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Any teachers opted out of the pension scheme?(30 Posts)
Currently I pay approximately £200/month into my pension. I am really struggling financially and desperate to get rid of my £5k personal debt (OD, CCs and a loan.)
I know I'm only intending teaching for another 10 years max (I'm 28) and I genuinely don't know what to do. I'm considering opting out of the TPS and starting a private pension, which I've yet to research. I would then start by only paying £100/month and use the other 100 to get rid of the debt.
Has anyone done this? Can anyone think of any reasons why this isn't a good idea?
A friend of mine who is a teacher found out that his pension was worth MUCH less than he expected because he took out something called an FSAVC - an additional saving scheme which ended up devaluing the pension. He found out that it was misold and got compensation. Here is some info -http://www.fsavc.uk/What%20is%20an%20FSAVC.pdf
Seems loads of teachers have been ripped off!
I am well known as somebody who slags off the pension industry
If you have a defined benefit scheme
ie your pension is related to the amount you earned and the number of years you worked STAY IN IT
the other type of scheme - the ones I loathe and detest are called
defined contribution schemes
these are where you hand a load of your money to the men in shar suits, they invest it and take their fees and pay you a pension out of what is left, the value of which you will not actually know till the day you retire.
the well known defined benefit schemes are
- local government
- civil service
- a couple of PLCs
the last remaining "gold plated" ones are
- directors of big companies
One major pension fund is currently offering a 2.5% return index linked on annuities. So for every £100K savings this pension is £2,500 per annum. You would need an eye watering fund to generate an index linked £25K pension. Don’t move.
Your employer is contributing 14% of your salary to your pension. That is part of the package of rewards that comes from being a teacher, and by heck you earn it!!! If you opt out of the pension scheme, it's akin to volunteering for a 12% pay cut.
That's not to say its easy to keep paying it. It makes me pretty cross when people make out that it's just short-sightedness that makes people give it up. As someone upthread implied, sometimes it's the only cloth left to cut, and if its a choice between paying the pension and feeding the kids... Well. And for those people who suggest reducing contributions... That's not how it works. It's all or nothing, a flat rate based on your solo income without reference to household circumstances or financial commitments.
However, it really should be almost the last thing you think of cutting. We did without a car for two years so we could keep paying our public sector pensions. Hopefully you don't have to go that far, but maybe there's room for you to downgrade? When did you last shop around for insurance and energy suppliers? Can you be stricter about gas and electricity use and cut those bills by £20/ month? Can you swap your debts onto an interest free credit card (check out the guides on moneysavingexpert... It helped me axe my overdraft for good). Do you meal plan and stick to it? Are there any coffees/magazines/lunches out you can cut out? Sorry if this seems a bit miserable... We are living in straitened times. I just think you need to look at all the other options before you make a decision you are likely to regret.
Can you look into the scheeme details for reducing your contribution? Make sure you don't reduce it sooo far your employer stops paying in!
Looking at it another way, if you were scrapped for cash, and someone offered you a £200/month reduction in salary, would you take it? And in reality it is likely to be a much higher contribution from your employer than you are required to make.
It would be very unwise to opt out of this pension scheme for a private one. Your employers are contributing to your pension as well. Put everything you spend on a spreadsheet. If times are really tough would you consider doing a bit of private tuition to clear your debts.
One thing I found helpful when I first graduated (and had an overdraft coupled with a relatively low income) was noting every single penny I spent, cash in particular.
I know it sounds a bit tedious (and it can be). Certainly after a big night out there was often an entry along the lines of "Drinks" with the amount worked out as the difference between what I started with at the beginning of the night and what was left in my pocket the next morning.
But it really helps understand how money gets frittered away. An obvious example is coffee - a £2.50 cappucino every week day adds up to well over £500 pa. Even now I very rarely go to Costa/Starbucks/etc.
There are plenty of (free) apps out there if you a smartphone. I don't do it now so can't recommend one.
I use a similar approach with weight by using My Fitness Pal. It doesn't do anything by itself but helps me understand where I'm "wasting" calories and how to make better choices about the small stuff given a calorific "budget".
