Is a pension the best way?
Discussion
Hi all,
Whilst i like to think i am relatively switched on when it comes to money in some ways (credit cards, loans, moving money around savings accounts etc.) when it comes to pensions or anything investment related i am hopeless.
I am a teacher and i'm paying into the teacher pension scheme, which i believe is one of the last pension schemes worth having? Is this correct?
The only problem is that at my current pay level, i have no option to pay 10.2% into the scheme, which when you add to tax, NI, student loan etc, means my deductions are pretty large. I am happy to keep paying into the scheme if it's the best place for it, but if i could do something that could potentially be more flexible or give a better return (whilst being similarly safe) then i would like to know about it.
I have a friend who works in pensions (sort of) and he is always telling me that they are not worth having...
Whilst i like to think i am relatively switched on when it comes to money in some ways (credit cards, loans, moving money around savings accounts etc.) when it comes to pensions or anything investment related i am hopeless.
I am a teacher and i'm paying into the teacher pension scheme, which i believe is one of the last pension schemes worth having? Is this correct?
The only problem is that at my current pay level, i have no option to pay 10.2% into the scheme, which when you add to tax, NI, student loan etc, means my deductions are pretty large. I am happy to keep paying into the scheme if it's the best place for it, but if i could do something that could potentially be more flexible or give a better return (whilst being similarly safe) then i would like to know about it.
I have a friend who works in pensions (sort of) and he is always telling me that they are not worth having...
As already said above, you will find it difficult to find a better pension scheme (unless you be come an MP/Judge/FTSE CEO)!
I am not sure what your pension friend is saying (your scheme is no good, alternatives are no good, pensions in general are not good) but unless it is the second option I would stop listening to his advice!
The cost to you seems to be about £3,000 of net salary a year. Your pension income in retirement will be huge in comparison, index linked and include a widows pension, death benefits (prior to retirement) and potentially a retirement lumps sum payment.
Just ask the scheme trustee for all such details.
I am not sure what your pension friend is saying (your scheme is no good, alternatives are no good, pensions in general are not good) but unless it is the second option I would stop listening to his advice!
The cost to you seems to be about £3,000 of net salary a year. Your pension income in retirement will be huge in comparison, index linked and include a widows pension, death benefits (prior to retirement) and potentially a retirement lumps sum payment.
Just ask the scheme trustee for all such details.
jimmy156 said:
Hi all,
Whilst i like to think i am relatively switched on when it comes to money in some ways (credit cards, loans, moving money around savings accounts etc.) when it comes to pensions or anything investment related i am hopeless.
I am a teacher and i'm paying into the teacher pension scheme, which i believe is one of the last pension schemes worth having? Is this correct?
The only problem is that at my current pay level, i have no option to pay 10.2% into the scheme, which when you add to tax, NI, student loan etc, means my deductions are pretty large. I am happy to keep paying into the scheme if it's the best place for it, but if i could do something that could potentially be more flexible or give a better return (whilst being similarly safe) then i would like to know about it.
I have a friend who works in pensions (sort of) and he is always telling me that they are not worth having...
Short answer - your friend doesn’t have the faintest idea what he is talking about!Whilst i like to think i am relatively switched on when it comes to money in some ways (credit cards, loans, moving money around savings accounts etc.) when it comes to pensions or anything investment related i am hopeless.
I am a teacher and i'm paying into the teacher pension scheme, which i believe is one of the last pension schemes worth having? Is this correct?
The only problem is that at my current pay level, i have no option to pay 10.2% into the scheme, which when you add to tax, NI, student loan etc, means my deductions are pretty large. I am happy to keep paying into the scheme if it's the best place for it, but if i could do something that could potentially be more flexible or give a better return (whilst being similarly safe) then i would like to know about it.
I have a friend who works in pensions (sort of) and he is always telling me that they are not worth having...
I wouldn't ask that friend for financial advice again. ..
Pay as much as you can afford to into one of the most lucrative pension schemes that still exists in the UK. You will be thankful in 20 years time.
