Teachers CARE pension
Discussion
Hi,
My other half is a teacher, started in 2012 so most of her pension will come from the CARE scheme rather than final salary.
We used the teachers pension website tonight and input details which showed that based on her MPS salary of approx £33k she would receive approx £57k a year as a pension at age 68 assuming she worked full time until then and her salary stayed the same as now.
It's a 1/57th scheme with an annual revaluation of 3.6% and she will have 42 years service if she works until 68.
After a bit of reading etc I made a quick spreadsheet to try and understand the numbers and worked out the same amount as the online calculator. I'm an engineer, I needed to understand the figures.
Now it seems strange to me that in the above scenario she would be working until age 68 earning £33k and then in he first year of retirement earn £57k.
Is this correct? All of the above assumes no lump sum which obviously decreases the yearly amount.
As said it seems odd to me but everything I read seems to be tying up with this.
I'm a DC scheme member so have never looked at this before.
Numbers are all approx rather than to the correct pound
My other half is a teacher, started in 2012 so most of her pension will come from the CARE scheme rather than final salary.
We used the teachers pension website tonight and input details which showed that based on her MPS salary of approx £33k she would receive approx £57k a year as a pension at age 68 assuming she worked full time until then and her salary stayed the same as now.
It's a 1/57th scheme with an annual revaluation of 3.6% and she will have 42 years service if she works until 68.
After a bit of reading etc I made a quick spreadsheet to try and understand the numbers and worked out the same amount as the online calculator. I'm an engineer, I needed to understand the figures.
Now it seems strange to me that in the above scenario she would be working until age 68 earning £33k and then in he first year of retirement earn £57k.
Is this correct? All of the above assumes no lump sum which obviously decreases the yearly amount.
As said it seems odd to me but everything I read seems to be tying up with this.
I'm a DC scheme member so have never looked at this before.
Numbers are all approx rather than to the correct pound
Edited by mk2driver on Tuesday 14th March 20:30
FredClogs said:
Something's not right.
Have you inflation corrected her salary. I suspect her take home when she's 68 inflation corrected will be at least double today money. The pension still seems high though.
I haven't as I was just trying to match what the calculator was doing and I now have that in a spreadsheet.Have you inflation corrected her salary. I suspect her take home when she's 68 inflation corrected will be at least double today money. The pension still seems high though.
As you say it sounds wrong to me, I'm hoping somebody who knows more about CARE pensions can enlighten me a little.
red_slr said:
Pretty sure a pot of that size would breach LTA... could bring its own problems, also the numbers don't add up IMHO.
Agreed but I don't know enough about the type of scheme to understand the calculations.Inputting the data asked for on the website gives that answer, I can then replicate the Maths behind that answer but it seems wrong to me. I just can't work out why.
The data the online calculator asks for us really simple as well (DOB, date started work, current salary) so I don't know how I could have made a mistake but maybe I have
Edited by mk2driver on Tuesday 14th March 21:15
mk2driver said:
Agreed but I don't know enough about the type of scheme to understand the calculations.
Inputting the data asked for on the website gives that answer, I can then replicate the Maths behind that answer but it seems wrong to me. I just can't work out why.
The data the online calculator asks for us really simple as well (DOB, date started work, current salary) so I don't know how I could have made a mistake but maybe I have
Under the CARE scheme, the benefits are based on salaries inflated at CPI plus 1.6%. Given the Bank of England CPI target is 2%, that would be consistent with the salary increasing at 3.6% p.a.Inputting the data asked for on the website gives that answer, I can then replicate the Maths behind that answer but it seems wrong to me. I just can't work out why.
The data the online calculator asks for us really simple as well (DOB, date started work, current salary) so I don't know how I could have made a mistake but maybe I have
A quick calculations suggests that at 3.6% increases, in 41 years her salary will be the equivalent of £140,690.
Her (revalued) average salary over the 42 year period will be circa £77k
Her pension will therefore be £77k x 42 / 57 = circa £56k
Does that help?
Sidicks
Edited to correct the explanation!
Edited by sidicks on Tuesday 14th March 23:50
sidicks said:
mk2driver said:
Agreed but I don't know enough about the type of scheme to understand the calculations.
