Teachers pensions - how safe are they?
Discussion
As I get older I find myself looking at whether to purchase extra pension. I can pay for it either over time (monthly) or as a lump sum.
Since I know you're interested an example:
For me £1000 extra of pension pa would cost approx £12,000 as a lump sum. It would cost more than that if I paid for it monthly over 10 years - (can't remember exactly) but something like £129 a month total of £15,480.
So all well and good if I wanted to do this, but. How safe is it really? I don't want to pile all my money into a pension only to find out that as I reach retirement age the government swipe it back through some new scheme that all teachers are overpaid (as I know many on ph think). Or, like my Uncle who worked for Kodak for his whole life got virtually nothing cos the company went to the wall. he had share options and all sorts tied up in it. With the benefit of hindsight he should have lived the highlife while he could.
I know no-one can guarantee anything but I'm just thinking if I pile more money in it will affect my living standards now - I'm ok with that. But obviously I wouldn't be if it turns out I do that and then get f
ked just as I reach retirement. Any thoughts?
Since I know you're interested an example:
For me £1000 extra of pension pa would cost approx £12,000 as a lump sum. It would cost more than that if I paid for it monthly over 10 years - (can't remember exactly) but something like £129 a month total of £15,480.
So all well and good if I wanted to do this, but. How safe is it really? I don't want to pile all my money into a pension only to find out that as I reach retirement age the government swipe it back through some new scheme that all teachers are overpaid (as I know many on ph think). Or, like my Uncle who worked for Kodak for his whole life got virtually nothing cos the company went to the wall. he had share options and all sorts tied up in it. With the benefit of hindsight he should have lived the highlife while he could.
I know no-one can guarantee anything but I'm just thinking if I pile more money in it will affect my living standards now - I'm ok with that. But obviously I wouldn't be if it turns out I do that and then get f
ked just as I reach retirement. Any thoughts?Edited by CoolHands on Monday 18th May 18:29
CoolHands said:
As I get older I find myself looking at whether to purchase extra pension. I can pay for it either over time (monthly) or as a lump sum.
Since I know you're interested an example:
For me £1000 extra of pension pa would cost approx £12,000 as a lump sum. It would cost more than that if I paid for it monthly over 10 years - (can't remember exactly) but something like £129 a month total of £15,480.
As a comparison, in the real world, an inflation-linked pension would cost closer to £30k for each £1k of pension.Since I know you're interested an example:
For me £1000 extra of pension pa would cost approx £12,000 as a lump sum. It would cost more than that if I paid for it monthly over 10 years - (can't remember exactly) but something like £129 a month total of £15,480.
CoolHands said:
So all well and good if I wanted to do this, but. How safe is it really? I don't want to pile all my money into a pension only to find out that as I reach retirement age the government swipe it back through some new scheme that all teachers are overpaid (as I know many on ph think).
We all know that public sector pensions are unaffordable and require massive subsidy. Inevitably, to reduce this subsidy the retirement age will need to increase over time. You're still likely to get out much more than you've paid in, regardless of how the scheme evolves..CoolHands said:
Or, like my Uncle who worked for Kodak for his whole life got virtually nothing cos the company went to the wall. he had share options and all sorts tied up in it. With the benefit of hindsight he should have lived the highlife while he could.
With the benefit of hindsight, he shouldn't have had all his eggs in one basketCoolHands said:
I know no-one can guarantee anything but I'm just thinking if I pile more money in it will affect my living standards now - I'm ok with that. But obviously I wouldn't be if it turns out I do that and then get fked just as I reach retirement. Any thoughts?
See above - even if the retirement age increased before you could collect your pension, you would still be massively better off than had you funded your pension in a private scheme.ked just as I reach retirement. Any thoughts?Cool,
It's incredibly difficult these days to compare public and private pensions. It's certainly not as easy as it was ten or fifteen years ago. Then, you had a bog standard income for life and that was it - job jobbed. If it walked like a duck, etc. This week though, the creeping out (won't say 'rolling') of the new state pension is further throwing things into further disarray. It was all supposed to be so simple.
Before you decide on a course of action, you need to take a huge step back first, and ask yourself (and your TPS administrator) some searching questions. Namely, has your scheme been paying GMP contributions, and were you contracted out of the state second pension (S2P/SERPS)? I was one of them too if it's any consolation!
When SERPS was rolled out in 1978, some employers were able to pay *reduced* rate national insurance for those in the scheme if the scheme chose to contract out and guarantee a Minimum Pension for its employees. Of course, 30/35 years ago, the schemes all fell over themselves to pass the bucket back to the state and save themselves some money. Bond yields were kind and it looked a cheap, dead cert option.
The MoD was one such scheme (the scheme that I am a recipient member of, and have received a pension from, for the past 13 years or so). Was/is TPS too? It's important and I'll explain why at the end.
That bucket jangling stopped shortly after a few years later when part of that index linking cost saving was passed *back* to the employer (MoD/TPS etc). The state was still there to pay a top-up but only when inflation crept over 3%. This is the bit to take note of though. The employer to guarantee a flat rate basic state pension. They did not have to offer the topped up increases on it because the State would pay these (and pick up the bill).
