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Opt out of TP or not?

Discussion in 'Retirement' started by poppy45, Jan 2, 2019.

  1. poppy45

    poppy45 New commenter

    I took ARB TP last September but have recently started a new temporary teaching contract. The contract states that I will be automatically paying in to teachers pensions unless I contact them to opt out. My first thoughts were to just opt out as the contract is only for 6 months and I don’t intend teaching again after this but then I started to think about any possible benefits of being enrolled on TP. Not sure what to do, anyone else had the same dilemma?
  2. diddydave

    diddydave Lead commenter

    You should be able to work out the pension payment you will get from the new scheme for 6 months worth of contributions but of course this won't be for a *few* years probably, looking at my projections I don't think it would be worth much so I would opt out and take the cash now - possibly sticking it into another private pension (subject to the £4000 max rules seeing as you are already drawing a pension)...but there are the other benefits such as the death-in-service grant to consider. One other aspect to consider, if you haven't already signed the contract, is to see if they will pay you slightly more if you 'opt-out' as they will be saving the employer contributions.
    Startedin82 likes this.
  3. poppy45

    poppy45 New commenter

    Yes, it makes sense to opt out but I will try to do the calculations if I decide not to. Wish now that I’d put claiming my on hold for a year but at the time didn’t intend ever teaching again. Thanks for the advice :))
  4. diddydave

    diddydave Lead commenter

    I think the calculation would be half of (for 6 months) 1/57th of your average salary.
    So for every £10,000 of average salary you are increasing your annual pension by £87.72
  5. yodaami2

    yodaami2 Lead commenter

    And you would not be able to get that fully until NPA 65. Before that it would be actuarially reduced. Better off putting the £200/300 per month payment you would be paying to pension into an ISA maybe. Use the money to keep you topped up until you reach state pension age. Disclaimer; I am not a financial adviser. Perhaps see one.
  6. diddydave

    diddydave Lead commenter

    Your pension payments are around 8%, so for every £10,000 of salary you are paying the TP £800, by my reckoning you would take about 9 years of pension to get that back...and as yodaami2 says thats from 65, so if you are going to find the money useful from the age of 74 onwards you should stay in the TP (the index-linking means it should stay roughly the same value)
    Startedin82 likes this.
  7. emerald52

    emerald52 Star commenter

    The employer puts in a lot as well unlike private pensions
  8. diddydave

    diddydave Lead commenter

    Emerald52, I think who pays what is a bit of a mute point as the pension is not about how much is put in (by anyone) but is determined either by your career average or final salary (or a mix of both), which is why you have to do the calculations. If by putting in another year your best 3 year salary takes a dive then adding an extra 1/80th it may not be worth it.

    For example if my wife had opted out in 2016 her best 3 years (revalued) would have been £51,153 but if she continued to 2019 that drops to £49728 (because she has been on the same pay scale for 20 years the best 3 are always 10, 9 and 8 years ago)

    31/80ths of £51,153 is £19,821
    34/80ths of £49,728 is £21,134

    So for an extra 3 years contributions her pension would climb by £1300 a year.

    Her wage was £47,588 so her pension contributions would be 10.2% (£4854 per year).

    A total of just under £15,000 for the 3 years, it would take 11 years of pension payments to catch up.

    My point is that only by running the numbers can you decide what will work for you.
  9. PeterQuint

    PeterQuint Lead commenter

    My current final salary pension is falling at a rate of around £25 every month.

    My average salary is rising at around £70 a month.

    However, I lose my TLR next year, so that rise will be lower.

    The other thing I’d not previously considered was this. If I retire at 60 as planned, I won’t lose any of my final salary, but will lose a lot of my average salary pension due to going 7 years early.

    I’ve also got to factor in the large payments I’ll be putting in, and the amount I’d potentially be receiving from my pension if taken early.

    After calculating the above, I’ve found out I’ll be far better off, to the tune of tens of thousands of pounds, by taking a one day retirement when my TLR ends.
    Brokentree, emerald52 and Startedin82 like this.
  10. diddydave

    diddydave Lead commenter

    You do not have to take both pensions at the same time.

    If you take your final salary before 60 then you HAVE to take the average one and both are reduced (a big hit on the average) BUT

    If you take the final salary without ARB at 60 then the other can stay until you are 67.

    With regard to the one day retirement I'm not clear how that works, do you mean to actually draw your pension (both parts with the ARB on both) and then continue working but now building up a new career average only pension?
  11. diddydave

    diddydave Lead commenter

    Also, won't the career average then be worked out without reference to your earlier, higher and index-linked +1.6% salarys?
  12. Prim

    Prim Occasional commenter

    Or just take it all when you can. I'd rather have a pension at 55 and be enjoying myself than struggling at 67 when it maybe not as enjoyable. Unless you can live comfortably without it consider all options sooner rather than later
  13. diddydave

    diddydave Lead commenter

    Absolutely, I was surprised that it meant I could go before 55 BUT I also had a colleague who had to come back and work into her 70s because the sums didn't work out...
  14. diddydave

    diddydave Lead commenter

    So you have to be sure that if you take the pension at 55 you won't also be struggling at 67...
  15. PeterQuint

    PeterQuint Lead commenter

    Definitely not at 67, as that’s when the state pension kicks in.

    It’s retirement to 67 that’s the ‘poor’ period.
  16. diddydave

    diddydave Lead commenter

    Yes, I think you have to look at the different stages, for me there were 4:

    51-55 (no pension - savings and 'other' work)
    55-60 (private pension lump sum withdrawals, and/or ARB Teacher Pension)
    60-67 (Final Salary Teacher Pension)
    67-death (Career Average Teacher Pension + State Pension)
  17. heldon

    heldon Occasional commenter

    That has been our strategy, different stages.

    56- 60- drawdown SIPP completely
    60- Teachers pension and lump
    67-state pension- buying voluntary years to max out with some of lump sum

    wife similar except she is going to take CARE benefits at 60 as it is only three years worth.
  18. emerald52

    emerald52 Star commenter

    My stages were - 2 days before 60 take ARB and one day off contract. Return part time till 64 paying into new pension. Take part time pension. I’m still waiting to take my state pension which increases 10% every year until I take it.
  19. Brokentree

    Brokentree New commenter

    See a financial advisor. Running the numbers meant I would come out closer to a very very large amount better off by taking pension at 55 and returning to work. Obvious I know, but as an ex head teacher avoiding the drop off of devalued revalued salary by waiting to 60 was v important. I now tell everyone to check their pension situation... don't get many dinner invites anymore for some reason though...
    Dorsetdreams likes this.

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