Thanks for your videos David. I left teaching in 2012 and froze my pension. This has given me a good appreciation of the impact of inflation… and how teacher pay hasn’t kept up. This video though is a great insight into what happens once I take that frozen pension. I think the idea that the £800 could be used to help pay off a loan is interesting. It would cover a £8,000 at 5% paid back over 15 years. Further loans could be taken out as the pension increased with inflation… bearing in mind the whole pension increases in line with inflation. After 15 years the £800 PA would be “freed” again. For someone retiring at 55 the lump sum calculation is very different indeed from someone retiring at 67. Re inflation, debt erosion by inflation is powerful compounding.
@Super8Rescue Жыл бұрын
I have 46 year LGPS coming in a years time and looking at the larger lumpsum. Thanks for this David.
@dfountain Жыл бұрын
Glad it has given you the opportunity to evaluate what will work best for you.
@stuartyoung25572 жыл бұрын
Yet another fantastic presentation, thank you Dave.
@dfountain2 жыл бұрын
Thank you. Good luck with your planning.
@markb802 ай бұрын
Great presentation. If you didn’t have debt and invested/saved the lump sum it makes it better in terms of equivalent years pay back but still probably worse off after inflation….
@debfenge97366 ай бұрын
Thank you, really useful and making me newly aware of many things.
@davidkendall13542 жыл бұрын
Very informative presentation, David, thank you. The key here is that everyone one is different and has differing needs, so financial advice is essential to work out the pros and cons. Most Teaching Unions have good connections with a number of financial advisers with low cost or free advice to begin with. Naturally, you need to do the sums and also consider that the TPS reduces significantly when you die, so surviving spouses receive only half. When they die, the children get nothing from the pension. Getting some amount tax free can be reinvested in tax efficient savings for future family finance. However, I take your point about inflation, who would have thought we'd be at 9%?
@dfountain2 жыл бұрын
Yes. Personal advice from a professional who can go into your full picture is important, but in this I was keen to address those who have overlooked both the effect of taking it early (i.e. you are giving up more years) and the impact of inflation (i.e. you are giving up more than just your life expectancy multiplied by the initial amount). The death benefits are interesting and I suspect I will do a video on those at some point. In this regard giving up part of the pension to get the larger lump sum is interesting...it makes no difference to the survivor pensions. Those are recalculated using the full service and pension figures with no reduction for the original pension being taken early or with the additional lump sum. One other factor in this respect, since I was looking at how many years it takes before it would be worth taking a loan to fund other activities instead of giving up some of the pension is that if the teacher dies after taking the pension then their estate gets the balance of 5 years worth of pension (the out-of-service death grant). Taking that into account you are looking at a worst case scenario of being 10 times the amount your could have given up worse off. Given that the average life-span is 80 then even someone who works to 60 is still, on average, likely to have double the income from keeping the pension than giving it up. Children, who are dependent, i.e. up to 18, or even to 23 if they remain in full-time education, do get a survivor's pension. Each child can get up to 25% of the teacher's final salary pension and up to 18.75% of the career average pension. (If there are more than 2 children who qualify then they split 50% and 37.5% of the final salary and career average pensions between them.)
@pauldodds9622 жыл бұрын
@@dfountain Thank you David. I had not considered the idea that 12 X factor was less advantageous when you are younger when retiring. In my circumstances. (I am coming up to 54 and considering going at 56.2) The lump sum was tempting, not any more. (in my case)
@dfountain2 жыл бұрын
@@pauldodds962 Glad it helped you with an alternative perspective. Though do bear in mind that I am just an ex-teacher and not a financial professional. We are also in a fairly strange place at the moment with fixed loan rates below inflation still available, something that may need to be re-evaluated when you get to your planned retirement age.
@mlng16232 ай бұрын
Thank you!
@starjimmy51943 ай бұрын
It's difficult to determine your life expectancy. I will get all my 25% Lum sum to enjoy it when I'm still more healthy and stronger.
@dfountain3 ай бұрын
Yes, whilst I make the point in this video that the index-linked nature of the annual pension is often under-valued, it is also true that taking the money early means you have more of it in those earlier, generally, more active years of retirement.
@mlng16232 ай бұрын
Thank you David. Once more, an amazing informative video! Any chance to get the spreadsheet you mentioned? I can't see it here... thank you!
another great video. can you just clarify the death bit? Ie if you dont take the max lump sum does the potential extra lump sum amount you can get at retirement get paid back to your spouse or whoever when you die...or is it just lost? many thanks _hope that makes sense what I'm asking! if you lose it when you die then surely it makes sense to get max tax free amount? I presume I just keep checking this to see if there is a reply? many thanks in advance!
@dfountainАй бұрын
There is a complete separation between what you, as the teacher, gets and then what your spouse gets when you die. One has no impact on the other. If you take the max lump sum and smallest annual pension OR you take the normal lump sum and the largest annual pension it makes no difference as to what your spouse gets as their "survivor's pension".
