Two of the flexibilities that allow teachers to pay more to increase their pension are "Additional Pension" and "Faster Accrual". This presentation looks at the differences and costs of each.
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@stuartgray27893 жыл бұрын
Thank you - this is very clearly presented and exceptionally useful. Far easier to understand than the TPS provided material.
@dfountain3 жыл бұрын
Good to hear that, thank you. The problem with the TPS is that they cannot do this kind of analysis and presentation as it is verging on 'advice' and they are forbidden from doing that.
@JadeWilde-f5kАй бұрын
Hi David, so useful and much clearer than the TP calculators. I'm trying to work out how best to invest some extra pay this September. I've been part time since 2014 so only have 8 years accrued. This year I go back full time on bottom of L scale. I'm 48. I don't have a lump sum but wanted to put my new income straight on pension to make up for missed years while parenting. It sounds like AF might be better for me? Very grateful for any thoughts you have. Many thanks for taking time to make these videos.
@wpirvine3 жыл бұрын
Excellent video - now if only all the UK regional TPS providers would send a link to this rather than obtuse jargon filled letters, with minimal examples then there would be a greater degree of understanding of the TPS.
@dfountain3 жыл бұрын
I agree which is why I started this series, though I do have some sympathy with them. The legislation on financial guidance is tricky and so they have to be ultra conservative on what and how they describe it. I'm not an adviser just an ex-maths/IT teacher who believes the explanations can be simpler. Thank you for your feedback.
@shoesarenice2 жыл бұрын
Yet another fantastic video. I have been recommending your videos to others in the staff room. As a 29 year old teacher, who had considered leaving the pension because it is so hard to understand the TPS website, your videos are so clear and entertaining. I have two possible topics that might be interesting to explore. 1. How would paying in a lump sum affect early retirement on the career average pension? Would it be possible to offset the penalty for retiring early? 2. How would having a 5 year “break” at 52 while living on your savings before having an early retirement and 57 affect the career average pension? Looking forward to the next video. They are always very enjoyable.
@dfountain2 жыл бұрын
Thank you for your kind words. 1) Lump sum payments. There are three flexibilities, this video expresses my opinion (remember I am not a qualified financial adviser) that the additional pension is better value than the faster accrual. The third, early buy-out, which I have looked into briefly, is trickier to assess because you can only choose to use it in the first 6 months of joining the scheme and then you pay the extra for the rest of your career - there is no lump sum payment option. It's something I intend to look at a bit more as the McCloud changes mean that everyone will be starting the career average scheme again in April 2022 and so the 6-month limit on opting to do this will also open again. 2) Having a break...or retiring before taking the pension...is certainly possible. I did this but I also run my own business so I have alternative sources of income to tide me over before I reached the minimum pension age. Taking time out of the career average scheme will mean that the CA pension will stop being increased, other than inflation. For example, if you were on a salary of £57k then each year adds £1k to the CA pension. If you stop at 52 then the CA pension will stay at the amount built up at that point, increasing only through inflation. So, the basic amount will be around £5k less if you don't work for 5 years. There is a slight added extra reduction due to the fact you also won't be getting the 1.6% bonus increase above inflation that is paid every year that you stay in the scheme on the amounts already built up. Interestingly though if you did leave at 52 but returned to do a TPS-eligible role with a school for even just one day before you were 57 then the pension built up at 52 would get that 1.6% above inflation increase for all of the missing years. (The limit is 5 years before coming back loses this bonus).
@shoesarenice2 жыл бұрын
@@dfountain Thank you so much for your reply. Lots of food for thought! I’m working on building up my index fund portfolio at the moment so that would be what I would cost on at 52 but ‘losing’ that £5000 is not something to be taken lightly. The idea of coming back to work for one day to make it match inflation is interesting. I think I would probably avoid the break but I am aiming to take the early retirement. I find these thought experiments very interesting. Looking forward to the next video.
@dfountain2 жыл бұрын
Just to be clear your existing pension isn't 'losing' £5k rather that by not paying in to it you are not increasing it by £1k a year. If you left and went to work elsewhere and joined their pension scheme that would be in place of the £1k per year you could have added to the TP scheme.
@tissynorthcote70722 жыл бұрын
Very helpful - just spent an afternoon looking at this for my partner and this is a very clear explanation of the issues involved.
@dfountain2 жыл бұрын
Thank you and good luck with your planning.
@johnporcella23753 ай бұрын
That was one very impressive mathematical feat! I suppose someone starting teaching late or having had a long career break might do BOTH a faster accrual AND pay for additional pensions to make their retirement more comfortable! The point being that it is no longer a matter of deciding which is better!!
@dfountain3 ай бұрын
I'm afraid there is a limit on how much you can add from the combination of all these flexibilities, so doing two of them won't let you build up any more in total -the limit is current £8,500's worth of annual pension. However, if you started before March 2012 you do currently have the option to purchase a similar amount of additional pension in the final salary scheme - see "retrospective additional pension"
@johnporcella23753 ай бұрын
@@dfountain Hours after posting, I realised this too! However, as it is always rising, it is a difficult target to reach, bar making a lump sum. The advantage of taking a two-pronged approach is that the 1.6% bonus is maintained, admittedly at slightly greater cost. Keep up the great work that you do.
