Pension

[watingroom2]

I'm trying to work out which pension is better..

I always thought 'final salary' gave you more money..

but I read this on the teacher pensions:

As, for many members, the career average scheme is more beneficial, you’ll be given the opportunity to make a choice at retirement as to whether you wish to take final salary(legacy) scheme benefits or
career average (reformed) benefits in respect of your service during the remedy period.

and wondered how career average would be better (overall if pay goes up each year - the 'average' will include lower amounts than the final).. or am I being too simplistic?

It isn't better in general, I think it relates to the lump sum part of it.

The pensions were changed so that we paid more in monthly contributions over a longer period of time to then claim less in the end. It was also done after independent financial investigations found that it didn't have to change and would be entirely self funding for 50+ years.

The spin on it is just bullshit. In fact, I'm pretty sure I remember at the time there being a piece about how the increase on contributions wasn't going to teacher pensions and was actually being redirected into more general funds. I'd be very interested to find out if that's what happened in reality.

It's pretty complicated to work out which is best for individuals, as it depends a lot on when you started your pension contributions and how your career progresses, among other things.

The career average increases the value of your existing pension by CPI (I think) + 1.6% each year (you are still teaching) , so it isn't just a straight average of all you salaries, - the older ones are increased to make them comparable to current rates - and for anyone currently on UPS3 the wage a few years ago would be worth more than the wage now as UPS3 has hardly changed over the last 10 or so years.

The career average is likely to suit someone who stays at the same level for the majority of their teaching life whereas the final salary is more beneficial to those who end teaching on a high salary.

However the scheme was obviously changed to make it less generous, so it's likely that for most the final salary will be preferable, but there are some people for whom the career average could be better.

Things are more complicated too as there isn't only 1 final salary scheme - it depends on when you started teaching - I think it was 2005 when the the change in final salary happened (but I Can't remember).

The 'old' final salary scheme had a less generous 'pension salary' but a large , tax free, payment when you retired (I think 3 x annual salary), where as the 'newer' final salary scheme has a more generous pension salary, but any lump sum payment came from sacrificing some of you annual salary, at a less generous rate.

Most of that should be correct - it's very complicated though!