UKC

I'm normally the first to be concerned when changes to pensions are announced, but in this case are the Union acting in their members best interests?

For those 10% of young staff who have already opted out of the TPS isn't it simply a very significant pay rise? For those long serving members who have maxed out their allowed their benefits it seems like and excellent scheme for topping up their retirement plans? For those in between doesn't it offer a sensible degree of flexibility provided staff are making informed decisions that suit that plans/circumstances? Its certainly much better than the schemes colleagues in private schools have been forced onto. What am I missing?

Disclaimer. I submitted plans for  this 10 years ago and am effectively benefiting from a trial scheme. The skeptic in me does question the timing of this announcement, given the funding implications. 

https://schoolsweek.co.uk/united-learning-to-offer-45k-starting-salaries-by...

A Headteacher friend who had to give some assistance to a retiring member of staff, told me that when the pension went from final salary to career average, there was a clause about being able to take the old part of the pension at 60 and not to do so would result in it being lost.  Anybody else know about this?  It is some research to do during my holidays, but since the above has come up, its worth an ask from others' experiences.

Thanks

Hi

I think you may be referring to the transitional arrangements. When you come to retire if you have been in the TP scheme since before 2017 you can opt to either take your pension on the final salary scheme or the career average. To me the former seems better because you still get a reasonable annual pension(obviously based on your final salary and length of service) but you get a much larger tax free lump sum. Check out the TP website.

I hope that is helpful.

Thanks

Laurence

You can retire and take your final salary teachers pension anytime after 55 at the moment (soon to be 57). The final salary part will based around a value at 60, if you take it early it's reduced (by about 4% a year, but I'll link a document with the actual tables) if you delay taking it it increases by about 5% a year until 75

the table is on page 17

https://www.teacherspensions.co.uk/members/search/-/media/463f33f11072444a9...

If you want to continue working and paying into the career average scheme after 60 the options can get a bit complicated and it's difficult to give advice  without knowing somebodies plans. Your headteacher might be thinking that you do need to inform the TPS of your plans if you want to continue working, a phased retirement might be an option, just doing nothing and continuing working will not be in your best interests.

You should be able to get qualified free advice through your Union.

Edit even if you have a mixture of career average and final salary pension you have to start taking them both on the same date.

I think you were relying to Bingers, you needed to be in the TPS before 2012 to benefit from the McCloud judgement and that only covers contributions from 2015 until 2022.

I do agree with your reasoning and conclusion, that you the best option is to choose the final salary scheme for those years.

Thanks both.

I only taught for about 10 years and that was 17 years ago.  I love my current job and have no intention of retiring for quite some time, but don't want "my" money to go to waste.

That table is very helpful, much appreciated.  Its all quite complicated - I can do finances generally, but not so much for pensions.

Your pension will all be in the final salary scheme. As suggested above, register with the teachers pensions website. 

That will give you all the details of your pension. Worth checking your service record on there too. There are often mistakes - carefully check these and get in touch with the lea / schools that employed you to fix any errors.

You will be able to take it from 55, reduced as explained in the tables. There will also be a lump sum that you can increase at the cost of less monthly payments. All of this information will be on your personal statement on the website.

https://www.teacherspensions.co.uk/members/member-hub.aspx

So all your pension contributions will be in the old scheme. 

Good to hear. Aren't you missing finishing at 3 and all the long holiday 🤔

I won't be, if you aren't getting an annual statement regarding your teachers pension I suggest you need to contact them. It will indicate the lump sum and annual pension you are currently entitled to at 60. It should be undated every March/April

Your current amounts will keep pace with  inflation by increasing in line with the CPI until you are 60. If you choose not to take it at 60, which if you are still working seems a sensible chose, it will then increase by CPI + the values in the table. That sort of return is much higher than you will get on “safe“ investments elsewhere. 

It's one of those situations, where the more I learn, the less I realise I understand. Given you presumably deferred membership from the old scheme, before the new scheme started, yours is relatively straightforward situation, compared to current staff. Having said that I will repeat, similar to your headmaster friend, I'm not qualified to give out this advice.

Edit. 

The other thing to do when if you get a statement, like Jack and I suggest, is to actually check it's correct. Around a third of teachers I help have gaps in their pension contributions. Initially I thought this might be a local Cumbria issue, but it seems to have got worse with the introduction of MAT's

The issue is, if teachers in large numbers can opt out of TPS then the Ponzi scheme quickly falls over unless they significantly increase the rates even further.