@Andyporter-g6t13 күн бұрын
What a fantastic video! Thank you very much. I earn £63k with the recent 5.5% uplift in teachers pay. As such, I assume I am paying approx £7k at 40% tax. I’m 43 years of age. As such, if I wanted to maximise tax efficiency, is the process as simple as me asking teachers pensions to add on three blocks of £250 a year at approx £7.1k (deducted from my monthly salary). Thanks for your help.
@dfountain13 күн бұрын
www.teacherspensions.co.uk/forms/flexibilities.aspx You have to pay either with a lump sum or over a period of "years". As such you might want to work out how much you need to pay between now and 5 April and then juggle the monthly payments etc to get them to add up to the amount you need to pay to avoid paying the 40% income tax. Remember there are other pension products available outside the TPS - hence the need, I would suggest, for getting properly qualified financial advice.
@ShameyBaby3 күн бұрын
Just to echo what David was saying, I’d definitely look at other products before paying more into the TPS. I have an S&S ISA and a SIPP to give me flexibility on access to my cash.
@davidlyness4751 Жыл бұрын
Great to see an explanation . Thank you. The comparison is for lump sum not incremental payments which most people would do which presumably is not quite as good. That said, by selecting the non benefits option presumably the value of AP is even better
@dfountain Жыл бұрын
A good point, I did look at making a comparison using the 12 month option to see the difference a year made but there isn't much difference between the 12 month purchase of AP and the lump sum. Longer periods would be more problematic to compare as the amount you pay for the AP isn't increased by inflation each year but the FA is based on a % of your income so will change. So whilst the AP amount bought will increase by inflation each year the FA gets a similar increase as your pay rises BUT then costs more. Selecting the non-family benefit does make it cheaper but, imo, by a very small amount. Given that anything could happen in the, hopefully, years if not decades, between buying the AP and accessing it I'd take that risk.
@Taiwaiting10 күн бұрын
Hi David , I have just opted for AP the highest block (8,500). Over 15 years. This does mean around £800 more monthly deduction. But I can afford to do so as I have finished paying my mortgage. I’m 37 this year and plan on leaving teaching just after 50! Can I just clarify, if I completed the 15 years and chose to retire, would I see the benefits? Or should I have to wait until 65?? Either way, paying the extra does offset me from higher tax and child benefit isn’t affected. I’m not losing anything am I? Thanks. Great videos too! Keep it up!
@TamaraMortimer4 ай бұрын
I have just found your site whilst looking at retirement planning for the future and your videos are so helpful, thank you! I am currently 51 and think I will need to work, at least part time until I am 60. I have roughly 15 years in the final salary NPA60 scheme and 2year s so far in the CARE scheme, NPA 67, and am looking to boost my retirement income. If I purchased AP, avoiding the 40% tax that I am just tipping into, would the AP purchased by subject to reduction if I retire at 60? Trying to work out if this is a better option than starting an additional private pension.Many thanks!
@dfountain4 ай бұрын
Yes, reductions apply to AP if taken early.
@speleocycle773 Жыл бұрын
Thank you so much for making this video! It was incredibly helpful!
@dfountain Жыл бұрын
Glad it was helpful!
@selliott742210 ай бұрын
Thanks for the video. Have you considered writing a book on teachers’ pensions? You’d sell a few.
@jeremyboardman14295 ай бұрын
Really helpful video, thank you. Have you ever looked at whether Additional Pension in the TPS is better value than the salary sacrifice AVC (assuming a very safe investment plan for the AVC such as a money market cash fund)? My instinct is that the AP would come out better but I’ve not seen any calculations anywhere.
@dfountain5 ай бұрын
No way to answer that as they have different risk factors. The AP is a pretty- much guaranteed return because the rules do not depend on anything other than the inflation figures and how long you live for. The AVC is a market based product so could do very well or not. Also, once you have "bought" the AP your money has gone and "you" own the promise to pay you - if you die before that the Government has to fulfil that promise then very little is handed on to a partner or dependent children, whereas with the AVC the fund can be.
@user-me7yx3ej5w10 ай бұрын
Thank you for putting together this video. I have been really worried about my pension as I didn't come into teaching until i was 37 (5 years ago) and I want to make the most of the teachers pension options. I never really thought about AP/FA as I was told they were not good for someone in their 40s. Your video shows they can be beneficial. However, I am struggling to understand what the benefit for me is when I retire. (knowing this will help me make my decision). The flexibilities calculator says that 1 unit of £250 over one year will cost me £209.40/month - this is about as much as I can afford monthly. I am about to hit the 40% tax threshold so from what I can see in your video it will take me about 9 years to recoup this. What does this translate to in my retirement monthly income? Many thanks, Scott
@dfountain10 ай бұрын
If you buy £250 of additional pension now then when you take the pension at 68 it will pay out the inflationary equivalent of £250 a year for the rest of your life. So, about £21 a month.
@user-me7yx3ej5w10 ай бұрын
@@dfountain So I am paying in £2512 (over a year) so that I keep the value of that £250 in 25 years time?
@davidphillips7794 Жыл бұрын
Thanks for the work that you have put into this - makes it a lot clearer! It may be a stupid question - I've been playing with spreadsheets to try to work out why you'd want to put the money into the additional pension, rather than saving it as a nest egg to give access to the whole of the capital... Is the £2500 index linked?
@dfountain Жыл бұрын
Yes, the key advantage to the TP is the full index-linking. The scheme was designed before the Government opened up the other type of pension funds so that you no longer have to buy an annuity with them and that can be more attractive if you want to keep access to the capital. Once you've paid into the TP you only have the promise of the annuity. If you were to buy an annuity instead the same is true but as you no longer have to do that it's no longer such a clear cut distinction.