Im in late 40s, and have friends in private industry, government jobs, self employed etc. Ive not heard anyone say "I wish I paid less into my pension pot when I was in my twenties" its always the other way around. Somewhere along the way, in your thirties, forties, fifties you wake up to the fact that you dont want to work forever, and that you *could* retire one day if you saved enough.
Then you start to prioritise your spending differently. The tax wrapper known as a "pension" is usually the most tax efficient way of saving/investing and it might not last forever, so take advantage whilst you can.
Pay as much as you can afford to into one of the most lucrative pension schemes that still exists in the UK. You will be thankful in 20 years time.
Im in late 40s, and have friends in private industry, government jobs, self employed etc. Ive not heard anyone say "I wish I paid less into my pension pot when I was in my twenties" its always the other way around. Somewhere along the way, in your thirties, forties, fifties you wake up to the fact that you dont want to work forever, and that you *could* retire one day if you saved enough.
Then you start to prioritise your spending differently. The tax wrapper known as a "pension" is usually the most tax efficient way of saving/investing and it might not last forever, so take advantage whilst you can.
brickwall said:
In short, it's a bloody fantastic deal and you should definitely not stop paying in.
In a bit more detail:
If you're paying 10.2% that means your salary is between £42k and £55.5k, so your marginal tax rate is 40%.
Let's say your salary is £50k, so you're paying about £5k per year. This comes out pre-tax, so it actually only costs you £3k.
Assuming you have a normal pension age of 65-68, then you will earn a pension of 1/57 of salary for each year you contribute to the scheme. So, in this case, you have a salary of £50k, so you get a pension (from this year's work) of £877, which is then inflation linked (so when you access it, it's a larger number but obviously prices have gone up too)*
If your salary stayed flat for 30 years, then you could expect a pension of ~80% of that salary on retirement - in this case £40k.
If you were to go out today and buy on the open market an inflation-linked pension of £40k, you'd need a pot of ~£1.2m.
If you took your £5k per year and invested it, you'd need returns of 12.5% per year to get to a similar number after 30 years.
In short, this is why everyone else is completely screwed.In a bit more detail:
If you're paying 10.2% that means your salary is between £42k and £55.5k, so your marginal tax rate is 40%.
Let's say your salary is £50k, so you're paying about £5k per year. This comes out pre-tax, so it actually only costs you £3k.
Assuming you have a normal pension age of 65-68, then you will earn a pension of 1/57 of salary for each year you contribute to the scheme. So, in this case, you have a salary of £50k, so you get a pension (from this year's work) of £877, which is then inflation linked (so when you access it, it's a larger number but obviously prices have gone up too)*
If your salary stayed flat for 30 years, then you could expect a pension of ~80% of that salary on retirement - in this case £40k.
If you were to go out today and buy on the open market an inflation-linked pension of £40k, you'd need a pot of ~£1.2m.
If you took your £5k per year and invested it, you'd need returns of 12.5% per year to get to a similar number after 30 years.
- It's actually CPI+1.6%, so by the time you access it it should be worth much more than £877 in today's money.
brickwall said:
P.s. Worth noting that employer contributions in the Civil Service pension scheme are now 20-25%
https://www.civilservicepensionscheme.org.uk/emplo...
I joined the Civil Service at the start of this year it works out they pay 26% whilst I pay 7%. It’s a defined benefit scheme. At this stage of my life my goal is to pay the mortgage off as soon as I can and then put everything I can into my pension. https://www.civilservicepensionscheme.org.uk/emplo...
As others have said, stick with it and you’ll enjoy the benefits in later life.
Most of the rest of us would now kill for a defined benefits scheme.
Consider it part of the recompense for being a teacher - you may not be getting the headline salary of other professions, but for most of us on defined contribution schemes, the vagaries of Trump, Brexit, financial collapses, blah, blah, mean we have zero idea what are actual pensions are going to be, only vague predictions.
If you can stick with being a teacher, absolutely stick with the pension.
