Teacher Pensions

[WindFlower92]

Hi all, I've just started looking into this for myself as I've been reading a couple of threads on here and started to wander about my own pension situation! I'm a bit concerned...

So it seems that I'm on the 'career average' scheme if that makes any difference. I'm trying to understand my benefit statement. I've worked for 5 years as a teacher, and that's been my only job (I'm only 29!). It says on the statement that I'm entitled to £2,715 per annum. Is that seriously it?! I've checked the employment history etc. out and it's all correct, but that amount just seems so small! Obviously if I'm working until I'm 68 that's another 39 years, so how much should I expect at the end of it? Obviously I know the amount I'm paid etc. changes, but I thought teacher pensions were good? Have I got everything right on here?

What does everyone do for extra savings? I'm thinking ISAs or good savings accounts. I already have premium bonds but I want something separate that's locked away just for my pension so I'm not tempted to access it early. What can everyone recommend?

Thanks!

Just read that back, I know I sound a bit dim but pensions have never really crossed my mind until now and it's all a bit confusing!

If you've only worked 5 years and stopped now that's what you'd get at 65 I think! It'll increase with time

So does roughly £2,000 sound right for 5 years work? Obviously nothing I can do about it if not, I guess I'm just shocked at the fact that my income will decrease after I stop working haha!

Well it's 2000 a year OP so if you're retired for, let's say, 20 years, that would be 40000... that sounds pretty good to me for 5 years of pension contributions

Talk to the Wesleyan.
I had a lady come over and talk me through it all. It was very helpful.

www.wesleyan.co.uk/pensions-and-retirement/teachers-pension

Have you tried using the Teacher Pension Estimator?
www.teacherspensions.co.uk/members/calculators/estimate-your-final-pension-value.aspx

You need to talk to a financial adviser. Your union can introduce you to one. I was a teacher but I also took out a private pension. You need to think about what you are likely to want to do in retirement. Your outgoings gradually decrease as you get older.

At a guess I would say £40,000 or more per year when you retire. However there are many factors involved, you may work until 68, you may go up in salary a lot over the years or you may not.
£40,000 or whatever it is, is not going to be worth £40,000 today. Inflation will reduce the buying power.

@WindFlower92
It's good you've checked the employment history, that's the important bit. £2k per year sounds about right for 5 years.
It does take time to build up a pension, and not many people earn the same in retirement as they did in employment. Remember you'll (hopefully) get some state pension on top and your mortgage will be paid off.
I have a lifetime ISA, look into them. You get a government bonus every year of 25% of what you pay in. But you can't withdraw (without penalty) until you're 60.

Lifetime ISA is useful for a first house purchase, can also be used for retirement.
ISA is very useful for money that you need to access before retirement.

You can learn a lot about pensions and investing by listening to podcasts, reading/listening to books, and watching YouTube videos. There are also online courses now which give you tools that financial planners use.

Thanks all, got a bit of perspective now and it's probably okay! I'll look into the lifetime ISA, thanks @Hercisback. Glad I looked into it sooner rather than later!

It looks right. You're 29 so likely have 30 years to state pension age - you may of course choose to retire at a different age but pension schemes seem to give forecasts as at state pension age.

If you left teaching as at the date of the statement and there was no inflation then on reaching state pension age you would get £2,715 per annum from that scheme. Of course you would have 30 years to build up other benefits, but the annual statements don't take that into account. Nor do they consider possible future inflation. As a comparator, I've just 'retired' out of an earlier version of the TPS after 18 years FT and 2 years PT as a senior lecturer in a (former polytechnic) univerrsity and that's giving me £12,000 a year. (I say 'retired' because I'm in a version which has a retirement age of 60 and if you move to a non-TPS job, as I am doing aged 63, you are forced to take the pension whether you like it or not. Current versions don't do that!)

The currrent TPS scheme accrues 1/57th of your actual salary for each year of service. It's a change to the previous version where your pension was based on your salary in the last 10 years before retirement, as this was considered too expensive by the government and perhaps unduly favoured those who had been promoted to those who hadn't. So if you're going to do 35 years FT and not get promoted your pension will be 35/57ths of your current salary. Or, more crudely, about £19,000 at today's values.

But, given how regularly the rules are changed, they'll be different when you come to retire!

Sorry, brain fade. You've got 40 years to go, as you say, not 30, so that will give you 45/57ths or around £24,500. If you get a full state pension as well, worth about £9,000, that would give you around £33,500, all at today's values.

The TPS has changed significantly in recent years, and will no doubt change again before you retire. I am in the older scheme and it may help you give you a real life example.

I have paid in for 28 years. I am currently a head of faculty. I have the choice to retire early at 55 with a reduced pension very soon. If I do that I will have a lump sum of about 30thousand (I don't think you would have that in the new TPS) and would have a monthly pension of about £1100. Quite a drop from my current pay! I will add 4% to that for every year I stay until I'm 60.

I know your pension will be very different, but it is just an example. If I had my time again I would have invested in AVCs from the very start of my career.

I agree with the advice to save on top of your pension, if you can. I did put some money into AVCs for a few years. I had a mid-career shock where I was made redundant just before I turned 40. While I got a generous payoff, the fact that I had it meant that I was unable to claim any benefits and by the time I got re-established it had pretty well all gone. When we got back on our feet we did put money on the stock market but that proved to be a moxed bag, so DW and I decided to go big on housing and mortgage, since we reckoned that should everything go pear shaped again it would be harder for them to refuse benefits on the basis that we had too much in the bank. Now approaching retirement we're in a paid off nice big house in a great area. Although the DC are still on our hands, when they float away to their own lives we should be able to downsize into something smaller but equally nice, take a large payout, and pensions will have kicked in by then so we should be financially secure for the rest of our lives (fingers crossed).

