David a big thank you for all your time firstly on the TES forums, now helping other teachers on RU-vid, unlock and understand the minefield which is teacher's pensions.
Graduated 1990, couldn't find a proper job at first so ended up temping for a while, this included sleeping in a lorry, humping bits of chipboard up stairs and over building sites, and navigating a 17 ton lorry across central London with a stressed out driver. Even then I didn't consider doing a PGCE. Kudos to you who have endured it long enough to get a pension
Hi David great video,can you clarify the bit about the scheme rules on retiring early,I was led to believe at 55 you have access to any pension you have ,but you said all 3 shemes only allow you to take it 5 years before normal retirement age,which is 67 in the career average most recent teachers pension scheme,so does that mean you will have to be 62 to access this pension?,and what if you have service in 2 of the different schemes, how does that work,because apparently if your in the 65 final salary and the later career average scheme you must take both at the same time..thanks Bob
Currently all schemes allow you to take the pension at 55, that can vary then between 5 and 13 years "early" depending on which scheme and your State Pension Age. When I said they all allow you to go 5 years early I didn't mean that was the "earliest" they let you go, but to emphasise that the reductions are similar for all of the schemes.
Thank you so much for this video. Very informative and it has really opened my eye! Turning 57 soon, and had assumed I needed to just pretty much keep ploughing on full time (as I only have 26 years in the scheme and no other pensions). I fully intend to get some financial advice and aim for retirement or dropping to PT much sooner!
Just watched this after your link in our facebook group. Its very interesting and eyeopening David- Thank you! I will consider getting the spreadsheet and crunching some numbers.
Watching this video again, I like to watch it every year. I’m 46 and trying to plan for the future. I’m still in my first house but looking to move up the ladder. My teachers salary is the only income for the household. I’m also in Scotland but have been teaching 20 years already. It’s a nightmare trying to work things out and financial advisors only want you to invest money. I have to do the maths myself.
Every 4 years the reduction factors are reassessed. In 2024 they moved in our favour. In the video I refer to age 50 having a factor of 0.811 in the NPA60 Final Salary scheme, this has now changed to 0.827. The spreadsheet I use has the most recent (2024) factors now: docs.google.com/spreadsheets/d/1MmQ1h1AwCoC5IggRdVai4L0aBu5j0subZHCkVe3JNOw/edit?usp=sharing Make a copy of that to put in your own.
Hi David, fantastic videos, a huge thanks for all your efforts, it really is amazing how supportive you have been for so many of us. You helped me with specifics on my pension on the TES site and all that info is now unobtainable due to their apparent update! Not sure you remember but my wife and I are in a very similar position as yourself? I am not able to access the link for the spreadsheet, I'm guessing that I am doing something wrong but I just cannot find it!
It is a google sheet: docs.google.com/spreadsheets/d/1MmQ1h1AwCoC5IggRdVai4L0aBu5j0subZHCkVe3JNOw/edit?usp=sharing to use it you will need to make a copy.
David thank you so much for this. I think If I'd known this I might have retired earlier but was always worried about how much pension I would lose. Again so clearly explained. 👏😊
Glad it was helpful. The concept of "losing" is very difficult but once you get the idea that the reduction is not meant to be punitive but to ensure you get a "fair" return compared to what you put in it makes a lot more sense.
Very helpful, thank you. Most main scale teachers like me won't be £60k, more like £40k, and can we retire at 55, get the pension, and still carry on working in the teaching role knowing (possibly) than we could stop when we want (or reduce our hours) as we can? Can you still pay into your pension? Do you need to (or can you) reduce your hours and still get the same money...is there a sweet spot?
Once you have taken the pension "early", for which there has to be a break in employment, you can return to teaching and have no restriction on how many hours you do or wage you earn. You can also re-join the pension scheme as a new career average pension but you must work for a minimum of 12 months for this subsequent service to qualify as a further pension.
Good video mate, never thought about it like this, in all honesty is getting £4,000 a year more at aged 80+ that important?? I think I'd much rather be chilling at 55 and enjoy my health for the time I have it
Yes, so many are, or were, heading for "60" just because that was the number the scheme said was "normal". The only important numbers in this, imo, are the £s and days. You can choose to spend your days getting more £s or not. I think my own figures led me to this question, "Is it worth working another year to add £700 to my annual pension?" I quickly realised that I could earn that doing a paper round in my retirement, (well I actually did some exam marking which paid better and took up less of my "days" in the year, and it's not so bad when you can do it 9am to 5pm instead of 5pm to 1am!)