This would then speed up the exodus.

I'd argue it's only resembles a ponzi scheme because money I've paid in has been spent by variously governments, rather than invested. Has the miners scheme collapsed with the demise of mining in UK? 

They have already doubled in the last few years, that sort of increase doesn't seem sustainable and that doubling has happened before any significant numbers opted out. If employer contributions  had to go up by a factor of 10 would that affect teachers or taxpayers? I think the callapse of the TPS is only slightly more likely than that of the state pension. 

Do you mean from the pension scheme or the profession? 

From the pension scheme.

Since it's backed by the government tax payers will continue to pick it up as they do now anyway.

It's just a shame that so many private schools have moved away from it as that's a significant loss of funds.

Seems likely especially if schemes like the one linked in the OP become more widely available. 

But looking long to medium term, if more teachers opt out of the TPS scheme won't that eventually reduce the tax payers bill? 

True, private schools were actually paying the employer contribution, rather than the government effectively paying themselves. 

TPS is not a funded scheme (there is no investment pot unlike some public sector schemes). If people opt out, the government gets less money from Teachers and their employers (schools) in the short term and less liability long term.

As for final salary Defined Benefit pensions being ponzi schemes, as Rob said, the closed Coal Miners scheme exposed that lie (based on a faulty DB valuation methodology that under-rates liabilities in good years and over rates them in bad years). The Telegraph sold the ponzi type lies for decades (that it would cost the government a fortune) from when the government proposed to take it over in the mid 1990s. Here is an example from 2008:

https://www.telegraph.co.uk/finance/comment/2794289/Taxpayers-may-have-to-d...

In reality as a 50% profit share on any growth above a conservative view on potential liabilities, the government makes hundreds of millions a year profit from the closed Miner's scheme. So far the total government profit since 1994 is £4.9 billion.

https://www.bbc.co.uk/news/uk-politics-68638865

I guess that's one way of looking at it for the longer term. But the next two or three decades will be tough as a result.

As I said before, only because governments have already spent the money I've paid, rather than investing it, if they don't honour their obligation IMO it makes them criminals like Robert Maxwell

In practice they have invested it: mostly in government services but the odd bit as bungs to mates (like bogus PPE companies). In practice it's a government loan with negative interest rate as teachers and schools are significantly overpaying what will be needed. Monty is just  being an idiot believingthe likes of the Telegraph, as teachers are not so stupid to nearly all opt out (cash in will almost certainly stay higher than payments out).

At private schools they often don't usually have a choice.

Why don't you think younger teachers will opt out of given the choice? I know plenty of young engineers who either have or are thinking of opting out of their DC pension without putting an alternative in place.

I don't remember the exact numbers now from calcs I did a while ago but I remember the conclusion being I would opt out of TPS with the option for equivalent payments into a DC. If I remember rightly, on balance a DC returns more even with safe assumptions.

As questions before insulting people.  It's good advice.

Most young people I know who are opting out of DB pensions are doing so as their pay is too low in a cost of living crisis, not because it's a poor long term deal. They need the cash now to pay rent/ mortgage etc. Some private schools are tying to opt out and staff have taken strike action in opposition (so clearly a good number don't agree with you). You claim a DC would be better but that's assuming a certain level of higher growth  (despite the much higher DC pension fees and the lower contribution requirements of the school) as compared to inflation protected DB payout based on a Career Average..... optimistic Crystal ball territory at best. Independent financial advisors generally advise against opting out.

Completely agree.

Did you read the original post, 10% of younger staff have ready opted out, with IMO  very little benefit. If a scheme similar to the one mentioned in the OP was widely available it wouldn't surprise me if that didn't increase to over 50% for younger teachers. At the other end one consequence of the new TPS scheme is that older members will max out their benefits after 28.5 years service (rather than 40) what is the point in them continuing to pay into it for no/minimal increase in benefits? Surely opting out and paying into a different scheme makes sense, it's was certainly very advantageous for me? Even I think that if you are going to teach until you are 60 (67 seems a bit optimistic) why bother paying into the scheme before you are in your 30's? 

What are the details of the offer? I don't deny teachers would go on strike. This exact same thing happened at my wife's school and their offer was excellent. At my wife's school it was mainly driven by teachers that were close to retirement and didn't understand how it would impact them. There is somehting you loose out on if you're out of the game for 4 years, but can't remember what it was now.

