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Pension query

Discussion in 'Retirement' started by chem1984, Aug 2, 2019.

  1. chem1984

    chem1984 New commenter

    I've just completed my NQT year having come in to teaching at 34 and I'm trying to optimise my final pension. I've completed a PhD and worked a few years in research - I'm in the process of transferring in 3 years of my university pension into the teachers scheme but appart from that I haven't paid into any other pension. What are peoples opinion about making up the difference? Should I consider buying in to the teacher's pension? If so when?
  2. phatsals

    phatsals Established commenter

    You are being really sensible transferring your university pension in, it has to be done within the first 12 months of employment or that's it.

    Don't worry about optimising your pension just yet, see what transfer in value you get first. It does make sense to pay for additional pension or faster accrual in the early years when lower down the scale, as it costs less. Having said that, there is no time limit so take a look on the TPS website and see what you prefer. You're only young and I'm sure you have a lot of other drains on your income, keep it all in balance.
    emerald52 likes this.
  3. emerald52

    emerald52 Star commenter

    I transferred my LA pension in when I started teaching. Excellent decision.
  4. diddydave

    diddydave Established commenter

    As ever with a significant financial decision I'd suggest you get professional advice rather than rely too heavily on 'chit-chat' from us non-experts, however I'll offer the following advice on what I would be doing:

    1) Before transferring into the TPS I'd check what benefits I'd gained from the university pension and comparing those to the TPS bearing in mind the following potential negative and positive points:
    a) The TPS scheme is in an uncertain state due to the court case
    b) The TPS scheme is on the governments 'radar' (along with all public service pensions) as being 'too expensive'
    c) There is no 'cash-value' that you can access early (compared to a private pension or AVC)
    a) The TPS scheme accrues a set figure each year that is increased by inflation PLUS 1.6%
    b) There are options within it to improve it : https://www.teacherspensions.co.uk/members/working-life/paying-in/increasing-your-pension.aspx
    c) If it is 'too expensive' for the government it's probably very good value (or at least better than the alternatives) for teachers!
    a) Rules may be changed in the future

    2) I'd be looking at when I think I'd like to retire, there was no way I was going to get to 60 let alone 67 or 68 - but of course you are much younger and have a far greater life expectancy than myself ;) !

    3) To be able to use the pension flexibilities to get hold of money after 55 I'd be looking at :
    a) Private pension/AVC/SIPPs that can be taken separately to the TPS
    b) Alternative investments - buying property and becoming a landlord (looking back over my lifetime I can see that the value of the houses I've lived in has increased in the region of 20% of my salary per year)

    Finally with 30+ years to go before you can take your pension you ARE in a good place to start planning, although we didn't realise it at the time our decision to start an AVC paying in 10% of my salary from the age of 28 has meant that we could 'retire' before 55 - and it is a good position to be in.
    chem1984 likes this.
  5. mustntgrumble

    mustntgrumble New commenter

    I'm assuming you're USS. What I learnt over the last 5 years out of 32 years working.
    1] Everyone who kept their years in USS over 25 years ago now regrets it. USS is less stable than TPS. Half of us transferred the other half didn't. I am in the happier half who did transfer.
    2] Avoid AVCs. The markets been very slow over the last 20 years. By the time the fund managers have taken their cut there's little left
    3] Additional years in TPS once you get into higher rate of tax are good value. Currently. If you have money left over from mortgage kids etc. Buying a few here and there is a way of spreading risk. Probably safer than bonds.
    4] property letting was a good gig to be in around 1995. I know ppl who made money from it and it served them well. I didn't :(. Informed opinion seems to be avoid this now. Neither party likes landlords. Unless you have a big portfolio it is very risky and can be hard work.
    5] I made money over the years from stock market (I started in 1982 and knew how to exploit the late 1990s boom) Poker and the Internet over the years.. In addition to teaching. I don't recommend any of these now. The point is to be alert but intelligent about opportunities. I certainly have no clue about where the next one is coming from.
    Although I envy your youth I do not envy some of your prospects over the coming decades. Good luck.
    chem1984 and Prim like this.
  6. chem1984

    chem1984 New commenter

    Brilliant - thank you!
  7. chem1984

    chem1984 New commenter

    By the way, how does an AVC work. I've had a read and am confused by the jargon - do you pay into it instead of tax? Its an additional pension from the private sector? Why would that be better than paying directly into the TPS?