@johnporcella23753 ай бұрын
Not only is it protected against general inflation through indexing, you get Income Tax relief in your contributions! If you saved the money in an ISA, the money going in would be post-tax and is then not indexed linked. However, the money coming out would be from income Tax. You could set up a SIPP, but the returns are not guaranteed and they are not indexed linked. I suspect that matching the TPS scheme with a DC/money purchase scheme would be next to impossible, at least not without having to take huge risks.
@saifurrahman7497 Жыл бұрын
David, I just want to say thank you so much! I did your calculations using AAB 3 Year Buy Out adjustment to FA. It makes faster accrual utterly useless! I'm aged 23. The FA 1/45th becomes 7.10% cost to accrue, so it will take 45.73 years for it to match up to additional pension. So I'd have to be working until I'm age 68 even though I chose to buy out the acturial reduction so I can retire at age 65. I'm happy to share my Excel spreadsheet if anyone wants to see.
@dfountain Жыл бұрын
Thank you for letting us know. Good to hear your calculations come to a similar conclusion regarding the FA versus AP. I have done some work on the EBO and found it very similar in value to the AP, BUT with no benefit to surviving dependents should you die before them.
@peterbeaumont81798 ай бұрын
I know it's way off topic, apologies, but the idea that you will be teaching in anything like the same way as now in the mid 2060s is unthinkable. Changes are already happening that will make the world of work and notably teaching unrecognisable by then. Looking that far ahead at your pension might not be worthwhile? For someone much older. like me, however, this video of David's is very useful indeed and I'm grateful for the work he's put in.
@jennycrossingham Жыл бұрын
Thank you so much for this. If I've understood it correctly, if you leave teaching before your early/mid 60s you would lose the 1.6% increase on the FA scheme, meaning the AP route would almost certainly be cheaper. I'm a late entrant to teaching - joined CA scheme in 2018 at age 50 and now 55. I have bought both FA and AP but thinking I won't renew FA going forward and will stick to AP. Am I right in thinking that even if I only taught one day a week as I get much older, that will keep the 1.6% uplift going?
@dfountain Жыл бұрын
Yes, working on even the smallest contract gets the 1.6% bonus on top of inflation. You can even have a complete break from teaching and so long as you come back to the scheme within 5 years you get the 1.6% bonus for all the intervening years as well. However, that 1.6% bonus still takes many years to catch up to the better value AP gives you initially. By my calculations you need to work continuously (or with breaks of less than 5 years) into your mid to late 60s for FA to be better value.
@jasonorourke9821 Жыл бұрын
Hi David. I have just come across your videos and wish I had seen them earlier - so clear and informative - thank you. A quick question if I may - I taught overseas for 6 years and did not pay into the TPS. I am 54, in a full time position and currently paying £300 a month into the faster accrual scheme to try and make up the shortfall (as well as £200 in AVC). Watching this video, I think I may be able to do it differently. Is there a better way to make up the 'lost' years please?
@dfountain Жыл бұрын
I would switch to buying additional pension rather than the faster accrual based on the figures I went into here. You can do your own calculations. Work out how much you add in a year using the FA option, the difference between 1/57th and whatever rate you are doing, and then see how much it would cost to buy that amount of additional pension using the 12 month instalment plan. However, all of the ways of buying extra TP are nowhere near the value of the "normal" amount you are paying for...there simply isn't a way to make up for missing years for the same cost that you would have been able to get at the time.
@johnporcella23753 ай бұрын
If you have savings from your time abroad or by other means, eg an inheritance, you might want to consider paying for an additional pension, a faster accrual and if you have not used your Pension Annual Allowance in full, maybe even an AVC or a SIPP too! It would cost you a packet, but you would end up getting lashings of income Tax relief, so it would not cost quite as much as would appear at first. Another thought is that you ought to call Future Pensions to discuss if you have missing years of NI contributions and whether it is worth buying off any gaps in your past. Teaching used to be contracted out, so, like me, you may need more than 35 years to get the full State pension; I need 38! That you were abroad makes me think that you will have a gap there. If you get this looked into well before March 31st 2025, you can go back far, far longer than the usual six years, but only six years after that date. My advice is that you call them when they open at 8am, as the queues get longer as the day marches on.
@paullawrence22732 жыл бұрын
Such great videos. Thank you. I have watched 2 but will be looking at others soon!
@kevinancell76353 жыл бұрын
Excellent analysis and video, very clear to understand, many thanks!!!
@dfountain3 жыл бұрын
Glad it was helpful!
@jasonorourke9821 Жыл бұрын
Thanks very much for your reply David - very much appreciated.
@ralphswallow746611 ай бұрын
Excellent. Is Additional Pension a different thing to AVC though ?
@dfountain11 ай бұрын
Yes, it is different. An AVC is a defined contribution pension scheme. You pay in and that money is invested and grows (or not) and you can have access to it once you reach the minimum pension age. At that time you can use it to buy an annuity or take out either in one go or bit by bit until it is gone. When you purchase AP you are, in effect, buying an annuity directly without going through the building up of a pension pot of money and then shopping around to get the best deal.
@harryingham4878 Жыл бұрын
This is so helpful - thank you. Is buying Additional Pension a good way of getting my salary down to under the higher rate tax threshold in order to avoid paying tax on child benefit payments?