Consider it part of the recompense for being a teacher - you may not be getting the headline salary of other professions, but for most of us on defined contribution schemes, the vagaries of Trump, Brexit, financial collapses, blah, blah, mean we have zero idea what are actual pensions are going to be, only vague predictions.
If you can stick with being a teacher, absolutely stick with the pension.
wormus said:
brickwall said:
P.s. Worth noting that employer contributions in the Civil Service pension scheme are now 20-25%
https://www.civilservicepensionscheme.org.uk/emplo...
I joined the Civil Service at the start of this year it works out they pay 26% whilst I pay 7%. It’s a defined benefit scheme. At this stage of my life my goal is to pay the mortgage off as soon as I can and then put everything I can into my pension. https://www.civilservicepensionscheme.org.uk/emplo...
As others have said, stick with it and you’ll enjoy the benefits in later life.
If not, then you're strategy isn't correct. Mortgage can wait, interest rates are low, get full benefit from pension now and extend the length of mortgage if that's what needs done.
soupdragon1 said:
Just to check, you're currently getting max benefit from the pension scheme at the minute, yes?
If not, then you're strategy isn't correct. Mortgage can wait, interest rates are low, get full benefit from pension now and extend the length of mortgage if that's what needs done.
I could pay more into my pension and I do take your point that with current interest rates as they are, that’s the smart thing to do. However I’m convinced we are heading for a recession at some point the BoE will put the interest rates up. Definitely something to think about.If not, then you're strategy isn't correct. Mortgage can wait, interest rates are low, get full benefit from pension now and extend the length of mortgage if that's what needs done.
brickwall said:
By my calculations (using a more reasonable 5% growth assumption), the pension rights are actually worth about 33% of salary, so essentially there's an implicit 7% contribution coming from the public purse to plug the gap.
The whole lot comes from the public purse! That’s the galling thing about public sector pensions - the rest of us, often with pretty crappy employer provision, are paying for public servants to have breathtakingly generous pensions.Sheepshanks said:
The whole lot comes from the public purse! That’s the galling thing about public sector pensions - the rest of us, often with pretty crappy employer provision, are paying for public servants to have breathtakingly generous pensions.
But generally public servants get paid less. Pay increases are pathetic and we don’t get a bonus either. Most of us don’t join the civil service for the benefits! Sheepshanks said:
The whole lot comes from the public purse! That’s the galling thing about public sector pensions - the rest of us, often with pretty crappy employer provision, are paying for public servants to have breathtakingly generous pensions.
It’s not just public service. Private service DB schemes are paid for by the consumer through the price function. brickwall said:
To be fair, I haven't included employer contributions in the above calculations. But you're right, there is still an implicit subsidy from the public purse.
Currently in the teachers pension scheme employees pay an average 9.6% contribution, and employers an average 16.5%, leaving a total of 26.1%.
By my calculations (using a more reasonable 5% growth assumption), the pension rights are actually worth about 33% of salary, so essentially there's an implicit 7% contribution coming from the public purse to plug the gap.
The Treasury has since 2010 had a subtle policy of closing this gap - forcing departments to recognise the true cost of the pension schemes, and adjust employee/employee rates to fund them appropriately. This is a good thing, as departments now see the true cost of an employee in their budget.
Interestingly, the Treasury has just done a review of the Teachers Pension Scheme on exactly this basis, and may well recommend that employer contributions rise to 23%, which'd go a long way to closing that 7% gap.
https://www.aoc.co.uk/news/big-teacher-pension-con...
P.s. Worth noting that employer contributions in the Civil Service pension scheme are now 20-25%
https://www.civilservicepensionscheme.org.uk/emplo...
The taxpayer is the employer.Currently in the teachers pension scheme employees pay an average 9.6% contribution, and employers an average 16.5%, leaving a total of 26.1%.
By my calculations (using a more reasonable 5% growth assumption), the pension rights are actually worth about 33% of salary, so essentially there's an implicit 7% contribution coming from the public purse to plug the gap.