Inputting the data asked for on the website gives that answer, I can then replicate the Maths behind that answer but it seems wrong to me. I just can't work out why.
The data the online calculator asks for us really simple as well (DOB, date started work, current salary) so I don't know how I could have made a mistake but maybe I have
As others have said, her salary when she comes to take her pension will be much higher than £33k.Inputting the data asked for on the website gives that answer, I can then replicate the Maths behind that answer but it seems wrong to me. I just can't work out why.
The data the online calculator asks for us really simple as well (DOB, date started work, current salary) so I don't know how I could have made a mistake but maybe I have
Under the CARE scheme, the benefits are based on salaries inflated at CPI plus 1.6%. Given the Bank of England CPI target is 2%, that would be consistent with the salary increasing at 3.6% p.a.
A quick calculations suggests that at 3.6% increases, in 42 years her salary will be £145,755.
Her (revalued) average salary over the 42 year period will be £77,230.
Her pension will therefore be £77,230 * 42 / 57 = £56,906.
Does that help?
Sidicks
Edited by sidicks on Tuesday 14th March 21:56
42*40*5*8 = 67200 hours in a room with teenagers.
So it'll be well earned and it'll bet my cock she doesn't make it to 68 before she's had enough.
FredClogs said:
Well, there you go, seems generous, but
42*40*5*8 = 67200 hours in a room with teenagers.
So it'll be well earned and it'll bet my cock she doesn't make it to 68 before she's had enough.
It doesn't just 'seen' generous, it IS amazingly generous!42*40*5*8 = 67200 hours in a room with teenagers.
So it'll be well earned and it'll bet my cock she doesn't make it to 68 before she's had enough.
That's broadly equivalent to a private pension fund of £2.25m.
Not bad when your contributions will only amount to circa £140k (before interest)!!
Edited by sidicks on Tuesday 14th March 23:51
I've been thinking about this further and have realised the mistake in my explanation (even though the calculation is basically correct).
The OP is correct in that the calculation assumes no further increase in salary I.e. the salary is fixed at £33k.
Actual contributions paid would therefore be circa 10% x 33,000 x 42 = £138,600 before interest.
Now the CARE scheme revalues the salary in each year based on CPI plus 1.6%. This means that the £33k salary in year one is treated as if it was the equivalent of 33,000 x 1.036^41 = £140,690. The £33k salary in year 2 is treated as if it was the equivalent of 33,000 x 1.036^40 etc etc... The salary in year 42 is treated as if it was equivalent to £33k x 1.036^0 = £33k.
Adding all these revalued salaries up over the 42 year period and taking the average gives the £77k figure refereed to earlier. Hence we get the pension of 42/57 x £77k= Circa £56k
In practice of course the salary will be increasing by more than 0% each year, so the actual revalued average salary will be much higher, the contributions paid will be correspondingly higher and the pension benefit will also be much higher - scary!!!
Most importantly, where the revaluation rate (in this case cpi plus 1.6%) is higher than actual salary inflation (and the accrual rate is higher than 1/60) then a CARE scheme will provide higher benefits than a final salary scheme.
Edited by sidicks on Tuesday 14th March 23:46
sidicks said:
I've been thinking about this further and have realised the mistake in my explanation (even though the calculation is basically correct).
The OP is correct in that the calculation assumes no further increase in salary I.e. the salary is fixed at £33k.
Actual contributions paid would therefore be circa 10% x 33,000 x 42 = £138,600 before interest.
Now the CARE scheme revalues the salary in each year based on CPI plus 1.6%. This means that the £33k salary in year one is treated as if it was the equivalent of 33,000 x 1.036^41 = £140,690. The £33k salary in year 2 is treated as if it was the equivalent of 33,000 x 1.036^40 etc etc... The salary in year 42 is treated as if it was equivalent to £33k x 1.036^0 = £33k.
Adding all these revalued salaries up over the 42 year period and taking the average gives the £77k figure refereed to earlier. Hence we get the pension of 42/57 x £77k= Circa £56k
In practice of course the salary will be increasing by more than 0% each year, so the actual revalued average salary will be much higher, the contributions paid will be correspondingly higher and the pension benefit will also be much higher - scary!!!