Again, what is the alternative offer when FA advise opting out? You're likely comparing apples and pairs.

If you earnt an average of £40k starting at age 25 and retiring at age 60, and you put in circa 10% into a DC over that period, but you got the 28% from your employer you'd have a pension pot of almost £1.2M in today's money.

[assumptions, growth:7%, fee: 0.22%, inflation 2.36%, start working:25, retire:60, assumed death age:90].

This equates to an annual income of £50k (so more than you annual salary up to that point, again, in today's money).

You may challenge the 7%, but this is considered a fairly safe return, with 9% being a likely yet over-optimistic return. My DC averaged 9.4% over the last 5 years. https://monevator.com/pension-fund-returns/

Plugging the same relevant info into the TPS calculator and it reckons you'd get £23k in today's money.

So it's half as good with realistic assumptions.

With the offer in the OP, TPS would be a hard sell as you have the full 28% to play with and put it to much better use.

My DC is 0.22%. It's not expensive at all and it's with a big well one supplier.

The link in the OP says that they would get the full amount as a pay rise and pension contribution, so they can sacrifice the pay rise into a DC giving them 28% from the employer and 10% of their usual sacrifice. It's not a lower level of contribution.

Unless I'm missing somehting it's a no brainer to opt out.

I know someone who withdrew from interval recently,, when they found out the schools employer contribution was 3%. 

If I remember correctly it was really good. Similar to the one UL are offering for staff at their private schools 24% employer contribution. 

She will need to be careful if she wants to return to the TPS, but I don't think a return to the state sector is in your plans. 

From what little I know, I'm not surprised FA advised to opt out. My more general concern is that there is a lazy assumption that remaining in is the best option. It almost certainly was true in the past, not so obvious now depending on the alternative offered. 

I was a little more cautious with my calculations, but can see why you came to that conclusion. For me the no brainer for opting out is if you have taught for more than 28 years. 

Thanks Rob, you are a star.  Great information to kick off my research this holiday - I am self employed nowadays, but mainly working with schools, so I choose to keep most of my school holidays.  In fact this year, as I no longer have school age children and my wife works in an independent school, we headed over to France last Thursday and have for the first time ever got to my in-laws for the Juillet 14 celebrations.  I'll perhaps do 5 days work this August as one of my local MATs start after bank holiday.  You know the 3pm finish is a myth.

My wife's school very nearly had their first ever strike due to opting out of the TPS, but got a higher pay rise to compensate for the higher contributions.

My statement and the TPS website is going to get a bit of a grilling when we are hiding from the storms forecast for tomorrow.  Thanks again for your help.

7% growth is not the growth race that IFAs currently use ( more like 3-5%).  Your numbers are on the optimistic side. 

He does acknowledge that.

On the other side the 23k the TPS are predicting assumes teacher pay rises being significantly higher than inflation. Based on the last 20 years that seems optimistic as well. 

Average above inflation pay increases is part of TPS and USS pension assumptions .....It took me quite a few minutes to stop laughing when I first discovered that.

At some point I expect Labour to look at the DB valuation mechanism... it's such an easy win that saves so much money for public sector staff and organisations.

As for Monty, good luck with getting 28% contribution from your school for a DC pension.

I assume that's once you include fees and inflation surely?

Otherwise 3% is effectively no growth at all and this wouldn't align with all the historic data we have.

If you look at the link I sent above, the average annualised return from 1900-2021 is 5.3% to 5.4% (whether looking at UK or worldwide averages). This is with inflation stripped out and would be a sensible number to use.

So with my numbers the growth is 7% - (0.22% + 2.63%) = 4.15% which is right about in the margin you suggest.

If you think your range does include inflation do you have a source so i can try and understand why, as I would like to try and make some sense of it.

Have you not read the link in the original post? United Learning are effectively offering this.

Have you not read the link

Yes I have. It says if they opt out to the DC Scheme the employer would contribute 10% or 20%. Did you not read it?

Plus they are a Trust, not a public school.

True, but part of the attraction for younger staff will be an additional significant increase in take home pay. The 10% of staff who have opted out of the TPS already haven't got an alternative pension or pay rise. The scheme will be beneficial for them and IMO attractive to many others. 

