Teachers Pension and inflation

[Jennyfi]

Does anyone belong to the TPS and know whether the pension estimate is in "today's money" or "tomorrow's money"? I've been looking at all the estimates and I've got myself very confused.

I currently earn £28k, and joined the scheme in 2017. They have a public calculator at www.teacherspensions.co.uk/members/calculators/estimate-your-final-pension-value.aspx which estimates I should get £34k per year as a pension.

That's more than I currently earn! This has to be "tomorrow's money", right? That is, I'll receive £34k per year when I retire, but of course because of inflation by then 34k might only buy the same amount as £20k does now.

Is there any way to find out the actual purchasing power of my estimated pension in "today's money"? I used to have a private pension with Aviva and they used today's money. It was really useful because it let me see what my standard of living would be like compared to now. They basically told me something like "you'll get the equivalent of 9k in today's money". That means I can look at my budget and work out what I could buy with 9k a year now because that's what I'd be able to buy with a year's worth of pension when I retired.

I hope this makes sense. I'm so confused!

That calculation cannot be right. You earn either 1/80th or 1/60th of your pensionable pay for each year you work (depending on which scheme(s) you are a member of. So you’d have to work there at least 60 years to get your full salary.

It should be in today’s money. Something is wrong with the calculation. Are you sure you have put everything in right/have read results right? Worth a double check.

Go to www.teacherspensions.co.uk/members/member-login.aspx to get your actual results.

I agree with the previous poster who says the calculation can't be right. Check all your figures again.

I must have been putting the figures in wrong - I've just done it again and it says £27k now.

However, that still doesn't seem right to me. I'll only have 30 years service when I retire, so I should get 30/60 = 0.5 times my current salary, shouldn't I (i.e. £14k, not £27k?)

@BumblebeeBum - do you think they could somehow be giving the figure in "tomorrow's money"? Otherwise they seem to be saying I'll be able to purchase just as much with my pension when I retire as I can with my full salary now. It would be nice, but that can't be right!

It’s looking at £8,629 per year if you take the tax free lump sum of £57,857.

Assumed 30 years service, final salary of £27,000 and you joined the scheme after 2007.

That’s in today’s money.

I'm not in the final salary scheme but the career average scheme. You're absolutely right @BumblebeeBum, when I go to the "Estimate Your Pension And Lump Sum" calculator I get the same as your image above, but when I use the calculator at www.teacherspensions.co.uk/members/calculators/estimate-your-final-pension-value.aspx I still get the ridiculously high values:

I must be doing something wrong, but I can't work out what! I'm not normally this hopeless but could you explain to me? (Incredibly grateful for the help!)

I'm sorry, I've just re-read that and it sounds a bit snotty! That'll teach me to post without re-reading first. Absolutely no snottiness intended

The calculator for final salary seems to give me understandable results - the same as your image above - but the career average one is all over the place.

Don’t worry, I didn’t read it that way.

I can’t do the career average one for you without asking you personal details.

However if you understand how each scheme works you’ll see it doesn’t much matter for you at the moment. As I understand it you have been in the scheme for 3 years and will be in it for another 27 to make 30.

A final salary scheme gives you 1/60th of your FINAL SALARY For each year you work. So until you get to the end you don’t quite know what it is until you know your final salary. So it’s quite generous as most people are on their highest salary at the end of their career.

You are on the career average scheme, which means that you get 1/60th of your CAREER AVERAGE SALARY. If you are on £27,000 for the rest of your career (30 years) you will get 30/60ths of your salary = £13,500 per year. You can then swap some of the for a lump sum, thereby reducing the amount per year you get.

You can add up your salary for the last three years and divide by 3 to get your average salary so far. So if your last 3 salaries were : £25,000. £26,000 and £27,000 you career average salary so far is £26,000.

If you knew what salary you would be on for the rest of your career you could get a more accurate indication of what you will get. But that is hard for you to know at the moment.

If I were you I’d plan that you will get somewhere in the region of £13,500 but it will likely be more as you are so early in your career, but it’s hard to estimate more accurately at the moment.

The best way to get a personal indication of what you will get is the link I gave you above as it’s personal to you. You can also check that they have all your details correct.

Generally, most would advise that it’s a generous scheme and worth keeping.

Oh and the answer your original question re ‘today’s vs yesterday’s money’ -

You get paid £27,000 for whatever pay level of teaching you are currently at. If you stayed on that level for your whole career the pay rises you get should (!!!) keep pace with inflation so when you are thinking about £13,500 that is in today’s money. There is of course some discussion about teachers pay rises not keeping pace with inflation even though they should, but that is hard to quantify.

And when you are further into your career you can more accurately work it out. As you’d have more years worth of salary to work out your career average salary.

Thank you so much for the explanation, I think I finally understand now. Immensely grateful to you for explaining it so well. (Also, I'd got myself in such a knot over "today's money" and "tomorrow's money" that I'd completely forgotten about pay-rises!)

There’s a lot of misinformation on this thread.

The current accrual rate in the CARE scheme is 1/57th. This means that every year you get 1/57th of your pay as a pension. If you earn £28000, this means for every year worked you would accrue around £491 annual pension. Over 30 years this would be around £14700. However, each year the pension earned gets inflation added to it so you will actually end up with much more than £14700. It’s likely therefore that the calculator includes an estimate of the inflation that would be added to your benefits so the higher figures could well be correct. I’ve had a look and it doesn’t seem to say anywhere whether it includes an inflation assumption but that would explain the higher figures. I’m only on my phone though, don’t know if there’s more explanation on desktop site.

And of course you do need to factor in pay rises so in reality the amount you accrue each year will increase as your pay goes up. It’s possible the calculator also makes an assumption about future pay rises.

Just spotted the calculator assumes that each year’s pension accrual will be revalued by 3.8% per annum ( the inflation increase mentioned above) so this would justify the higher figure quoted. I don’t think it factors in any future pay rises though.