And therein lies the rub. From next year, the state won’t pick up the bill for the increases and if you do want those increases back (and for peace of mind, some might), you’ll have to do it yourself, either from buying added years, a drawdown arrangement or buying extra state pension (if you are allowed).
At the moment, for those who are already retired, the Government’s inflation-related contribution to any contracted-out pension (MoD etc) is effectively mixed in with their basic state pension. For these existing pensioners, nothing will change. But for people like you, no provision whatsoever has been made for making inflation-related payments to those reaching state pension age after April 2016.
I concede, that in our practically zero percentage inflation age, this index linking might not seem anything to write home about. But when it comes to pensions which are payable over thirty years or more, it's priceless. I just read a thread about Greece here half an hour ago - the impact of the GREXIT might not even be felt or noticed for decades after it starts to bite. Think 'faulty wiring loom' and Apollo 1.
And finally, why is it important and relevant to you? When discussion revolves around the personal v's public sector debate, we focus (mainly) on investment and shortfall risk. The reality is, regulatory and legislative I risk is just as virulent these days - especially given recent pension legislation which exposes those more than many, if they're caught in a public sector scheme.
It's important not just because of all of that and not just because based on what you've posted, because no one knows if you'll need capital and not just income, and whether or not you're in poor health and want to bequeath a personal pension (now, to anyone, and not just a dependent or family member). You might even want to cash in the personal pension and invest in a classic - who knows?
There is another thread that asks how much an IFA should be paid. The thing is though (and I happily count myself out of insidious touting because I simply cannot take on any more clients), maybe you do need to speak with a specialist about your specific circumstances? The potential for making a few quid in the short term might be completely lost in the longer term and with, potentially, unseen consequences.
It's incredibly difficult these days to compare public and private pensions. It's certainly not as easy as it was ten or fifteen years ago. Then, you had a bog standard income for life and that was it - job jobbed. If it walked like a duck, etc. This week though, the creeping out (won't say 'rolling') of the new state pension is further throwing things into further disarray. It was all supposed to be so simple.
Before you decide on a course of action, you need to take a huge step back first, and ask yourself (and your TPS administrator) some searching questions. Namely, has your scheme been paying GMP contributions, and were you contracted out of the state second pension (S2P/SERPS)? I was one of them too if it's any consolation!
When SERPS was rolled out in 1978, some employers were able to pay *reduced* rate national insurance for those in the scheme if the scheme chose to contract out and guarantee a Minimum Pension for its employees. Of course, 30/35 years ago, the schemes all fell over themselves to pass the bucket back to the state and save themselves some money. Bond yields were kind and it looked a cheap, dead cert option.
The MoD was one such scheme (the scheme that I am a recipient member of, and have received a pension from, for the past 13 years or so). Was/is TPS too? It's important and I'll explain why at the end.
That bucket jangling stopped shortly after a few years later when part of that index linking cost saving was passed *back* to the employer (MoD/TPS etc). The state was still there to pay a top-up but only when inflation crept over 3%. This is the bit to take note of though. The employer to guarantee a flat rate basic state pension. They did not have to offer the topped up increases on it because the State would pay these (and pick up the bill).
And therein lies the rub. From next year, the state won’t pick up the bill for the increases and if you do want those increases back (and for peace of mind, some might), you’ll have to do it yourself, either from buying added years, a drawdown arrangement or buying extra state pension (if you are allowed).
At the moment, for those who are already retired, the Government’s inflation-related contribution to any contracted-out pension (MoD etc) is effectively mixed in with their basic state pension. For these existing pensioners, nothing will change. But for people like you, no provision whatsoever has been made for making inflation-related payments to those reaching state pension age after April 2016.
I concede, that in our practically zero percentage inflation age, this index linking might not seem anything to write home about. But when it comes to pensions which are payable over thirty years or more, it's priceless. I just read a thread about Greece here half an hour ago - the impact of the GREXIT might not even be felt or noticed for decades after it starts to bite. Think 'faulty wiring loom' and Apollo 1.
And finally, why is it important and relevant to you? When discussion revolves around the personal v's public sector debate, we focus (mainly) on investment and shortfall risk. The reality is, regulatory and legislative I risk is just as virulent these days - especially given recent pension legislation which exposes those more than many, if they're caught in a public sector scheme.
It's important not just because of all of that and not just because based on what you've posted, because no one knows if you'll need capital and not just income, and whether or not you're in poor health and want to bequeath a personal pension (now, to anyone, and not just a dependent or family member). You might even want to cash in the personal pension and invest in a classic - who knows?
There is another thread that asks how much an IFA should be paid. The thing is though (and I happily count myself out of insidious touting because I simply cannot take on any more clients), maybe you do need to speak with a specialist about your specific circumstances? The potential for making a few quid in the short term might be completely lost in the longer term and with, potentially, unseen consequences.
Edited by Ginge R on Tuesday 19th May 08:47
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