What do you mean by that? It's a MAT some it's schools are private but the majority are state funded schools. If they are allowed to do this, will the government be able to stop other state funded schools following suit? Hence me being skeptical about the timing, MATs being able to pay the current 28% employer contribution either directly to their teachers or into a DC pension scheme rather than back to the treasury isn't a problem for the staff, as you point out they are overpaying for the current benefits the TPS offers, it's a potential problem for the government 

A significant increase in take home pay for a poorer retirement for most. Of course it's a problem for government but in the end on average the 'house' wins and the gambler (teacher) loses. I really hope the new Labour government acts to make the situation fairer because DB valuations have been broken for a long time in the UK.

You need to read more of it if you want to understand it.

It says:

"Employers must pay 28.6 per cent of the teacher’s salary." [ Under TPS ]

"The trust would contribute at least 10 or 20 per cent. The money saved by United Learning on employer contributions would go towards bumping up pay for teachers on the alternative scheme.

United Learning said the move “isn’t a cost-saving measure”, and would cost them the same whichever route teachers choose."

So between the pay lift and the DC contribution they get 28% over standard pay. Through salary sacrifice they have have a 28% DC contribution if they wish whilst still earning a standard teacher salary.

There is no other way to interpret the text above. Maybe it would work out as 27% as they probably need to add life insurance to make it like for like with TPS.

Not sure why this is relevant.

Which is going to be very attractive, particularly to younger memories of staff

Possibly but only if you make poor decisions, as you have said previously the current scheme offers very poor value, doesn't that imply you should be able to fund a similar retirement for less, by other means? 

If I'm in my 20's how do I lose by not joining the TPS? A decade or so of higher pay/DC pension contributions, then opt into the TPS in my 30's so I get the maximum TPS benefits when I plan to  retire at 60. You seem to be saying a better route is to join the TPS straight from University, which will means you have maxed out your benefits by the time you are 50, surely you aren't saying they will be poorer if they opt out, what should they do, to increase their pension, instead? Isn't the proposal a massive bonus for them? It was for me. 

If employer contributions were still 14% we wouldn't be having this conversations. If they go up to 42% would you still advocate for opting in?

I'm a bit wary of the desire to teach kids about financial planning, due to the complexity of major decisions and the fact I don't know many teachers who would have a clue.

Edit. There are lots of other things to consider as well. Unfortunately three of my colleagues passed away in their 50's They were in the old scheme so their partners got 50% of their benefits, for those in the new scheme it is considerably less. If they had DC pot from earlier in their career, their partner would have got 100% of it, tax free. 

I would  suggest you turn it around. You  are saying you need a pot of aroung £ 1m /£1.2 million to produce a pension of £50k today  in broad numbers.Its a good number and is reasonable at the moment.

But possibly you are not factoring in that in 40 plus years time you are more than likely to need a pot of £2 million to produce an equivalent income to that of £ 50k in  today's value.

I have factored that in by applying inflation at 2.63%.

All numbers are presented in today's money, meaning that I strip out inflation. This is done by assuming no salary growth and subtracting inflation from the investment growth rate. Therefore the outputs have a meaning in today's money.

To demonstrate this:

If I assume inflation is zero in terms of returns, but no growth in salary I get a pot size of £2M and a drawdown rate of £120k.

If I then add inflation of 2.63% to the salary I get a pot of £2.8M and a drawdown rate of £167k.

I never said TPS is poor value. It's just not as good as it once was. That could easily change again. The DB valuation mechanism being broken is generating these overly high payments. Understanding why is quite technical, however fortunately as numbers are reasonably stable its easy to look at a money paid in vs money taken out basis, where things are already looking pretty ridiculous. For that reason I simply can't see 42% employer payments happening for long, as the money in versus money out mathematics becomes so obviously bogus that the ensuring scandal would mean DB valuation reform would be forced. The Miner's DB scheme is heading that way already as government were told it was such high risk (thanks to the broken valuation mechanism) that the 50% profit share looked reasonable; after £4.9 billion profit since 1994 (on a scheme who's assets are worth about £12 billion) that risk was clearly massively overstated

Pretty much every financial organisation urges great care on transfers from DB to DC, including the FCA: who list those who might benefit most and and those who might benefit least.

https://www.fca.org.uk/consumers/pension-transfer-defined-benefit

It's sad to see seriously ill people in their 50's not thinking harder about finances but on average someone who is 50 will live to 84. I was told in my pension briefing if professional work is stressful and you are in your 50s every year you retire early means (taken as an average)  you will live almost 2 years longer.