@dfountain Жыл бұрын
Yes, a payment into the TP for additional pension lowers your "taxable income" that is used for that assessment. I would probably suggest doing the monthly instalment method rather than the lump sum option though as the scheme is set up for automatic tax relief on the monthly instalment route but not for lump sum payments. Doing this means your taxable income is reflected in your ordinary pay slip and end of year P60.
@Sean61784 ай бұрын
Hi. Sorry if a daft question… Does the same logic apply to national insurance? So any price quoted on TPS website would be either 30% (income tax 20% and NI 10%) or 50% (IT 40% and NI 10%) less in terms of impact on take home pay? That’s before factoring in child benefit repayments. Thanks in advance
@clairedismorr37298 ай бұрын
Thanks (again) for useful information. It's so helpful. Do you have any further knowledge about the potential for buying AP (using a lump sum from a private SIPP I have) for those impacted by Transitional Protection and whether that's worthwhile and how it would be calculated? I know we have until October 24 to buy AP as we are considered 'new' to the CA scheme following the court case but I've received no reply from TP about how to go about this and whether it's worthwhile. I'm currently on supply (so my TP is paused) but am looking to start contributions again in Jan at a new position. At that point, I'm told I can take advantage of the one year option to buy AP - but no-one can tell me any figures around that as someone affected by McCloud. Most frustrating - and I can see the one year window to make that choice disappearing as I wait for TPensions to update their calculators!
@dfountain8 ай бұрын
Afraid there is very little information out there as yet regarding the "retrospective purchase of additional pension": See this page which tells us we will have 6 months FROM the date the RSS is issued (not from October 2023): www.teacherspensions.co.uk/members/scheme-changes/transitional-protection/key-changes/retrospective-additional-pension.aspx However, the form they link to on this page is NOT a dedicated form for such a purchase but just the current "Career Average" form. When I questioned this I was told to use this form but attach a covering letter indicating that I was seeking to buy AP in the final salary scheme retrospectively! Sent it off last week but no idea how they are going to handle it. I did include several questions on this with regard to what the cost would be for me back in 2016 (the date I considered purchasing it), how much interest would need to be added to the costs and what the current value of an AP block would be now once the annual Pensions Increase was included. One thing I would note though is that there is a statement you have to affirm on the form that clearly states that "I confirm that I am not using money received from any pension arrangements to purchase this flexibility", so your plan to do this with money from a private SIPP may have to be reconsidered. However, what you should be able to do, once you re-join, is apply to TRANSFER the SIPP to the TPS and this, in effect, "buys" additional pension. It wouldn't use the tax-free lump sum part of the SIPP as the right to take that tax-free amount will be held in the TP as well as the SIPP. You would have a time limit from re-joining the TPS of 12 months to complete the transfer. You cannot buy the current Career Average Additional Pension until you re-join the scheme, but you will be able to do that at any point whilst you are in. There is no time limit to doing this.
@clairedismorr37298 ай бұрын
As always, thank you. I'd found the same form and was a bit baffled by the reference to Career Average at the top as you point out! Noted re the information re Transfer of the SIPP. I may just apply for early pension actuarially reduced (again, another odd form where it asks me to get my employer to complete a section - which of course I no longer have). All a minefield so your advice always helps so much. @@dfountain
@clairedismorr37298 ай бұрын
@@dfountain fyi an interesting conversation with TP today who were adamant that the option to buy additional pension retrospectively in the FS scheme was not possible but only as a supposed ‘new’ member to the CA scheme. Seems to contradict their own website!
@dfountain8 ай бұрын
They have now added a form to make the application, and I have, as a deferred member, had my application responded to with the costs involved! www.teacherspensions.co.uk/-/media/documents/member/applications/miscellaneous/apb-december-2023-v18-fs.ashx
@saifurrahman7497 Жыл бұрын
Can you show a table for those in their early 20s as well please!
@dfountain Жыл бұрын
For a 21 year-old the cost for buying £250 is £1720. So, roughly 7 years to get the value back.
@saifurrahman7497 Жыл бұрын
@@dfountain thanks, i've decided to do buy out of 3 years instead, and maybe additional lump sum rather than FA in the future
@dfountain Жыл бұрын
That is also an interesting comparison. The early buy out is very similar in value to the "additional pension", possibly slightly better but it does lack any enhancement for your partner should you die before them.
@paullawrence22732 жыл бұрын
Thank you for clarifying. If I go for the refund will I be able to put it straight into a personal pension or avcs to avoid tax or if not what tax will I have to pay?
@dfountain2 жыл бұрын
Not something I'd considered as my gut feeling was that the other option, getting AP in the FS scheme, would be better value...but now you raise it I do suppose that you would be able to put it into another pension and, so long as you are paying income tax at the same rate as you were, then you'd get the same tax relief from your new scheme. The whole question of how income tax would be handled has not been clarified yet.
@rachelbartlett624 Жыл бұрын
Extremely clear and useful - thank you.
@jamienewport Жыл бұрын
Thank you for another fantastic explanation. I work in an independent school that might leave TPS to save money. I'm wondering if I should buy some additional pension with a lump sum whilst I still can? How might the TPS option compare with other annuity products on the market? Hoping to retire at 60 and take actuarial reduction on career average rights. Many thanks.