Hi David - in your video for the "taking early at 55" the first factor figure is 0.811, but on the spreadsheet it is 0.827 - which is correct, or am I misinterpreting this? Thanks
Yes, I do and yes it is now 0.827. The factors are re-evaluated every 4 years and it turns out that life expectancy has not accelerated as fast as was expected and as a result the reduction factors are now better than they were. The spreadsheet has been updated with the new factors but I haven't redone the video.
I may well be wrong, but I think that the catch up age is 78, due to paying less income tax on a reduced pension, resulting in lower net income tax as a %age of pension (based on full pension of 30K and ARP of 24K. At 30K, you pay 11.6% income tax. At 24K, you pay 9.5%. With a reduced pension, you get less per year. But the extra (earlier years) of taking it may have significant benefit (depending on health, other assets, life plans, etc)
Yes, the less pension you have the less gets paid in tax. If you have less than the personal allowance (12,570 currently) then there would be no income tax and therefore the benefit of taking it early pushes the break even "age" later not earlier. A pension of £15,200 (age 60 ) in the final salary scheme taken at 55 would pay out £12,570. 5 years of that would see you get a total payment of around £100,560 (lump sum plus the 5 lots of £12,570). If you had waited until 60 then you would be getting an extra £2,630 but that would all be taxed at 20% bringing the extra down to £2,104. You would have 3 times the full extra as a lump sum, so the £100k headstart given if you took it at 55 would be cut to £56,540 by the larger lump sum given at 60. Dividing this by the annual increase of £2104 means it would take another 26.9 years to "catch up". 60 + 26.9 being 86.9 before you start to "lose".
Great video David, thanks, it confirmed what I had thought after running the numbers, but for some reason thought it too good to be true. The key issue seems to be 1/80 accrual which is less generous than some final salary schemes. I'm interested in how something like phased retirement would change this, depending on the % of pension taken at 55, as you would claim some of the pension but also build increased pension benefits.
There have been changes to the scheme and a lot of tinkering but, to my mind, a lot of the changes to a 'better' accrual rate is more about masking the impact which, after all, is primarily aimed at driving down the costs - i.e. paying teachers less. The pre-2007 was 1/80ths....post 2007 it "improved" to 1/60th - BIG difference until you factor in the raising by 5 years the normal pension age and the removal of the tax-free lump sum. Then to the post 2015 career average which again "improved" the rate to 1/57th...but once again raised the normal pension age to match the state pension age...add 2-3 years before being able to get the pension plus, of course, that the 1/57th is now stored away each year and so those early years in the scheme are worth much less than the later ones...unlike the final salary schemes where it all get valued on the final ones.
@@dfountain Thanks David, nice clear explanation. I have been reading the TPS guidance and actuarial reduction tables but little of it is that clear, so it is good to get some demystifying guidance with these videos.
Excellent video. I'd suggest that you mention the effect of income tax on these figures - in reality the extra £4000 per year for delaying your retirement is only worth £3200 (assuming that you will be a basic rate taxpayer) in terms of money you receive, delaying the break even point even further.
This is ever so helpful explaining it so clearly. I just wanted to get some reassurance that all these calculations in the spreadsheet would be relevant to someone in the career average scheme and incorporate what the TPS refer to in their literature as the “standard reduction of 3% per year” ? It would be great to use the numbers the spreadsheet produces in my retirement plan with confidence.
The tables used are for those whose NPA (Normal Pension Age) is 67 and include the 3% per year. On the sheet itself ( docs.google.com/spreadsheets/d/1MmQ1h1AwCoC5IggRdVai4L0aBu5j0subZHCkVe3JNOw/edit?usp=sharing ) there are two tabs for the Career Average pension. In the TPS documentation ( www.teacherspensions.co.uk/-/media/documents/member/documents/factors/retirement/early-retirement-factors-july-2019.ashx ) there are two tables for the Career Average. One for deferred and one for active members. I must ask TPS what this means because to claim the pension early you have to be 'out of service' which would make it impossible to claim as an active member to my mind. At some point soon I will update the sheet so that users can enter their NPA and it will include the factor for them. You can see, on the active tab, column D has the factor from the ER7 table (TPS documentation) and column E 2 years reduction of 3% a year (multiplier of 0.94). If your NPA is 68 then you should change this column to 0.91.
