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Macloud judgement implications

Discussion in 'Retirement' started by roblow, Oct 4, 2020.

  1. roblow

    roblow New commenter

    Hi there,
    I've been a teacher for 28 years and I 2015 part of my pension was moved to career average and part stayed in final salary.
    If the McCloud judgement means I can go back into the final salary scheme until April 2022, would it mean:
    1. My final tax free lump sum would also be based on the period up to 2022
    2. That my final salary would still be the average of my best 3 consecutive years in the last 10 over that period?
    I'm currently 54 and trying to work out if I would be better off (And could retire at 60)
    Many thanks if anyone can help
  2. letap

    letap Occasional commenter

    From my understanding:
    Q1. Yes, your lump sum would be based up to 2022 - so approx 30 years of service - based on your 28 years of service.
    Q2. If you retired in 2026, your best three in ten would have to be between 2016 - 2026 - unless of course you took a "strategic break" of one month to fix this period of 10 years, however, whether you are better off depends on your own personal circumstances and doing the correct calculations - here I would reference DiddyDave, who if asked nicely will go through the calculations with you.
    roblow likes this.
  3. Timmyreader

    Timmyreader New commenter

    Thanks to DiddyDave for always working on behalf of all of us.
  4. roblow

    roblow New commenter

    Thank you for this. My best 3 years would be in the 2016-26 period. This is my first post here so don't know who First wave is, though I am always grateful for any help. Thanks for replying
  5. diddydave

    diddydave Lead commenter

    I've helped a number work out their valuations with the caveat that I am not a financial adviser and all figures should be checked - I'm an ex maths/IT teacher who enjoys puzzle solving and who got riled a bit when he found out if he'd paid more attention to the details of the scheme could have got a better pension by opting out!

    1) Yes. (short answer)
    The long answer is that your Final Salary pension gives you an annual amount and the lump sum is just three times that, so any change to the scheme affects both the pension and lump sum.

    2) So long as you have not had a break in service of more than 5 years then your final salary is either your final 12 months (method A) or, as you say, the best 3 consecutive in the 10 prior to you leaving the scheme (method B).

    The calculation I'd say you need to do are:
    1) Using your benefit statement project forward over the next 6 years as though those continued to be in the Career Average Scheme.

    (but adjust your Final Salary pension figure - double check that your best 3 years are currently shown as being 2016-2019 on your benefit statement. Unfortunately many teachers, including myself, didn't realise the impact of index uprating of salaries and could have been better off opting out back in 2015 for a month.)

    2) Work out the same as though you were in the FS scheme up to April 2022, again for the next 6 years and also again checking that the 'final salary' does indeed go up.

    Quite happy to go through a spreadsheet I made of this with you if you would like. This is a link to where I start when I do this: https://docs.google.com/spreadsheets/d/10x-lKLuc0PXi9C5JftanxmFVVh0PxNYKYEa70xljn38/edit?usp=sharing
  6. dum1214

    dum1214 New commenter

    Diddy Dave. Please could you start a conversation with me when you have time? I don’t seem to be able to contact you as I’m new here. Thanks
  7. roblow

    roblow New commenter

  8. roblow

    roblow New commenter

    Hi diddydave, thank you so much for your response. It looks like it could be good news for me. I'm 54 and am on my last year of the highest salary I will get (assuming it runs from April each year, the last 3 years including this year are my three consecutive highest). At the end of this academic year I will step down from responsibility to normal UPS3 salary. That will then be 5 years to 60 and I'm out. Not planning to go on beyond 60.
    Is the index rating likely to be an issue for me? I must confess I don't really understand it.
    I will to the projecting later. Yes please to the offer of help with the spread sheet.
    Again, thank you for your help. The future could be looking brighter.
  9. diddydave

    diddydave Lead commenter

    Sounds as though you may have a few misconceptions that I hope we can explain.

    3 years
    Your '3 years' are dealt with day by day. The 3 years therefore are 1095 consecutive days. It is very rare to receive a pay change mid-month so you can look at it month-by-month. They don't match up to set times in the year but to the date you leave the scheme.

    This month (October 2020) will have a 10 year span going back to 1 November 2010 and lasting until 31 October 2020. Next month that 10 year span moves on 1 month to last between 1 December 2010 and 30 November 2020.

    Index Linking
    To find your best final salary you cannot just look at the amounts paid in each year.
    For instance top of UPS3:
    • in 2010 was £35,929.00
    • in 2020 was £41,604.00
    Looking at those then £41k is more than £36k...but for pension calculations the 2010 figure is increased by the inflation factor from 2010 to 2020 which is 23.25%. So allowing for inflation (there is none for the 2020 figure) you have salaries of:
    • 2010: £44,282.49
    • 2020: £41,604.00
    Teachers have had many years of below inflation pay rises so the 'best' years for anyone who has not received a promotion, or moved up through the scales, are likely to be the ones 10, 9 and 8 years ago.