@dfountain Жыл бұрын
This isn't a question I am qualified to answer. I am not a financial adviser and this really moves away from simply explaining how the scheme works into proper "financial advice". That said I do have some thoughts on how to proceed.. 1) Speak to a financial adviser ;) 2) Make the comparisons for yourself. Find out how much it would cost to buy a comparable annuity, that is one that is full index-linked, not capped, and that has dual-life coverage if you have a partner so that they would get part of the pension if you died before them. When I did this it was when annuity rates were lower than they are now, however I did find that buying such an annuity was a lot more expensive than buying AP - particularly if you are talking about buying "small" amounts (annuity rates are generally quoted in amounts per £100k of pension fund). 3) Consider the "loss" to your estate. If you pay for AP then the money you hand over is "gone", you've paid for the promise to pay YOU for life and so the money you hand over is no longer part of your estate and cannot be passed on after your death. The same can be said of a pension fund AFTER you've bought an annuity but up until you buy an annuity or use it via the drawdown options, it is still yours and CAN be passed on after your death. 4) If you are contemplating taking "early" retirement then consider a more hybrid approach. You can put money into a private pension and instead of buying an annuity or taking your pension immediately upon leaving teaching you can drawdown on the pension fund's capital to delay taking the TP. This will increase the annual amount the TP pays as it would be subject to a lower reduction factor as you leave it until closer to your normal pension age.
@dfountain Жыл бұрын
One other point I would raise with you is that if your school DOES leave the TPS then you are free to take the TPS pension whilst still working. If you waited until 60 you would be allowed to take the NPA60 final salary scheme in full without taking the career average part and could leave it until later should you so desire.
@jamienewport10 ай бұрын
Really appreciate you spelling out some options. Sounds like I need to do some shopping around for comparison. Keep up the great work demystifying the TPS.
@johnporcella23753 ай бұрын
@@jamienewportIf the independent school is going to leave the TPS to save money, that should ring alarm bells in my head that going forward the new pension scheme will not be as generous to its members. What should I do in such a situation? I should consider a faster accrual and an additional pension contribution, as much as I could sensibly afford. Then, if I really do not like the replacement pension, move to a school or college which allows TPS membership. I agree that paying for consultation with a qualified financial planner/adviser seems wise.
@Solgoodman85 Жыл бұрын
Thanks for the great videos David. Quick question: 1) if I opt to buy AP and spread payments out over a period of time and then my school withdraws from TP during the pay period what happens?
@dfountain Жыл бұрын
In such cases TPS will offer you the choice to accept the proportion of AP that you have already paid for OR to pay a lump sum to cover what would be the remaining payments.
@Solgoodman85 Жыл бұрын
Thanks for quick response David. That’s good news. The last piece of the jigsaw before I pull the trigger! Keep up the great work
@Superneutrino2 жыл бұрын
Hi David, Thank you for this video, very informative! I have a question in that what does this do in terms of early retirement? If I was looking to retire at 55 (currently 35 and just shy of the 40% bracket with 9 years in the TPS already) would it be worth buying AP or FA?
@dfountain2 жыл бұрын
Both would get the same actuarial reduction, so in that sense it doesn't change how they are compared. I believe that AP is better value than FA unless you have a career of over 30 years AFTER buying FA...this is due to the 1.6% bonus that FA gets each year that the AP does not and that means that going 5 years early will reduce the FA's value even more when making the comparison.
@MultiNihil3 жыл бұрын
Thanks very much for the video. As always is clear and well explained. I only have one question. When you show the "recoup rate" of buying additional pension it seems that you are counting from 68 years old. Does that mean that you only have access to that extra pension on the retirement age? Or I could access that money whenever I decide to retire? Thanks
@dfountain3 жыл бұрын
You take the additional pension at the same time as you take the other pension. If you do this it will be actuarially reduced. For instance, taking your NPA67 pension at 60 will give you 69.9% of it. So, instead of getting £250 you get 69.9% of £250 which is £174.75. Of course, you will still have paid the same amount for it so it will take more years to be paid back, but consider this; the 30 year old paid £2180. Divide that by £174.75 and it takes 12.5 years to get it back. 60 + 12.5 = 72.5. That means they have their money back before they reach 63. If they'd waited until 67 to take 100% of the £250 they wouldn't have got it all back until they reached 76.
@MultiNihil3 жыл бұрын
@@dfountain very very interesting stuff. Thanks very much for your answer. I just want to say that your videos has taught me a lot and they have been the main reason I have just bought a considerable amount of additional pension. Thanks for your work putting all this together. I will be looking forward for any further video! Maybe some comparation between beefing up the pension and paying up the mortgage? Just an idea.
@dfountain3 жыл бұрын
Great, always good to hear they have been useful. The one on comparing it to pensions is interesting and I did toy with the idea however, it's an area that strays out of the TPS and into general financial investments - with no qualifications in this area I don't feel comfortable putting my opinions out there. Unlike the mechanics of the TPS investing in property just depends on too many variables that are outside your control. Personally, I always looked to reduce my debts as fast as possible - the memory of interest rates going into double digits is a wound that ran deep.
@johnporcella23753 ай бұрын
Having debts when inflation is high reduces the value of the debts. I suspect that when interest rates were high, inflation was higher. This is why those who invest in property want large mortgages, as I flstikn erodes the debt pile (as well as gearing their business).
@robertpayne30449 ай бұрын
I’m starting to pay 40% tax. I have been quoted £310 per month for £250 of additional pension. Am I correct to think that the £310 figure is without tax relief? So in other words I would actually pay 60% of this and the government 40%?