I'd recommend looking on Moneysavingexpert.com for ways of reducing your debt - it's full of really good advice. You can even post your monthly outgoings and people will help you to see where you can make savings.
You mentioned credit cards- are you paying interest on these? Could you move the debt to the Tesco credit card and get 27 months interest free so you can pay off the capital/ your other debts?
Try stepchange.org for help with old debts.
DON'T DO IT!!
As well as what Zigster said, you would also lose your death-in-service cover which is linked to being an active member of the pension scheme and this would pay out 2 or 3 x your salary if you die.
You can't stay in the scheme but stop your monthly contributions as someone upthread said - she still gets a statement but it's only telling her what benefits she built up when she did pay in. It will only be increasing in line with inflation. Once you stop paying into the scheme you don't build up any further benefits.
Anyone opting out of a public sector scheme needs their head examined (unless it genuinely comes down to a choice of that or feeding the kids).
Agree with the others. It's a good pension and you'd be crazy to opt out of it.
I too work in the pensions industry and second what Zigster says. It is probably the best opportunity you will ever have to save for your retirement - even after the proposed reforms are introduced in 2015. The schemes are being reformed because the benefits are currently so good and so expensive for employers. I would imagine that it is cheaper to service the debt than to give up such a good pension.
Thank you so much for all your comments.
Zigster, that's so helpful and really put it in perspective for me. I know my salary is decent but I'm struggling at the moment because I'm paying off old debts (which I know are my fault). My current take-home pay is about £1660 and the vast majority of that goes straight back out. But I will do my damnedest to see if I can tighten the belt in other ways. I've just moved house which means I will now spend about £50/month on fuel as opposed to £130, plus new place was water included so there's an extra £30 saved. So there's a start.
I genuinely didn't realise how valuable my pension was.
Don't opt-out of the TPS. Just don't.
I work in the pensions industry and we frequently scratch our heads in amazement (polite phrase) at people who opt out of "gold-plated" public-sector pension schemes like the TPS. Save cash some other way - if you are paying £200pm (gross) them you must be earning £30k+ (just checked and M5 would be £30k+). Live like a monk (nun?) for a year.
If you opted out of the TPS, your £200 gross contribution would only be about £135 after income tax and NI. You'd be giving up a really valuable benefit - one can argue about the exact value of the benefit but, roughly speaking, the total value is about 4 times what you pay so for every £200 you pay, your employer is paying in about £600. So you'd actually be giving up £800 of retirement savings in return for £135 now. Madness.
It's a hugely valuable benefit you receive. Don't throw it away.
Why not just lower your contributions into the current scheme?
I think you can stay in the scheme but opt out of making your own monthly payments if this is what you mean op?
I opted out of making monthly payments when I went back after having DS. I had 2 small children in childcare and literally NO spare income at all.
Yet, I still get a yearly statement showing that I have a pension and that it is increasing yearly (although pro rata as I'm part-time).
Best to phone the TPS and talk to an advisor maybe?
Out of interest, what career change are you thinking of? You say that's 10 years down the line, but if you don't end up leaving teaching then you would have been silly to have left the scheme.
I think you might be confusing what happens if you retire early (eg if you wanted to claim your pension at 57) with what happens if you leave teaching.
Please don't opt out. It's almost certainly a very bad idea indeed.
I'm not sure - It's been approx. 200 this year and I'm on M5 (soon to be M6).
What % is that. I must confess I am in the scheme but don't know how much I pay out each month.
Thanks for your input.
Thing is though, I'm sure I remember being told that if you don't stay in teaching until your retirement age (69 I think!) your final pension amount drops rapidly. I must admit, I don't know as much about this as I should so I'm going to talk to someone about it. £200 is just such a lot every month.
Don't opt out. Just don't. There is so much value in having a pension scheme where the employer also pays in. Yes, when it does eventually pay out in god knows 40 years time t will be small, but trust me, you will be grateful to have it.
Please don't. The employer contributions will probably be considerably more than you pay.
The TPA is one of the best pensions going. You would have to be
crazy desperate to opt out.
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