I have added in the option on the first sheet to select your Normal Pension Age so it will adjust the figures automatically now to match the Career Average reduction.
Hi David, can you make a video on employer contributions and whether it’s better to leave your money in a pension scheme or if there’s better rewards from an ISA?
This would step a little outside my comfort zone where I stick to explaining HOW the scheme works and into areas of giving financial "advice", an area I am not qualified in. That said, I would guide you to look at this video where I compare the amounts paid in over a career to the amount you would need to have put aside to "buy" a similar annuity: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-kJpS3lS3h10.html
Happy Christmas! So, I am now very nearly ready to put in my online pension form :-). I will be taking it 4 months early, as in my last post. One quick question - does it actually matter which day in a month you pick? Is the actuarily reduced pension calculated daily do you know, or is it better for any reason to pick the start of a month, end of month, the birthday day etc? Thanks.
Not 100% certain on this but from reading the factor tables I would suggest it does. The Final Salary schemes state that the factors are taken from "(in years and complete months)" (page 3) The Career Average works slightly differently in that they don't work from your 'age' but how long before you would reach your normal pension age and so they round UP the months to go. The upshot of these is that yes, you don't want to pick the day just before your birthday! The difference we are talking about from 0.2 to 0.4%. On a pension of £10,000 that would make an annual difference of between £20 and £40 a year and between £60 and £120 on the lump sum. For instance at 59 and 8 months the factor for the final salary NPA60 pension is 98.7%, if you were to go 1 day before your birthdate in the relevant month it would instead be counted as 59 and 7 months and be 98.4%. So, for every £10k of pension £30 a year less and £90 in the lump sum. www.teacherspensions.co.uk/-/media/documents/member/documents/factors/retirement/early-retirement-factors-july-2019.ashx
@@dfountain Cheers for this. I think you're right but haven't been able to find out with 100% certainty either. I think the plan now is to nominate my birthday day as the retirement day, three (not four) months before my 60th birthday later this year. Filling out the online form will be an early Christmas present to myself - I just gotta hang in there long enough to get it now :-) :-)
The deed has now been done!! The form has been completed, the date picked and I'll be officially retired in just 5 months, 3 months before the 60th. Thanks for the help over the years, going back to the TES times. Happy Christmas :-).
Excellent, clear video. It's odd isn't it, that if you take the pension at 59 and 10 months or 11 months, you don't start losing out until you're in your 90s - quite a big jump from taking it at 59 and 9 months. Watching both my parents go seriously downhill in their early 80s with Parkinsons and Alzheimers, I'll be taking mine next Easter, at 59 and 8 months. I only have a small teacher's pension of about £13K at 60, choosing instead to have private pensions / SIPP / investments rather than buying extra teacher's pensions. Maybe not my wisest choice but I was glad of the ability to have total control when I wanted of my own investments. Overall, it's worked out fairly well - just as well as there's not a lot I can do about it now :-). Once again, thanks for your helpful video.
Yes, I'm fairy sure that it has its roots in the actuary tables where, of course, if someone dies in their 80s they won't be included in the 90 year-old tables. I wouldn't downplay the choice you made to go independent in your pension planning. Whilst the bog-standard TP (in my completely amateur opinion) is very good value for money the limited ways available now that allow you to pay extra into the scheme are less so. With the recent change to allow flexible access to private pension funds the independent route not only allows you to choose your own investments but gives you the opportunity to draw on those funds without affecting your teacher pension. Some have used that to cover the gap between when they retire, or take a lower-paid post, before claiming their TP. Alternatively, taking the TP does not trigger the downgrading of how much can be put into a private pension - it remains at 100% of your income capped at £40,000.
Hello, The TP has sent me their calculation of my index accrual for the average salary scheme. It appears to be completely incorrect. Is there an independent advisor who would be able to check it? I can't pay much-thank you
If you want me to take a look I can - I am not a qualified financial adviser but I know the TPS pretty well. My email is dave@dfountain.co.uk (note the d after the @)
It's an interesting way to look at it, however because of the extra years worked accruing extra pension, then the person taking the pension at 60 would catch the person who retired at 55 in the first quarter of the 5th year of retirement, they would then continue for the remainder of their life having a pension income 48.43% greater than the other (£7,750 in this example without taking in to account index linking). People just need to decide what works for them, and not get bogged down with gains and losses.