@dfountain9 ай бұрын
Yes. The money will come out of your GROSS pay, before income tax is deducted. This means your pay will initially look as though it is £310 less but if you hadn't used it to buy the pension the Government would have taken 40% of it (£124) in income tax and left you with £186. The cost to you of getting £250 per annum added to your career average pension is £186. If, when you retire, your income is only in the 20% bracket you would be getting £200 a year after tax (index-linked of course)
@robertpayne30449 ай бұрын
@@dfountain
@robertpayne30449 ай бұрын
Thank you!
@paullawrence22732 жыл бұрын
I cannot seem to find anyone who knows what will happen to additional pension being purchased by someone who had been transferred to career average who will now have the final salary option for that period. I see 3 options on the teachers' pensions website but which will they let us have and which will be best to go for?!
@dfountain2 жыл бұрын
The reason no-one can tell you is because the DFE is still working out how they will change the regulations to comply with the legislation - and so no-one actually knows, yet! I doubt we will hear much about it until 2023 either. The legislation requires the scheme to offer at least one remedy but the way the legislation was discussed the intention is for them to offer a few alternatives. My understanding of those is that there should be these two options if you decide to go for the final salary remedy for 2015-2022: 1) You get a refund of the money you paid for the additional pension (plus inflation) 2) You continue to pay but the amount you have 'bought' will be converted from the career average scheme to an "equivalent" amount in the final salary scheme. By "equivalent" I don't mean it will be the same but will reflect what you could have bought in the final salary scheme for the same contribution.
@dfountain2 жыл бұрын
If you were to buy additional pension now then you are, along with everyone else, in the career average scheme and so it will be based on that scheme. Only AP bought in the period 1 April 2015 to 31 March 2022 will be eligible for the remedy. (Not that anyone has decided on what the remedy for AP will be yet)
@clarecunningham49402 жыл бұрын
Hi David. Thanks for taking the time to make the video it is very informative. I am on the 40% tax boundary. However if I do exam marking that will push me into the 40% tax for money earned marking. Is it advisable to buy additional pension to reduce tax bill? Or am I too late this year? Thanks in advance.
@dfountain2 жыл бұрын
The tax year runs from 6th April to 5th April so if your exam marking was in January then you have missed doing this for last year's tax year. Any payment into any pension scheme can take advantage of the tax relief so it doesn't have to be into the TPS, you can open a private pension. One of the difficulties (nice difficulty to have) is working out just how much needs to put into the scheme if all you want to do is gain relief on the 40% amounts. Putting in too much isn't a disaster as it just means some will only get the 20% tax relief but putting in too little will mean that you get taxed on 40% on a bit. Personally I'd open a private pension and then do the sums at the beginning of March so I could put in a lump sum to the private scheme. Doing this does mean dealing with HMRC to get the other 20% back. One thing to watch out for if you buy AP via the TPS with a lump sum is making sure you get the full tax relief...HMRC are not used to dealing with pension schemes that are NOT set up for automatic tax relief and whilst the TPS will give you the proper tax relief if you buy AP in instalments through your pay packet they don't if you buy the AP with a lump sum payment. See this video for more on that: kzfaq.info/get/bejne/apmehtOkprTMcpc.html
@clarecunningham49402 жыл бұрын
@@dfountain thanks David. I think I'm going to attempt to get AP via my employer to save hassle of getting extra tax relief back. I may have £4000;pay in the 40% tax band. Is there a straight forward to work out how much AP I need to buy? Cheers for replying. Clare
@dfountain2 жыл бұрын
The flexibilities page is the one you want. A bit of a workaround to get what you want. I would enter my DOB, pick the basic £250 block and the 1 year option for payment. You can then double the block if it's too little, i.e. £2000 in total, or spread it over more years if it is too much, i.e. £8000. If it turns out that you cannot get close enough to the £4000 target spend then you can always open a private pension and put in the extra into it as well. Remember that if you start it now then you won't have the full 12 months to pay in before the next tax year.
@chrissambe22822 жыл бұрын
Hi David, as per other comments I wish I'd watched this before spending the day on the TPS website! Couple of questions: actuarial reduction - my wife is the teacher (age 49, 19 yrs FS and 7 CARE) and would like to finish between 55 and 60 - there is a calculator on the TPS (with the slider) which appears to calculate the AR - is this accurate, and for both elements and is the AR the same for AP (without the family benefits if it matters) and even better, is there a formula or table that works this out? Tax relief - (part of our reason for looking at this is to shelter our savings from inflation so we have a lump sum of about 30k we could put in ) when I ran the calcs on the TPS the lump sum seems a bit cheaper (I think 29,900 v 30,500) I know I'm probably wrong, but I initially thought there was no tax relief (I'm really clueless about all this) but now I'm thinking I'll be able to claim 20% of 29,900 back from HMRC (if I fancy the challenge) or that 30,500 from salary will only "cost" 80% of that in reduced take home pay? Thanks in anticipation.