    You can check this quickly for yourself by looking at your benefit statement on teacherspensions.co.uk where it will tell you what 3 years have been used in calculating your pension.
    roblow likes this.
  10. roblow

    roblow New commenter

  11. roblow

    roblow New commenter

    Thanks for this. At the moment it looks to be based on the years 2015-2018. That takes me out by one year if I retire at 2026. This year the pay rise wasnt bad (its many years since I had progression as at UPS3). From September 2021 my salary will fall as I am giving up responsibilities.
    Hope it works out OK.
    Presumably after 2022 when the scheme reverts to career average, I could go part time and it wouldnt impact on my final salary pension.
  12. tonyuk

    tonyuk Occasional commenter

    Has anyone seen this strategic break happen as at the moment my pension is tracking year on year despite taking a break. What I do not want is for it to fall off a cliff in a couple of years time as I am now earning a lot less than I was a few years ago?
  13. diddydave

    diddydave Lead commenter

    Yes, done...new members have to wait some time to start them. :)
  14. diddydave

    diddydave Lead commenter

    Yes, 2015 means that you should consider opting out in 2025 for a month - though you could do it anytime after April 2022 to have the same effect. That will lock in a hypothetical calculation for the final salary part of the pension and allow you to continue building up the new career average one.

    The key thing about pay rises that you have to consider is whether they are above or below inflation. If they are below, and for many looking back 10 years at this moment there were 3 years of a pay freeze, then the salaries start to fall behind inflation. Currently salaries from 10 years ago are just under 10% higher than their equivalent ones today.
  15. diddydave

    diddydave Lead commenter

    I've had a couple of those I've looked at report back to me that they have benefited but it would be nice to hear from anyone publicly here if they have too.

    The one thing that annoys me quite intensely about this aspect of the scheme is TPS's refusal to include the hypothetical calculations on the benefit statement. When asked directly about this the reply I had was they didn't want to do it because teachers would get upset if their pensions suddenly went down!!! Too bloody right they'd get upset and it might lead to more of them getting what they'd paid for...:mad::mad::mad:
    20drew01 and Prim like this.
  16. wayside34

    wayside34 New commenter

    A question for diddydave if possible? I have been drawing my Teachers pension for close on 2 years retired at NPA 60. Earlier this year I received a lump sum ( and letter ) stating I was getting in their words a 2nd Bite?. I called the T.P however they couldn't give me a straight forward answer , so I am none the wiser. Of course the money was gratefully received:).
  17. diddydave

    diddydave Lead commenter

    Strange, seems a very colloquial term to use in a formal letter.
    I do have a vague recollection of someone telling me they had changes due to an incorrect revaluation of a salary related to inflation but nothing I can be certain about.

    The website I believe has more information about the calculations that are done now. Might be worth a look on there to see if there is anything that shows how they arrived at your figures.
  18. roblow

    roblow New commenter

    Gosh - I just assumed I just kept paying into the pension until I retire. I'm a bit concerned now, and a little confused. Is the suggested 1 month break so that the final salary part of the pension is not affected by the years after it? I didnt know it was even possible to pause the pension. What are the implications if I don't do this? I was planning on retiring in 2026 anyway.
  19. diddydave

    diddydave Lead commenter

    Yes, this is a trap many have fallen into and it is a quirk of the type of pension scheme that the TPS is. Most pension schemes these days are very different to it, they involve building up a 'pot' of money and in that case the more you pay in the more you get.

    The TPS Final Salary one has no such pot and instead is calculated using two figures - your best 'final salary' and the length of service. The quirk is that the best final salary is calculated in two ways and after years of below inflation pay rises, or indeed no pay rises at all, the best final salary for many years has actually been going down rather than up! The only way to be sure what this means for you is to do the maths and see what is likely to happen. If you want me to show you the implications for your situation I need to see your benefit statement, or at least your salary history. In some of the cases I have seen teachers have actually been paying into the scheme and getting a lower pension because of it (this is becoming less common but only because many have missed the boat on using the opt-out option and their best years have already disappeared from the best 3-in-10 calculation). However, don't panic - the chances are it will make only a few hundred pounds difference.

    I made a presentation on the general implications, it may be worth looking through that: https://docs.google.com/presentation/d/1RN8XUwMVjCf1KAY9DtSEbZHo9oJhW7mZ75tevV_Ar5Q/edit?usp=sharing
    roblow likes this.
  20. heldon

    heldon Occasional commenter

    Diddydave, do other public pensions schemes use the last 3 years in ten rule, or is it just the teachers scheme? Just curiou s?

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