Well no, a salary for those extra years would instantly result in a greater income than taking the pension so the total income for a person who carries on working and adding to their pension will have had a greater total amount paid into their account by 60 and, of course as you say, have a larger pension. What they haven't had is those extra years of being in charge of what they "spend" their time doing. I agree totally with your last sentence, the essence being to consider the whole picture where you are balancing "time" and "money" to give you what "works" for you.
Care in later life is an aspect I haven't gone into, however, it's likely that the annual pension won't cover care home fees and by taking the pension early you get to spend it in those years before you require such assistance. Not sure I will be taking into consideration how much a care home will get from me in making this choice.
My pleasure. Working out the actual figures in £ and pence gave me much more confidence in working out when I should leave...when you work out how much more you are adding to the pension by working another year it becomes a lot easier to make that decision. Also the early reduction factors are not designed to be punitive, rather to ensure you get the same out whatever age you start taking it based on living to the average age.
Bear in mind that am just an ex-teacher and not a financial adviser. As far as I am aware there is no distinction based on where you live on the payment of your teacher's pension. Payment into a foreign bank account is catered for. Unlike the state pension the annual inflationary increase happens no matter what country you currently reside in.
Great video. I'm in the final salary (NPA 60) & career average schemes. I understand it isn't possible to claim the final salary benefits at 60 while still working & contributing to the career average scheme (which has a payout at 67)?
I'm afraid that isn't quite correct, you can claim your NPA60 benefits once you reach 60 but there are restrictions. Firstly the final salary schemes have a nasty little clause in them about abatement (see my video on the 'pickpocket clause'). At 60, or later, you can claim your pension and do not - unlike claiming them early, before 60, have to be out of employment as a teacher on the day you start taking the pension. However, the rule on abatement puts a maximum limit on how much the Government has to pay you and that applies to the total from your employment as a teacher AND the pension. The limit is something called the "salary of reference" and it is the highest salary that is used in the calculation of your final salary. Method A uses the last 12 months...so if you were to continue on that same salary after 'taking' your pension then you'd get zero from the pension since your salary is already at the maximum limit. Method B uses the best 3 in the last 10...now these are adjusted for inflation so it is possible that your current salary in this case is less than the salary of reference and so your pension would pay out only up to that difference. E.g. Your salary is £45,000 but your salaries from 10 years ago, when adjusted for inflation, are equivalent to £50,000. That means that you can only get a maximum of £5000 from your pension. Once you stop working you will get your full pension. To avoid abatement you would need to take your pension before becoming 60 because the rules on abatement ONLY apply to those taking their pension at, or after, their pension age. However, to do that you have to be unemployed on the day you start your pension. Taking it just one day before your 60th birthday will do. This of course relies on you having an employer who is willing to end your contract, let you have 1 day out of contract and then start a new contract after that break. You also need to get your claim in for your pension, a minimum of 6 weeks before then, to start on that exact date. Finally, you have to decide whether it is worth it or not. Now, that is being made easier once we get to April 2022 because one of the benefits of staying in the scheme after 60 is that you continue to build up more service in that scheme. That ends of course on 1 April 2022 when everyone will be put into the career average scheme...the same scheme you would be put in if you took your final salary pension, early or not, before then and returned to work. The other benefit of staying in the scheme and not taking the pension is if you can see that your final salary would rise before you intended claiming your pension, for instance having taken on a senior post in the last year that meant your salary had jumped by more than the 10% or £6272 that is allowed in the final years. Also, in order to gain a pension from your post pension claim employment you would need to work at least one year. This is called the "additional service after retirement" (ASAR).
The link I think is working but to be able to use it just make a copy for yourself. (File -- Make a copy). This will keep your numbers private and will not alter the original copy.
I've not had any experience with pension sharing orders so I can't really comment with any great authority. However, it is my understanding that with pension sharing orders they were applied at the time they were made and your pension was split at that time. Your ex-partner would become a "member" of the scheme in their own right and can apply at a separate time to yourself. Your pension statement SHOULD now reflect just YOUR part of the pension, but I have heard that applications for pension sharing can be missed or not applied to the scheme so you should check that yours has been.
@@dfountain I thank you so much for your reply. It is very much appreciated. Your video has given me real pause for thought and I will keep you posted! Have a great day.
Hi Superb videos …the number I plug into the spreadsheet …looking at my benefit statement…can I use this …is this accurate ..it’s a bigger number than the online TPS calculators give me …why is this … I started in 2005 and have amounts in NPa 60 and 67…thanks
I'm reasonable confident in the spreadsheet and unlike the TPS calculators the formulae are open for you to examine and check. Both are completely dependent on what is put in of course. Do contact me if you want me to look over what you have put in to see if there is any misunderstanding of what goes where.