@dfountain2 жыл бұрын
First, please do remember that I am not a financial adviser just an ex-maths teacher. For the actuarial reduction, yes the calculators on the TPS website are fine...or at least I found nothing wrong with them. I did get fed up with having to flick back and forth between the schemes so I made my own that you can use: docs.google.com/spreadsheets/d/1MmQ1h1AwCoC5IggRdVai4L0aBu5j0subZHCkVe3JNOw/edit?usp=sharing The AR is the same for any additional pension. In purchasing AP the lump sum is a little cheaper but harder to get the tax relief sorted, primarily because HMRC take a while to be convinced that the scheme is not set up for automatic tax relief IF you buy AP with a lump sum. I explain this here: dfountain.co.uk/lump-in-the-throat/ Also, to get tax relief your wife would need to be earning over the amount you pay into the scheme - and don't forget the amount she is paying into the pension already (~10%)...there is also an annual limit of £40,000. If she were to pay it from her wages over 1, 2 or more years, then the tax relief is taken care of automatically - and it also makes it less likely that you would breach the annual £40,000 limit.
@chrissambe22822 жыл бұрын
@@dfountain Thanks David, I really appreciate your suggestions. Next question - I put my wife's details into the TPS calculator with her current salary and it came up with a post 2015 figure of 26,749 with the slider on 67, I then moved the slider down to 58 and the figure dropped to 9,944. When I put the same figure into your Summary-Different Pensions sheet (B17) it only drops to 17,877 - am I missing something really obvious, possibly to do with the TPS current and projected final salary being the same? What I'm trying to get to is (I guess at todays rates), how much will £250 of additional pension actually be if taken at say age 55 or 58? Thanks.
@dfountain2 жыл бұрын
Well...I have just been back to the calculator and it looks as though they have taken on board my major criticism of it and removed the inflationary increases. Now back to your query. I believe that when you moved the slider from 67 to 58 they will have removed 9 year's worth of contributions as well. My sheet doesn't add anything to the figures you put in...it is just based on what you have now and not what you would add if you worked on further. For instance, if you were on £57,000 a year and intended working another 5 years you'd need to add £5000 to the CA pension figure shown on your statement.
@cdbecdbe23922 жыл бұрын
Thanks David, I see my mistake! I've told the wife to cancel the world cruise and get back to work! I'm now using the actual from her latest statement plus 1/57th of salary for each year I want to see in your sheet.
@alexreid Жыл бұрын
Hi, great videos as usual. I am just under the 40% tax bracket and at the top of my pay scale. This means I will only nudge above the 40% if we get annual cost of living wage increases - coupled with the frozen tax thresholds. I'm looking at paying monthly additional pension payments spread over 10 or more years. Do I have to worry about the 40% tax implications you mention in this video or will that all be taken care of for me as I'm paying monthly? Can't quite get my head around your message on this (it's me, not you!)
@dfountain Жыл бұрын
Bear in mind that your normal pension contribution is taken off before you work out your "taxable income". So, to get into the 40% tax bracket you would have to be on a gross salary of over £55,980 because the 10.2% pension contribution would result in that giving you £50,270 taxable income. If you are over that amount then paying monthly for AP will take care of the income tax because your payments for the AP come out of your monthly salary BEFORE income tax is calculated and so you get full relief on the 40%. This is called the "net pay" income tax relief method.
@alexreid Жыл бұрын
@@dfountain wow. Didn’t even know that. My gross is about 50,000 now so assumed I was on the 40% tax soon. So I don’t need to worry for quite a while then yet?
@alexreid Жыл бұрын
@@dfountain I saw another of your videos talk about the additional pension costing you less than the calculator says due to not being taxed on it. Is that correct? The TP site suggests I’d pay £110 a month on my chosen additional pension when spread over 10 years. Would that mean my takehome pay will be £-110 or is there some tax issue i dont white understand that will mean i dont pay the full 110? Sorry. Last q! Thanks so much for your help
@alexreid Жыл бұрын
@@dfountain one more maths q. Is it cheaper to buy £500 worth of additional for 5 years and then same again. (Rather than order £1000 worth spread over ten years)? Seems so on the calc but cannot figure out if of/why that would be correct
@dfountain Жыл бұрын
Exactly. On £50k gross you would be paying around £5k to the pension and so your taxable income will be in the region of £45k...under the £50,270 threshold for the 40% bracket. That is unless you have other income.
@88davep3 жыл бұрын
This is really very helpful, thank you so much.
@dfountain3 жыл бұрын
Glad it was helpful!
@dougjustdoug663 жыл бұрын
This was really helpful, thankyou! I wish I’d watched it before signing up for a year of FA though 😭
@dfountain3 жыл бұрын
What will be interesting is how they address the transfer of those who have paid for Faster Accrual but who, on retirement, choose this period to be treated as Final Salary. There is no FA in the Final Salary scheme so the proposal is that it will be converted to Additional Pension anyway. I suggest you find out how much AP you would have got in the FS scheme for the same cost as you are currently paying for your FA...hold that in reserve so that you can ensure you get parity when the time comes!
@tonybolony7452 жыл бұрын
Thanks David, another excellent, comprehensive, simplified video, perhaps some consultancy work from TP, as all your videos need to be added to the TP site. Their videos are simple overviews signposting to "basic" factsheets. Apart from tax relief purposes, I am not completely sold on AP, TP site now has some flexibility calculators which I may re-visit. Thanks again.
@dfountain2 жыл бұрын
Thank you for the comment. TP, to be fair, are much more restricted than I am. I am NOT a financial adviser and just an ex-teacher. As for AP, yes, I haven't ventured into the comparison between it and other investments because that would require a better understanding of financial products than I have - and something for which you'd need a 'proper' adviser for.
@spencerosei26162 жыл бұрын
Just purchased £4k in additional pension, it will cost me £380 monthly over 10 years, this will make up for me foolishly opting out of TP from sept 2008- aug 2016. Can additional pension be combined with faster accrual?