@terrimasefield5522 жыл бұрын
Hi David, my teacher partner will be retiring at 60 next year, they will take a max lump sum 60k ish,(which we don't immediately need). Iam 3 years younger and have a works private pension. I was informed that I could get tax relief at 20% (lower rate tax payer) on lump sums payed into my pension, so if over 3 years I topped up my private pension with 20k each year from their 60 k lump sum, we will get 12k extra tax relief ( you can only top up each year to the amount you earn per annum) . Basically if you can afford to use any lumpsum to top up a private pension then it's a good way to make extra money + if I die my partner gets all my private pension pot.
@dfountain2 жыл бұрын
It's an interesting piece of advice and of course depends on you still 'earning' an income. Useful if a partner is still working as you are. Your partner, even if they are not earning, can do the same to a lesser amount - putting in £2880 if they have no other earnings and still get the tax relief. If they are earning they can put in any amount up to 100% of their earnings (max £40k) because the taking of the TP does not trigger the reduction in what they can put into another pension. However, this video was looking at the concept of taking out a loan and using the pension to pay off that loan. In this way you get the lump sum to put into your pension and when that loan is eventually paid off by using the pension you would continue to get the pension thereafter. Whereas once the lump sum is taken and used that is the end of it. I think in the example it required a pay back period of 15-17 years. As someone retiring at 60 your partner would need to live until 75-77 in order for this to be more beneficial than taking the lump sum. As life expectancy is currently in the low 80s it is a borderline decision. My other point therefore is that if you are retiring 'early' it makes more sense to consider the loan versus pension sacrifice as an option. It is also therefore possible in your scenario to take out a loan in the first year for just £20,000. Then the £5000 you haven't given up would pay this off more quickly. In the 2nd year another £20,000 loan would slow down how quickly the £5000 (plus inflation by then) would be paying off the loan before finally entering the 3rd year where the final £20k loan would be taken.
@ianwall91522 ай бұрын
This is fine provided you are a couple. Your can't do this as an individual as this could be deemed as tax free cash recycling which would be taxable
@issywissy53692 жыл бұрын
Trying to get my head round what happens after April 2022 to the new average (npa 67 in my cae) if I am 56 now, been teaching 30 years and likely to retire before 60 or indeed on 60. I assume any pension from April 2023 is not available at all when I retire early or at npa 60? It won’t be part of any calculations to my pension when I retire at or before 60. So what are incentives / calculations whether worthwhile to keep teaching after April 2022 - it won’t add any value to retired pension for next 10 years, other than job satisfaction and salary? I cannot seem to get my head round the benefits of working after ‘now’ if I cannot get pension benefits when I do retire at npa 60 or earlier. Add to that confusion is trying to figure out the reduced value if I was to retire before npa @60 bearing in mind I cannot seem to add value towards the ‘destination’ 60 ? hopefully you manage to grasp some of my thought process here?
@dfountain2 жыл бұрын
By all means get in touch with me via my blog dfountain.co.uk and I can work through the figures with you but I think you have a small misunderstanding of how your pension is continuing to be calculated. The career average pension IS available before 67, you can access it 'early' at any time because you have reached 55 already (the minimum age is rising in 2028 but that doesn't affect you). The final salary pension you have built is also available at any time for the same reason. The reduction for taking it before 60 though is less because the normal pension age for this scheme is 7 years earlier anyway. (At 60 you will get 100% of the final salary pension and 69.9% of the career average pension). (See my video on taking pensions early: kzfaq.info/get/bejne/f7CKgt2Z0ZmqeGw.html ) Now, be careful with that final salary pension. It is calculated using the 10 years prior to you finishing and so if you work until you are 60 in 2026 it will use the salaries from 2016-2026. Just because the final salary scheme ended on 31 March 2022 that does not mean it will always use the salaries from 2012-2022. You can take action to 'lock in' the 2012-2022 salaries if you think they are going to be the best (and with over a decade of pay restraint, freezes and the current proposal to give a well below inflation pay rise this is eminently possible!) Take a look at my other video on doing this: kzfaq.info/get/bejne/p7Zli86iubOVlmw.html As for continuing the main incentive is the salary itself but you are ADDING to the new scheme's pension and despite it being called "average" it is STILL a good scheme. The time it takes to get your money back is relatively quick and should see you in 'profit' before you die. (See this video on the scheme: kzfaq.info/get/bejne/obCghpaduJnMYWQ.html
@issywissy53692 жыл бұрын
Thanks so much for getting back to me. I was not sure of the retiring early element for the 67yrs career average (april 2022 onwards)… could not find clarification on that so thank you for confirming and providing the reduction% at 60 as example. Sorted. That was issue that I could not make sense of. So I will likely have three pension calculations to make - lol. That will keep me working longer as I procrastinate… I will check out your blog and get in touch - thank you very much for offer.