Yes, I left similar age. The pension promised provides a safety net that allows us to do other things and then to take it if we need to. I'm probably going to delay taking it for a bit longer just because my other stuff is going well.
It's a damn shame that these government superannuation pension schemes (teachers, NHS, civil servants etc) are now linked to your (rising) state pension age. Leaving at 55/60 (i.e.
There is certainly more doubt being cast as to whether any further rises are on the cards as improvements in life expectancy rates have plateaued somewhat. Of course, it is not just these schemes that are affected by the rise in the "normal" and "minimum" pension ages, defined contribution schemes are similarly affected it is just that the effects are not as easy to identify. Annuity rates, for instance, have fallen with companies factoring in that they will be paying those for longer on average.
The video uses an example where the salary is 3 times the pension (£60,000 / £20,000) ...the relative values could equally be £30,000/£10,000 - the basic maths remains the same. If you want to use your own figures please feel free to make a copy of my spreadsheet and enter your own in it: docs.google.com/spreadsheets/d/1MmQ1h1AwCoC5IggRdVai4L0aBu5j0subZHCkVe3JNOw/edit?usp=sharing The Presentation can be see here: drive.google.com/file/d/1wuadHEe65eBMjX4Qp5A1QEfdJlLgIfpw/view?usp=sharing
If you are still teaching then you could re-join. However, do check out my video on the hypothetical calculation if you have had a break in service to see if it is worth doing that. One aspect of the McCloud judgement is that you may be able to reverse an opt-out period since April 2015.
It may be worth hanging on as long as you can, depending on the scheme(s) you're in. I'm only in the NPA60 scheme and retire just before I'm 60 in the middle of next year, having resisted taking it early. The pension scheme worked out really well; not worked for 8 years and used private savings and a private pension to fund this time whilst happily enjoying travels. In that time, the 18 odd years teaching was effectively being added to every year because of some great inflation rates back around 2009 - 2011, which boosted the final pension today more than could have been hoped for. More importantly perhaps, with interest rates still very low on savings accounts, and inflation running higher than it has for years, you may find it's worth using up anything you've squirreled away first, before taking the pension?
Hi David Thank you for your helpful videos. If you have time/opportunity please run your eye over my query below. On deferring my pension, when out of the scheme, working in another field, I was told 'there is no financial benefit in you deferring claiming your pension and it will in fact be backdated to this date when you claim. If you defer your claim and then claim at a later date, then all of your arrears will be paid to you up front when you claim. This can result in a large tax payment as all of your arrears are paid in one tax year instead of being offset against your personal tax allowance for each year.' However, in my case i have two more years of work (non teaching) before I retire. As I am able to claim from march 2023, if I were to defer and claim 2 years later when not earning, I would receive 3 years pension that first year. This would be offset against my personal allowance. As my pension is small (
I'd probably need to see your statement/service history to be able to give you an answer with any degree of confidence as there are various quirks to the scheme that are easily overlooked. However, from the way you have phrased this I presume you are, or are about to be, 60+. If you are younger than the NPA for the scheme then not taking the pension sees it increase purely because the reduction applied for taking it earlier than the NPA gets less. Once you reach 60 (in the NPA60 scheme) then your pension "pretends" to start being paid but isn't actually paid out to you until you claim it and I think this is what you are asking about. In which case HMRC will consider it "taxable" in the year it is paid out and doesn't roll it back into previous tax years and re-calculate the tax due from those years. So, in this case, your plan has merit. With the Bank of England base rate at 3.5% it's worth noting that I believe this is also added to such late payments, possibly giving you a better return than putting it into a normal bank account. However...there is one other thing to consider and this relates to whatever current pension scheme you are in. Taking the teachers' pension does NOT reduce the limit on how much you can pay into other private schemes and so you could pay substantially more into your private schemes from your earnings if you took the TP earlier. If your current employer offers some sort of matched contributions this could be beneficial. This is something I would recommend you take professional advice over though. Whilst you would pay income tax on pension income there is no National Insurance charged on it.
With the top of the UPR being ~£44,000 perhaps I should have looked at this but the £60k to £20k ratio of salary to pension is easier to look at with round numbers... £45k to £15k would be the same proportion of course.