@dfountain2 жыл бұрын
Yes, you can combine them - though there is a maximum limit for all combinations when added together. For 2021-2022 was £7,100. So you have £3,100 available to buy. This increases each year with inflation and the limit for 2022-2023 will rise to £7,300. Now, I am not sure if you get the full extra £200 allowance or if it is based on a percentage of how much of the limit you had previously purchased. There is one other element of the remedy coming that you may want to keep an eye on but I'm afraid that I strongly suspect that you won't be eligible. There is a part of the remedy that allows teachers to revisit their decision to opt out of the TPS after 1 April 2015. However, because this is based on the premise that such opt outs were triggered by the change from final salary to career average I think you may not be eligible for this as your opt out predates the change by quite some time.
@spencerosei26162 жыл бұрын
@@dfountain Thank you David for your help. Your channel has helped me immensely. As I opted out in 2008, your are correct in that I would not be able to rectify my opt out decision. For now purchasing 16 units of additional pension will have do, I will also top up with faster accrual 1/45th though this must be applied for every financial year. My only worry is that the cost of additional pension is reviewed every 4 years, so as a result of the valuation the cost to me might increase, or decrease, lets hope for the latter. Is there anything else I could do to reduce shortfall? I have heard of AVCs but not really sure of how they work. For now additional pension and faster accrual will have to do, it will put my 5% pay increase this September to good use 😂
@dfountain2 жыл бұрын
Bear in mind that I am not a financial adviser, just an ex-teacher. AVCs are just another name for a private pension. They are invested in the stock market and can go up and down in line with those investments whereas the amounts in the TP always go up with inflation. The costs for the AP in the TP are unlikely to change significantly as the cost corridors used apply not only to additional pension but also the main scheme and the Government are proposing altering them to make changes less likely.
@spencerosei26162 жыл бұрын
@@dfountain Thank you David, I will just stick with AP and FA . The stock market is very volatile at the minute and for this reason along with the fact that the investment could decrease, I will give AVCs a no go.
@dfountain2 жыл бұрын
The question of revaluation is an interesting one, something I will need to look into in more detail. In the meantime though I am interested in looking again at your motivation to do the faster accrual route rather than more additional pension. My calculations make the AP seem better value than FA and, if I understand this correctly, Faster Accrual is no less immune from changes following a revaluation than additional pension. You can pull out of purchasing either at any point and will be credited with the amounts already purchased in proportion to how much you have paid in up until that point. For example, roughly, if you bought £4k over 10 years and stopped paying in after 5 years you would get £2k.
@tonytwentyeight6 ай бұрын
Excellent. Thank you!
@jamesperry29802 жыл бұрын
Excellent video, thank you.
@dfountain2 жыл бұрын
Glad you liked it!
@jamienewport7 ай бұрын
Hi David, Just browsing some info on your website and came across the possibility of 'retrospective additional pension' being available if bought with a lump sum. I'm only just off the ages used in your example - (49 tomorrow!) so have an NPA of 60 in the FS scheme. I'm currently paying monthly into AP on the CA scheme but it sounds like a good bet to put what you can into the retrospective option if people have savings doing little elsewhere. I can't find a figure for max pension added in a year on the updates page but I'm guessing it would be high at around 6-7k which isn't going to be an issue as that would require a one-off payment of well over 100K! My question is, when choosing the year to backdate the election to, should we go to 2016 for max benefit? Sounds like the pension increases far outweigh any interest payments they will charge. Your example calculations suggest a ball park outlay of 18k to add 1k to my annual pension but with the inflation adjusted amount being closer to £1400 in today's money. As you say, a much better return than the CA additional pension which can only be taken from 67 and fits in much better with a plan to retire from teaching around 60. It feels like this option was kept under the radar a little by TPS - many thanks for pointing it out and doing the example sums whilst TPS get round to producing a calculator! Keep up the great work - it is very much appreciated.
@dfountain7 ай бұрын
The year you pick should be one that you considered doing it at the time but were put off by the fact it would have to be in the new scheme. Picking the earliest date, April 2015, doesn't make sense to me as you would have been aware of the coming change at that time and just be doing it a month early could have paid into the scheme at that time. 2016 was the best for me because this WAS the time that I was looking into the scheme more closely, it just so happens that I think the inflation factors from that point - IF THEY ARE GOING TO BE USED - are good. I am still awaiting confirmation that the revaluation of the amount of AP bought will be made from the date it is being retrospectively purchased on.
@jamienewport7 ай бұрын
Understood. From your experience with TPS, do you think a phone call would be worth a try to clarify how the retrospective AP will be calculated?
@AndyS16535 ай бұрын
@@dfountain Hi David, have you heard from the TPS yet regarding whether the AP revaluation is being made from the date it is purchased for?
@jonathanmclean95703 жыл бұрын
Thank you for this video. I will need to watch it several more times to process and retain all the information provided. (Math's was never my strongest area!!)
@dfountain3 жыл бұрын
Hope it is useful, if you have any questions please do ask.
@jonathanmclean95703 жыл бұрын
@@dfountain thank you. I am sure I will have one or two questions!! I plan to work through your videos at a slow pace. I think they are far more informative than the TPS website. Thank you.
@selliott742210 ай бұрын
Thanks for the video. Have you considered writing a book on teachers’ pensions? You’d sell a few.