  8. chem1984

    chem1984 New commenter

    Thanks for the reply - What do you mean by slow market?
    2] Avoid AVCs. The markets been very slow over the last 20 years. By the time the fund managers have taken their cut there's little left

    Why do people go for this option instead of additional payments into TPS or vice versa?

  9. sci

    sci New commenter

    The main reason is that the AVCs offer the flexability to access your money and leave the TPS until your official retirement age. There is quite a large reduction to be had if you take the TPS early.
    As you are young and 'just' finished Uni it may be better for you to look and put some money into the state pension. I assume that in the last 6 years there may have been one or two when you didn't work.
    This plus the points raised above are good reasons why taking advice from a professional will be better for you. If you are a member of a union they have pensions advisors attached to them. Eg NASUWT has Wesleyan. Join and then make use of this advice.
    chem1984 likes this.
  10. mustntgrumble

    mustntgrumble New commenter

    IMO coming from a market background - AVCs are "oversold" for a combination of reasons but mainly because the sellers (Prudential etc) have a vested interested in selling them for commission. We have seen this happen many times over the years - early 90's it was endowment mortgages versus repayment (I had big arguments with the Halifax with the sales guy because I wanted a repayment mortgage). The PPI scandal, Internet shares in the late 1990's the list goes on. This is often referred to as the "madness of the crowds" Everyone buys something so everyone else buys it. There's a whole school of thought called contrarian investing where you look at what everyone else is doing then do exactly the opposite. George Soros made a stink load of cash buying banks etc when everyone else was selling. Note - this doesn't always work!

    If no one is selling something its usually because they can't make anything out of you.

    Do the calculations. Additional years (on my FS schemes anyway) give me 6.5% on top of index linking (I pay higher rate of tax) you cant beat that now or in the future.- Inflation kills capital. All the financial advisers swarmy but convincing patter doesn't come from their desire to get to heaven. They will highlight the prospects and downplay the risks.
    emerald52 and chem1984 like this.
  11. mustntgrumble

    mustntgrumble New commenter

    A couple of points from above:
    Financial advisers - I've had free ones and paid for ones. Paid for ones are marginally better but they are still guilty of not taking into account personal situations. e.g what's your cash flow like? are you likely to die before you're 65? (This is a big one - its an important number and they know it).
    AVCs versus additional contributions. On my FS scheme you can cash in additional pension at 55 (it is AR). or leave it until NPA.

    I really don't know what I'd do at your point. A typical entrant into education now will have cash flow problems. By and large just living day to day will take most of your funds - try to keep borrowing down to a minimum. If you are looking to invest I'd would probably

    1] Invest time in understanding and learning about investment (for a later date)
    2] Try some passive income techniques. build WordPress websites, setup a Youtube channel etc.

    beyond that it is your responsibility NOT to be conned - there are big sharks out there
    Prim and chem1984 like this.
  12. mustntgrumble

    mustntgrumble New commenter

    Slow market: FTSE hast moved much over last decade or so- investing in big stocks has not done so well
    chem1984 likes this.
  13. chem1984

    chem1984 New commenter

    Thank you all for the advice - very useful!
  14. PeterQuint

    PeterQuint Lead commenter

    I agree with mustntgrumble.

    Financial advisors almost exclusively look at balance sheets and tell you which course of action would make you better off. In the case of pensions, that means doing the sums of both courses of action now, and comparing how much money you’d have had between retirement and death, at the point of death.

    Real life doesn’t work like that.
  15. diddydave

    diddydave Established commenter

    The AVC for teachers is run by the Prudential and they are an investment in the stock market - so can go up and down - they have a range of funds to choose from so you can choose the amount of risk you'd like.

    With regard to tax; your payment into the AVC is taken out of your pay packet before income tax is charged so you get the full tax relief without having to fill in a tax return. E.g. £100 paid into the AVC means £100 is put into the fund. If that £100 wasn't put into the AVC you would get either £80 (if you are a 20% tax payer) or £60 (if you are a 40% tax payer). Then you either get the tax paid into the fund by the government (20% rate) and, if you are a 40% payer, have to claim the other 20% back through a tax return.

    In the final salary scheme you USED to be able to buy additional years - but they were too good so of course were scrapped! I didn't look in to the alternatives once I'd decided to go for the AVCs as I thought the flexibility of being able to take the AVC from 55 whilst leaving the TPS alone was a better route. The career average scheme has some interesting flexibilities but again you'll need an expert (and probably a crystal ball) to guide you through those.

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