I would hunt round and find tables which illustrate the reasonable likelihood of achieving returns depending on the type of investment portfolio you have. They can look at 30 year horizons.

Also  look at tables which show the contributions required to accumulate £1 m of purchasing power. 

I think a company called Albion consulting show these numbers. 

But you can never be sure as you can never be certain of the returns in advance or the sequence they come in. That’s why you should be wary of simple spreadsheets as they can lull you into a false sense of security
 

I've known a few people, anecdotal obviously, who have retired and quickly died. Like sharks that stop swimming.

Thanks for the reply. 

Sorry must have misunderstood. 

On that we can agree

It's only changed in one direction over the last decade, it will be intresting to see, if that happens, how it affects UL's alternative

Agreed

I was wrong when I thought the same, when the employer contribution was increased to 20%. 

Which is why I a concerned. However being in a DC scheme or having a pay rise is better than being in no scheme at all. Once your have reached your maximum benefits there is no point in contributing more into that scheme. 

That is why I have a problem with the TPS offering good value. Currently teachers are contributing the equivalent of well over a third (38%?) of the value of their salary into the TPS. If they do this for 40 years it will take them 27 years just to get their money back, as the maximum annual pension is half salary. I'm assuming their bank account interest and wages keep pace with inflation, so basically no growth. So they will have to live 10 years longer than average just to break even? 

I'll be delighted, but surprised if I've increased my life expectancy by 24 years.  That highlights another issue with the TPS if you now start claiming it at 60, due to the actuarial reduction from the value at 67 you would have to live to nearly 100 to get your money back. 

Don't get me wrong I'm very concerned about UL's motives. Pretty sure the main one is to have a competitive advantage when recruiting staff and young staff in particular. I share your concern about opting out of a DB pension scheme for an extended period, but this offer certainly helps those who already have. At the moment their state school staff having the option of remain in or joining the TPS, is for me a important  safeguard against them changing their terms. It is probably telling that option is not cost free for their private school staff. 

What's the common factor in the last ten years Rob (actually the big problems date back to 2009 when QE started heavily distorting the effectiveness of an already imperfect DB valuation mechanism ....remember the same mechanism was responsible for inappropriate employer pension holidays not so long before that)? There really is hope under Labour as I simply can't see them being sympathetic to a Pensions Regulator who's maths seem increasingly shonky and which is costing the state an unnecessary fortune in additional pension contributions to funded schemes (and costs all workers on DB schemes). There is no obvious major problem in a 'money in vs money out ' basis and problems that do exist are from bogus de-risking  (especially  in funded schemes reducing equity investment and the inclusion  of leveraged bonds!?) and bad decisions, reversed by court actions on the grounds of equality.

I'll come back to you on your calculations...something doesn't seem quite right to me but I'm not up to speed totally on the exact latest TPS situation. Certainly saying "38%" is misuse as the biggest lump is employer contribution and it doesn't transfer straightforwardly to deferred pay (currently it mostly funds the  requirements of the valuation mechanism; so it mostly recycles back to government coffers). In my day if an average TPS scheme member worked for around 35 years and retired at 60 they would expect around 50% index linked final salary equivalent for DB retirement (when including the lump sum) for an average lifespan of just over 20 years: so deferred pay of very approximately around a third depending on the career path (unless very high final pay meant the pension limit was exceeded)... the new CARE scheme (UCU were part of negotiating) seemed almost as fair on the surface but I worried about the extra years in work to 65 in a period of declining staff autonomy in schools, colleges and post '92 Unis (see below).

The early retirement advice I mentioned above related to two things in the specific circumstances back then ( the last of the final salary cohort  of TPS). The main one was please act to de-stress your job and that of your colleagues (the Whitehall studies showed the vital importance of autonomy in that), secondly people in public sector pensions on average do live a bit longer if they retire early under the schemes (for TPS then that would be ~5 years max extra years, as the earliest age was 55 and full benefits were at 60.  Yet retiring early on TPS gave another massive potential benefit: if you wanted to go back to work after 60 in a TPS organisation earnings were not capped....and... being a choice to work, autonomy would be less of an issue. In summary what I was told would obviously not apply to your situation.

