe.
  8. Dorsetdreams

    Dorsetdreams Occasional commenter

    I'm probably worrying quite unnecessarily, but is it quite certain what 'taking a break' requires? Is this a real break in service - i.e. some time not teaching, and if so how long? Or is it just a break in paying in? I'm doubtful about the latter: the documents refer to 'pensionable service' which to me sound like service which could contribute to the pension whether or not one chooses to. (I had the idea that the only way to break the 'final salary link' was to have five years out of teaching but I'm really happy to be corrected.)
  9. tonyuk

    tonyuk Occasional commenter

    Well Im not an expert - I would suggest getting Wesleyan in as they will give good advise for free. I had half a term out and according to Wesleyan my three years seem to be locked.

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