@dennisashfall87482 жыл бұрын
Very informative. However I am inclined to say consider the large pension and take out additional life insurance to cover the potential differential should you die early. Remember your pension comes with 5 year guarantee even if you die within 5 of receiving your pension. Therefore it only makes sense to take the larger lump sum on severe health grounds. What do you think?
@dfountain2 жыл бұрын
I'd probably stick to what I say at the start and end...each person has to do the maths for their circumstances ;) What I was keen to do with this video was to make the point that it isn't as simple as dividing the savings from paying off the mortgage (£16k in the example) by the amount of pension (£800) because the former can be fixed whilst the latter gets the benefit of annual inflation. Clearly the longer you live after taking the pension then the better keeping it in the pension and not converting it to a lump sum becomes. So if you plan to live for 20+ years after retirement then even if you need that lump sum of cash at the start then taking out a mortgage or loan, based on what is available at the moment, makes more sense - in my amateur opinion. The issue with life insurance is that, naturally, it is more expensive the older you are. My focus has been on those who are retiring WITH debt rather than those looking to make an investment. Investing is far outside my comfort zone because I simply don't fancy the risks that come with it - but of course that means I may forego the benefits as well.
@johnporcella23753 ай бұрын
I wonder if the real risk is not dying early, since when we are dead we have no feelings or opinions on anything anymore, but of living longer than we expected? This would require greater income to pay for more heating, home helps and care and taxis etc. Given that, perhaps I shall keep the goose producing as many golden eggs as possible.
@dfountain3 ай бұрын
Yes, it is a choice everyone has to determine for themselves. The issue, as I see it here, is that many forget to factor in the value of inflation proofed income - the recent 10.1% and 6.7% inflation bringing that more sharply into focus in my opinion
@johnporcella23753 ай бұрын
@@dfountain Yes, I remember the bad years for inflation of the 1970s, so I am a bit sensitised to it and fear its return. Even just a couple of years of high inflation can cause havoc as we have seen with the Stste Pension rising in absolute value so much, from about £189 to £221 in seemingly no time.
@JC-nc3cv7 ай бұрын
This is brilliant advice. A quick query this lump sum you are speaking of is this to do with the optional lump sum available or the tax free lump sum you received when you join the teachers pension before 2007? Just a bit of clarity. Thank you
@dfountain7 ай бұрын
This is just about the optional lump sum where you give up some of the annual pension to get it.
@annacomnena21711 ай бұрын
A pension of £1k p/m wouldn’t be taxed as it's below the tax threshold.
@dfountain11 ай бұрын
True, but I wasn't looking at a pension being below the tax threshold just selling £1000 from the ANNUAL pension amount back to the Government for £12k of annual lump sum. Most teachers at the end of a long career will have pensions well in excess of the lower tax threshold of £12,570 and as such the amount they "sell" back to the Government I have assumed would ALL be in the taxable income bracket.
@johnporcella23753 ай бұрын
The State Pension would use up most of the Simgle Person's Allowance.
@haticeaniloz4284 Жыл бұрын
Can you please tell me x12 only applies to Teacher pension? I got NEST pension as well,separate of my TEACHER Pension.
@dfountain Жыл бұрын
The NEST pension is a different type of scheme, it is a "pot" of money that you can take or use in a different way. The NEST pension doesn't have a set annual pension so there isn't a case where you can "sell" some of the annual pension. You are allowed to take 25% of next "pot" as a tax-free lump sum. With the NEST you can use the pot in three ways; 1) To buy an annuity (a guaranteed annual amount for the rest of your life) with the whole pot or 75% of it if you want the maximum tax-free amount. 2) As a drawdown fund...this is where you take cash out as and when you want it but this means there is no guarantee it won't run out a) With the above you can take all of the tax-free amount out (25%) at the start and then each withdrawal thereafter is taxed at whatever tax rate you would be in, or b) You can take out what you want and 25% of EACH withdrawal is tax-free with you paying income tax on the rest at your normal rate.
@johnporcella23753 ай бұрын
While it is possible to commute a pension into a bigger lump sum, alas, it does not work the other way, ie I cannot have a smaller lulmp sum and a bigger pension! The choice is one way.
@dfountain3 ай бұрын
Yes, though, with enough fore-planning (and savings) you can purchase "additional pension" before you leave knowing that when you take the pension your lump sum will be coming. However, there are the recycling rules on doing this to consider - something I am also not qualified to give advice on - as I suspect buying an amount with a large lump sum payment in the months/years immediately prior to leaving and taking the pension shortly thereafter might fall foul of such rules. I think that so long as your payments into the pension scheme do not increase by something like 30% that you may be ok. But I would suggest you take professional advice before taking such a course of action. Note that if you have transitional protection then you are currently able to purchase "retrospective" additional pension if you felt you would have done that in the remedy years but were denied the opportunity due to being illegally moved into the career average scheme at that time.