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Leave Teacher's Pension to preserve higher salary benefit or not?

Discussion in 'Retirement' started by nikkip32, Jan 22, 2018.

  1. nikkip32

    nikkip32 New commenter

    I am a transition member with benefits in final salary (about 20 years) and career average (nearly 3 years), looking to retire in eight years time (if I can make it that long) !

    My teacher’s pension is showing my best three years at 1/9/08 to 31/8/2011, giving me a revalued salary of £45,000. I was a deputy head during that time period on a much higher salary than now.

    From 2011 to present, I became a part-time UPS3 class teacher and my salary dropped a few thousand pounds as a result.

    My questions are:

    1) Is my final salary part protected and based on my higher income during that time, i.e the £45,000 revalued salary?

    2) Or will my best period above disappear, as I am reading that your pension is now based on your best three years out of your last ten before you retire?

    If #2 is the case, would I be best opting out of the teacher’s pension to preserve my final salary benefit from 2008-2011, rather than continuing in it for the next 8 years?

    I just don't know what would be the best option to take, so any help is much appreciated.
     
  2. Dorsetdreams

    Dorsetdreams Occasional commenter

    You are right to be concerned.

    The 'final salary link' does mean that your pension in the 1/80th scheme can be compromised by your more recent lower pay.

    But you say you've been part time since 2011 and you have 8 years to go. That's 15 years part time, if you stay in the scheme. That may not amount to 10 years in the service calculation. Depending on what fraction you work, I think you have several more years before you need to opt out. Even the 1/57scheme is good and you shouldn't opt out until you really need to.

    I am in no way qualified to give advice and I would strongly recommend that you talk to teacher pensions.
     
  3. Dorsetdreams

    Dorsetdreams Occasional commenter

    If my thinking above is correct, you need to make sure that you opt out before you've completed 7 years full time equivalent form 2011, so that all three years are good earners. Maybe things are more urgent for you than I first thought.

    Again, I am in no way qualified to give advice and I would strongly recommend that you talk to teacher pensions.
     
  4. Bedlam3

    Bedlam3 Star commenter

    As you have gone over to the career average scheme your best 3 years cannot drop off your final salary pension because it is the best 3 years of the last 10 that you were in the scheme. So the answer to your questions is 'yes' to question 1.
     
  5. Dorsetdreams

    Dorsetdreams Occasional commenter

    Bedlam3, unfortunately I don't think your response above is correct.

    https://www.teacherspensions.co.uk/employers/advising-members/eligibility/member-types.aspx :


    Final salary link
    For transition members who have benefits in both final salary and career average and don’t go on to have a continuous break in pensionable service of more than 5 years, we’ll use the salaries they are earning in career average to calculate the Average Salary used in determining final salary benefits (rather than the salary they were on when they left the final salary arrangements).
    The average salary is the greater of the last 365 days of pensionable salary, or the average of the best 3 consecutive year’s salaries re-valued in the 10 years prior to leaving service. This means a transition member will still benefit from any growth in their salary. This is called the final salary link.
    The second to last sentence could be rewritten " a transition member could suffer from a prolonged fall in salary, in both parts of their pension".

    (I would love to be told that I'm wrong, and that the 10 years are frozen from the transition point. I'd be better off, as would the OP. )

     
    strawbs and Bedlam3 like this.
  6. nikkip32

    nikkip32 New commenter

    Thank you ever so much for your help so far everyone.

    Well done for finding the above from the Teacher's Pensions website, Dorsetdreams. Although I might be wrong, my interpretation of that is also that it looks like it is the best three consecutive years in the last ten before you retire and it is NOT frozen from the transition point, so I would end up losing my pension that would be based on my higher salary in 2008-11, if I kept paying into it !

    If this is the case, I will need to work out how much 8 years more paying into the pension would give me and see if it's worth continuing it or not financially.

    I definitely need to give teacher's pensions a ring soon and hope I can speak to someone who knows what they are talking about regarding this matter, but please keep contributing to this thread with more information if you have it !
     
    Last edited: Jan 23, 2018
  7. lkit

    lkit New commenter

    I was made redundant as a Teacher 2 years ago, top of UPS & TLR, subject in demise so didn't continue in teaching (or the scheme) however I contacted TP to ask if I started teaching again at a later date (within 5 years) what salary would they use. I was informed it would be the latest one, so in this day and age of no pay portability and school's employing as cheap as possible, I could have had a final salary that was 50% less than my current final salary (which I wouldn't teach for) impacting upon my pension.
    You definitely have to work out whether adding more years (and not insignificant contributions!) on a lower salary outweighs bailing out now. The career average years will also be based on the years of your lower salary so they are lower anyway. There are the other benefits such as death in service which should be factored in as well.
    Also remember that the old scheme pays out at 60 and the career average bit is at NPA, though I think you can get that at 60 too but it is reduced.
    The final salary thing does throw a spanner in the works especially for those who want to 'ease into retirement', but it's still a defined benefit scheme which is much more predictable. I'm now in a Defined contribution scheme (like many workers), where I put in X% and my (good) employer puts in a matching X% and fingers crossed I'll get 2X% and a bit of capital growth when I cash it in. I may return to the retirement forum asking whether I should blow the DC pension on a luxury cruise or buy an annuity...yawn! (which is not a decision that needs to be made with TP)
    :)
    Please note this isn't financial advice
     
  8. emerald52

    emerald52 Star commenter

    Both TP schemes are a lotlbetter than private pensions. Find a way to make the best of them. Depending on age you could take ARB and then re enter the pension scheme.
     
