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Opting out of pension on maternity leave

Discussion in 'Pay and conditions' started by lauraflora, Apr 30, 2012.

  1. I'm currently on maternity leave and I'm trying to make every penny count! I'm thinking about opting out of the pension while I'm on leave. Firstly, is this possible to do? Secondly, is it worth it? Will it make that much difference? I'm on M6 and TLR 2a. I've been teaching since 2003 but have been with my current school paying into the pension since January 2011. Any advice/opinions gratefully received!
  2. jubilee

    jubilee Star commenter

    You are in the Old TPS, generally regraded as better than the new TPS which came into being on 1st Jan 2007.
    Those who opt out of the Old TPS and don't opt back in for at least 3 months within the next 5 years, end up with any future Opt In being in the new TPS.
    You may be intending to return to work after 6 months or a year but I know several people who thought they would and then decided to stay at home for a few years.
    By staying in the pension whilst in receipt of Maternity pay, you would be protecting that 5 year gap period.
    If you decide to Opt Out, your tax will increase as you will be charged 20% on the amount otherwise taken as tax-free superannuation.
    When Opted Out of the pension, you are not eligible for the reduced Contracted Out (of the State 2nd pension) National Insurance rate and so will pay an extra 1.6% NI, not just on the amount that would have gone into the pension but on all your pay after the first £400 per month approximately.
    Opting Out would result in more take-home pay but not as much as you probably think based on your TPS deductions.
    You would lose time in the pension and if you plan on having more than one child, you could end up a year or more down for eventual pension calculations.
    You will be on a lower salary, I know, when on Occupational Maternity pay but it's quite generous and you will save on your outlay when going into work.
    You won't have travel to work costs.
    You won't be shelling out on resources for your lessons (assuming that you're one of the many who go down that slippery slope!).
    You will have more time for budget shopping and for relying less on convenience meals and take-aways. You could use devote some time to searching the market for cheaper energy, broadband etc.
    You could sell surplus possessions on Ebay.
  3. Hi Lauraflower. I am sure that you have been informed by your employer of the pay rates during your period of maternity leave.....4 weeks at full pay (including SMP); 2 weeks at 9/10ths full pay (including SMP); 12 weeks at 1/2 pay (plus SMP) and then up to 21 weeks on just SMP...depending when you intend to return. You will be paying TPS contributions whilst in receipt of occupational maternity (the first 18 weeks) thereafter you will not be paying pension contributions. The period on just SMP will not count towards your pensionable service, just the same as any period on no pay.

    The point that jubilee makes regarding the gap in service of 5 years is, in my opinion, irrelevant if the government impose a new scheme from 2015. You will move to that whether or not you have 1 day or 6,7 or more years out, but what you have accrued under the present arrangement will continue to be counted against your final salary, even if that is under the post-2015 arrangement - the proposals put to unions included protection of the final salary in determining benefits accrued up to 2015. That means not the final salary as at 2015 but the final salary when you eventually retire - albeit 20 / 30 years time. So, it is worth your while pumping as much service in under the current scheme as you can as it, more likely than not, will provide you with better benefits than similar service under the post 2015 proposals.

    My advice - stay in if you can.

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