You’ve only worked for 5 years, and already have the best part of three grand a year guaranteed, for life, which will rise in line (ish) with inflation, for a fairly low contribution from you against which you’ve had tax relief. Plus death in service payment and - I’m fair it sure - dependent’s pension payment.
Our definitions of “seriously it” are a bit different

It’s great that you’re thinking about it sooner rather than later. The more you research and understand your pension, the more you’ll be impressed with what you have so far!

Think about it… how would any scheme afford to pay you your current salary for life (not unlikely to be 30 years) for the small amount you’ve put in already?!

I do recommend paying more though… expect your pension to be downgraded. That means you’ll keep what you’ve accrued already, but future pension building likely to be less generous after the next inevitable change in your scheme.

Even those 5 years that you have now is BRILLIANT for the certainty it will bring to part of your planning, as well as the actual absolute value.

Just one last thought - you mention in your OP about working util you are 68. I think when I was in my 20s I would have that I could do that no problem.

After nearly 30 years in teaching the thought of going on for another nearly 20 years - well there is no way that could happen. I am on my knees, utterly exhausted and burnt out now.

I think you need to plan for an earlier exit if you have the financial means to do it now.

Thanks for the advice all, sorry I don't want to sound ungrateful @Cocomarine haha I've looked at the LISA's and they look pretty good, might start paying into one of those once I've finished maternity leave. I think I panicked as my in-laws had been talking about their retirement and saying they had no option but to sell up and rent as they won't be able to afford anything, despite my FIL being on a lot more than me! But actually what I've got isn't too bad and I can start making other savings soon, so panic over

Good point @amillionmenonmars! Do I want to teach for 39 more years...

I don’t think you’re ungrateful
Just still on your way to being fully informed 👍🏻

@amillionmenonmars

Just one last thought - you mention in your OP about working util you are 68. I think when I was in my 20s I would have that I could do that no problem.

After nearly 30 years in teaching the thought of going on for another nearly 20 years - well there is no way that could happen. I am on my knees, utterly exhausted and burnt out now.

I think you need to plan for an earlier exit if you have the financial means to do it now.

I would second this. DH is a teacher and at 54 is planning to work until 60 maximum. He just wouldn't be able to carry on any longer without serious health implications.

He wont be able to retire then, but will take his pension and do something else to make up the shortfall

The TPS with the career average terms is still a very good pension.

It accrues at 1/57 of salary per year, so if you earned £57k, would accrue £1k per year worked, plus additions for inflation proofing. You probably don’t earn £57k but over time, you could get much closer to that and your pension will be boosted by decent chunks for every year worked.

If you were paying into a defined contribution pension (which is what most are now) the pot you would have built up, would buy you far far less than what your TPS says you have already accrued. And what you’ve accrued isn’t subject to stock market changes or to being eroded by inflation.

Something else to bear in mind, is the amounts people need in retirement are less than when working. Chunks won’t come out of your pension income for pension payments or student loan repayments, or national insurance and as your income is lower, tax will be lower too. Most people won’t be paying a mortgage by then, so outgoings are lower. Pension websites suggest that for a comfortable retirement, a couple might need about £28k per year. Bearing in mind that a full state pension is £9k per person, if 35 years have been paid in, you start to see that you might not need as much as you want.

Teachers approaching retirement who have worked a solid number of years (30 ish) and had some promotions, stand to have very good pensions, compared to most people who don’t have the defined benefit career average that teachers have.

Yes, you might not want to do 30 years. Fair enough, but then of course, what the teacher pension will pay you will be less, but presumably you’ll do something else and pay into a pension there. If it’s not a public sector pension like the TOS, it’s likely to be far less generous and you’ll then realise what a great thing the TPS was.

So, it’s not worth loads now, but that’s because you’re 29 and haven’t worked long. It’s made a good start and pensions are a long term thing that build gradually.

I agree too, that it’s worth thinking about other aspects of financial planning whilst looking into your mortgage. The earlier you do this, the more informed choices you can make and more flexibility and choice later in life.

• Owning a property sooner rather than later will help. I know it’s hard for younger people, but live as cheaply as you can to accrue the deposit, so you can then buy. Over-paying on the mortgage to reduce it and end it as soon as you can, is often the key to people being able to retire younger. I’d focus on buying property before funding extra pensions at this stage, becaue you’re already in a good pension.
• Once you’re buying a property and if you have some surplus money, then paying into a SiPP (private pension) can also be good. Even if it’s just £20 a month, with a long time to invest, you can go for the riskier but bigger return options as you have time to ride out any downs as well as ups. Vanguard offer packaged SiPPs and also ISAs for different levels of atttidue to risk. You could even start one now, with very small monthly sums, whilst still saving for property.
• Above all, stay i. The TPS. Don’t be tempted to leave because you’re disappointed in what you’ve accrued so far. There are few better schemes out there and every year, people are on MN saying they wish they hadn’t withdrawn. Yes, the terms of the pension will likely change before you retire, but what you’ve already accrued should be safe and you can only work on the basis of what is available at the current time.

Use the TPS calculators to model different scenarios ( years worked, pay, retirement date) to see what your pension could be and sign up for the Meaningful Money Community on Facebook. A very informed, savvy & helpful group Re finances.

Even though my pension is very modest, I'm due to retire early (I'm 58) from teaching this October. I'm so ready for it, and burnt out. However, as it approaches I have a constant knot in my stomach. I worry about managing on a pension and whether I could get a non-teaching job. I should be looking forward to it (I've wanted it for so long) so why do I feel so chewed up and anxious? Is this normal?