  9. daisytoo

    daisytoo New commenter

    I have just turned 55 and have just done exactly that as my best years are 08-11 when I had a 5K TLR. The implications of this are that I have broken my contract of employment and although I have been given a fixed term contract for the rest of this year, I will have to reapply for my job when it is advertised for September. I have taken the hint and decided to look elsewhere.
     
    emerald52 likes this.
  10. Dorsetdreams

    Dorsetdreams Occasional commenter

    This could be a very sound plan, if the OP reaches 55 before he has done 7 years (equivalent) in the lower paid role.


    Yes indeed you can. Reduction factors here. Give or take, the 1/80 (final) pension reduces to 0.8 and the 1/57(average) part will be halved, if taken at 55. That's better than the scenario the OP is facing and you get money sooner. Maybe a whole new lifestyle, having an income independent of work. But it all depends on age.


    Unfortunately you have to take both parts of the pension when you take AAB/ARB. But you can start a new 'average' pension if you start teaching again.
     
    Last edited: Jan 23, 2018
    emerald52 likes this.
  11. nikkip32

    nikkip32 New commenter

    Thank you for your help everyone. Unfortunately, I am too young to take AAB and by the time I got there, my best three consecutive years from 2008-2011 would have gone !

    Today, I did some number crunching on a spreadsheet using the example of how your career average salary accumulates from here but using my own salaries for the next ten years and more. You have to make some assumptions, such as what CPI inflation will be (I used 2%+1.6% index linking), and what your salary each year will increase by (I used 1%, as that is what is happening now).

    It shocked me to find out that I would be no better off paying into the career average pension for the next ten years as I still wouldn't attain a £45,000 average salary like I have at the moment from 2008-2011.

    For this reason, I have sent an email to teacher's pensions asking what date I should opt out to preserve those best years.

    From my findings, I would urge anyone in a similar situation to myself to check your pension to try and preserve your best three consecutive years.
     
  12. nikkip32

    nikkip32 New commenter

    I will definitely take the career average part of the pension at 60. Does anyone know what percentage it is reduced by if you do that?
     
  13. phatsals

    phatsals Senior commenter

    I don't know how old you are but one option could be to opt out now, preserving best in 10 (do get a statement from TP to decide on this). You could take ARB at 55 then rejoin TP with a new contract and contribute again. In the meantime do be sure to save your money in a SIPP.

    You can look on the TP calculators to check reductions but I think someone has put them on here quite recently.
     
  14. emerald52

    emerald52 Star commenter

    You have to factor in the reduction of years in the scheme.
     
  15. Dorsetdreams

    Dorsetdreams Occasional commenter


    Factors

    3% per year for NPA to 65, then reduce by 0.770 to take at 60.

    So, if your NPA is 68, then about x 0.69

    (not quite sure if that's 3 X 3%, or 3% compounded, which would be a very slightly SMALLER reduction)
     
  16. PeterQuint

    PeterQuint Lead commenter

    According to one of the tables I pulled off the TPS site, your average salary pension is reduced if taken early by the following amounts (or at least that's how it looks to me):

    1 year early (presumably age 66 if your NPA is 67) x pension by 0.948
    2 years early (65) x 0.897
    3 years early (64) x 0.850
    4 years early (63) x 0.806
    5 years early (62) x 0.766
    6 years early (61) x 0.728
    7 years early (60) x 0.692
    8 years early (59) x 0.659
    9 years early (58)x 0.628
    10 years early (57) x 0.599
    11 years early (56) x 0.572
    12 years early (55) x 0.546

    I cannot vouch for this being accurate, as the sub-headings on the multitude of tables in the document are many and varied, so CHECK WITH TPS.

    Nonetheless, those figures look pretty much like what one might expect.

    If you want to read the document in full just google 'TPS Early retirement factor guidance 10 February 2015', and it's the first result.

    Please someone correct this if it's wrong.
     
  17. Dorsetdreams

    Dorsetdreams Occasional commenter

  18. PeterQuint

    PeterQuint Lead commenter

    This is, in my opinion, a disgrace. To the point where I'm amazed it's legal.

    If you reach 60, and you don't take your final salary pension, it's effectively frozen. The fact that you'll be drawing it for a shorter period of time does not increase it, so you're losing on an investment.

    But if you do take it, you are forced to also take the average salary pension, and lose some of the value of that for taking it early.

    You have no choice. You lose on one or you lose on the other.
     
    mymintpark and emerald52 like this.
  19. emerald52

    emerald52 Star commenter

    But you can take it before 60, have a break then re-start a career average pension.
     
  20. PeterQuint

    PeterQuint Lead commenter

    Not without finding another job.
     

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