Most importantly, where the revaluation rate (in this case cpi plus 1.6%) is higher than actual salary inflation (and the accrual rate is higher than 1/60) then a CARE scheme will provide higher benefits than a final salary scheme.
My calculations said exactly the same thing as yours, I'm glad somebody else worked it out that way as well. The spreadsheet I set up was to make sure I understood what the website was telling me.The OP is correct in that the calculation assumes no further increase in salary I.e. the salary is fixed at £33k.
Actual contributions paid would therefore be circa 10% x 33,000 x 42 = £138,600 before interest.
Now the CARE scheme revalues the salary in each year based on CPI plus 1.6%. This means that the £33k salary in year one is treated as if it was the equivalent of 33,000 x 1.036^41 = £140,690. The £33k salary in year 2 is treated as if it was the equivalent of 33,000 x 1.036^40 etc etc... The salary in year 42 is treated as if it was equivalent to £33k x 1.036^0 = £33k.
Adding all these revalued salaries up over the 42 year period and taking the average gives the £77k figure refereed to earlier. Hence we get the pension of 42/57 x £77k= Circa £56k
In practice of course the salary will be increasing by more than 0% each year, so the actual revalued average salary will be much higher, the contributions paid will be correspondingly higher and the pension benefit will also be much higher - scary!!!
Most importantly, where the revaluation rate (in this case cpi plus 1.6%) is higher than actual salary inflation (and the accrual rate is higher than 1/60) then a CARE scheme will provide higher benefits than a final salary scheme.
Edited by sidicks on Tuesday 14th March 23:46
As others have said I doubt she will make it to 68 and she may also have periods of part time work if we have kids etc but it was just interesting to review what could happen.
I started looking at it as I was reviewing my own DC scheme online to look at performance.
sidicks said:
It doesn't just 'seen' generous, it IS amazingly generous!
That's broadly equivalent to a private pension fund of £2.25m.
Not bad when your contributions will only amount to circa £140k (before interest)!!
Interesting thread - thanks for the workings out Sidicks.That's broadly equivalent to a private pension fund of £2.25m.
Not bad when your contributions will only amount to circa £140k (before interest)!!
Edited by sidicks on Tuesday 14th March 23:51
Dare one ask where the fund shortfall of £2.11m comes from?
55palfers said:
sidicks said:
It doesn't just 'seen' generous, it IS amazingly generous!
That's broadly equivalent to a private pension fund of £2.25m.
Not bad when your contributions will only amount to circa £140k (before interest)!!
Interesting thread - thanks for the workings out Sidicks.That's broadly equivalent to a private pension fund of £2.25m.
Not bad when your contributions will only amount to circa £140k (before interest)!!
Edited by sidicks on Tuesday 14th March 23:51
Dare one ask where the fund shortfall of £2.11m comes from?
In all pension schemes the employer is expected to put in much more than the employee, otherwise it's not a pension - it's just someone saving for them self.
FredClogs said:
MPs are still on 40ths of their final salary, as was the case with most civil service workers in generations gone by. 57ths of career averages is significantly less generous than that.
No, 1/60ths was the final salary standard, and as explained, the 1/57ths CARE scheme may actually be more valuable for many public sector workers.FredClogs said:
Note sidicks says "before interest" - Assuming the average annualised growth over that time should easily be around 7% the workers contributions will amount to vastly into the pot than the simple level of contributions.
In all pension schemes the employer is expected to put in much more than the employee, otherwise it's not a pension - it's just someone saving for them self.
7% is a highly aggressive assumption!In all pension schemes the employer is expected to put in much more than the employee, otherwise it's not a pension - it's just someone saving for them self.
However, even at 7% you only get circa £580k, so the tax payer is still paying 3/4 of the cost. The figure is £390k at a more reasonable 5% long term return.
Plus of course, as already explained, the salary won't be unchanged over a 42 year period so the real pension received would actually be much higher!
You also miss the point that few private schemes require the employer to pay more than 3x the employee contribution - at bets they will match contributions up to a certain limit. There's a good reason that there are very few active DB schemes in the private sector these days!
Edited by sidicks on Wednesday 15th March 09:14
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