The Treasury has since 2010 had a subtle policy of closing this gap - forcing departments to recognise the true cost of the pension schemes, and adjust employee/employee rates to fund them appropriately. This is a good thing, as departments now see the true cost of an employee in their budget.
Interestingly, the Treasury has just done a review of the Teachers Pension Scheme on exactly this basis, and may well recommend that employer contributions rise to 23%, which'd go a long way to closing that 7% gap.
https://www.aoc.co.uk/news/big-teacher-pension-con...
P.s. Worth noting that employer contributions in the Civil Service pension scheme are now 20-25%
https://www.civilservicepensionscheme.org.uk/emplo...
brickwall said:
In short, it's a bloody fantastic deal and you should definitely not stop paying in.
In a bit more detail:
If you're paying 10.2% that means your salary is between £42k and £55.5k, so your marginal tax rate is 40%.
Let's say your salary is £50k, so you're paying about £5k per year. This comes out pre-tax, so it actually only costs you £3k.
Assuming you have a normal pension age of 65-68, then you will earn a pension of 1/57 of salary for each year you contribute to the scheme. So, in this case, you have a salary of £50k, so you get a pension (from this year's work) of £877, which is then inflation linked (so when you access it, it's a larger number but obviously prices have gone up too)*
If your salary stayed flat for 30 years, then you could expect a pension of ~80% of that salary on retirement - in this case £40k.
If you were to go out today and buy on the open market an inflation-linked pension of £40k, you'd need a pot of ~£1.2m.
If you took your £5k per year and invested it, you'd need returns of 12.5% per year to get to a similar number after 30 years.
Is the teachers pension a CARE scheme or final salary ?, either way, it's going to be better than anything you get outside.In a bit more detail:
If you're paying 10.2% that means your salary is between £42k and £55.5k, so your marginal tax rate is 40%.
Let's say your salary is £50k, so you're paying about £5k per year. This comes out pre-tax, so it actually only costs you £3k.
Assuming you have a normal pension age of 65-68, then you will earn a pension of 1/57 of salary for each year you contribute to the scheme. So, in this case, you have a salary of £50k, so you get a pension (from this year's work) of £877, which is then inflation linked (so when you access it, it's a larger number but obviously prices have gone up too)*
If your salary stayed flat for 30 years, then you could expect a pension of ~80% of that salary on retirement - in this case £40k.
If you were to go out today and buy on the open market an inflation-linked pension of £40k, you'd need a pot of ~£1.2m.
If you took your £5k per year and invested it, you'd need returns of 12.5% per year to get to a similar number after 30 years.
- It's actually CPI+1.6%, so by the time you access it it should be worth much more than £877 in today's money.
wormus said:
Taxes of course but you don't directly get to tell us what to do, we work for Ministers.
You do realise we pay taxes too ?
None of which was in dispute.You do realise we pay taxes too ?
There should be no dispute that these pensions are mainly funded by the taxpayer and the employee contributions are a small proportion of the overall cost. Which was of course the point under discussion.
brickwall said:
I mean, subject to the normal facetious caveats on the difference between who pays and who actually signs a contract, this is clearly true for almost any public sector role.
Indeed - the pensions for all public sector employees are massively subsidised by the taxpayer.brickwall said:
But I don't think either of us have a principled objection to the concept of the government employing someone (and giving them pay, pensions, etc.) paid for with public funds.
Obviously it should depend on whether the amount paid is fair and reasonable, given the costs incurred employing people in the private sector doing the equivalent jobs.Plenty of examples where this isn't the case, as confirmed by the ONS.
brickwall said:
When I say "taxpayer subsidy" I'm talking about the gap between what's in the employer budget (wherever that money happens to come from...this scheme bizarrely also applies to independent schools) and what the government promises to pay out in retirement.
That's a bit of a meaningless definition, but it does at least recognise that the massive subsidies demonstrated by the 'quoted' employer costs are not even the full picture.Gassing Station | Finance | Top of Page | What's New | My Stuff