It was pretty basic arithmetic money paid in v likely money out. I admit it does include 12 years of wasted contributions, but that is, for some ex-colleagues one of the big issues.  

Why not? It seems to get close to doing this, some private schools have already done this. I accept most private schools have diverted far less than 28%, but some have got pretty close. In the state sector that 28% is paid to MAT's, as you say at the moment it goes straight back to the treasury. Sure, it's a massive concern that the 28% saved is not passed onto staff, but that's why I'd like to see what safeguards are in place to prevent this. Being able to opt into the TPS if you think that offers better value seems like a good one.

I agree, but as it stands, selfishly, I'd be happy to lose the benefits of the TPS for that money to go into my bank account (or DC pension scheme)  rather

In mine as well, but that isn't an option for current staff, so probably no point in upsetting them. IMO, An adjustment to the employer contribution might happen, a return to the old benefits is less likely.

When the new scheme was introduced, it wasn't really discussed much, but with the normal pension age for teachers increased from 60 to 67 without the lump sum, it pretty much ruled out early retirement. It's a bit simplistic but teachers now have to work an extra 10 years (the lump sum being 3 years) before they can claim the same benefits

Again not talked about much but I think that was a intention of changing the accrual rate to 57th. Many long serving teachers will reached their maximum pension benefits in their early 50's, so going part-time or moving to a less stressful job might be an option.

The latest

https://schoolsweek.co.uk/unions-demand-phillipson-intervene-over-united-le...

Although I think it is an important issue for Reeves as well as Phillipson

There is a 'detail devil' in that likely 'in' though as it crucially depends on economic circumstances at the time: valuation sensitivity to some TPS actuarial assumptions are huge.

When Sam Marsh the UCU pension negotiator and Sheffield Uni maths academic explained the issues it really struck a cord with me, as someone who taught control engineering. From a control perspective the output is broadly as desired, despite the massive lag from the input, yet regulatory people are telling us stuff is happening (that is obviously wrongheaded) that will make the output veer off course in the future. Various regulatory changes have led to more control changes on a short time span (basically a type of  differential contol) which leads to a bigger valuation overshoot in both directions (hence on conservative assumptions it mostly looks bad or very bad but there are still periods that seem to justify employer pension holidays). The USS team and their actuaries (First Actuarial) even discovered mistakes in the USS actions; and of course suggested evidence based adjustments to DB valuation mechanisms. Id add, one independent USS trustee was so upset with the majority perspective in the face of contrary evidence she resigned. Incidentally, HEIs under TPS didn't even get transition relief for scheme required increases in employer contributions.

I fully understand why you would like to see more of the employers contribution going to the teachers in better pay or into a DC scheme. However schools only get that money (with great reluctance from government) to patch what is a government made problem. That government money would decrease fast if opt outs or big pay rises using money allocated for employers pension contribution relief become widespread. The letter from the Unions is fully understandable in that context  (it will risk the end of DB for the future, not the pensions of those members retired or active in the scheme and not planning to opt out).

This is an example of how the school unions see TPS vs DC opt out scenarios:

https://neu.org.uk/advice/your-rights-work/pensions/defined-contribution-pe...

That probably goes a long way to explaining some of my issues with the teaching unions. Ignoring that fact that most of their assumptions haven't aged well, the three examples are IMO very narrow and represent what they probably perceive to be typical members. They should also be looking after the interests of younger and long serving members as well.

I think the best result for teachers would be that this results in a government scheme that helps young and long serving staff, before and/or after they pay into the TPS, but I'm not sure who is fighting their corner at the moment. 

We can agree on that

It would be sad to see the demise of DB pensions though, as most really appreciate the predictability of an index linked defined benefit  for their future planning and reassurance, and the scheme charges are much lower than on DC schemes.

It was always the case in the last decade that those who most needed a Union were the least likely to join. I lost count of nasty formal cases I covered as an independent friend under rule (with a promise from them to join) when their line manager was in my union.

I couldn’t find the tables you mentioned but I did find something called the Galbraith Tables. They are a rough approximation but seem to give more optimistic answers than Monty’s calculations.

Would that be these: https://mcact.co.uk/wp-2020/wp-content/uploads/2024/05/The-Galbraith-Tables...

Quite a useful resource that I hadn't seen before.

Their assumptions are pretty similar to mine which gives me some confidence.

I typically use:

• growth: 7%,
• fee: 0.22% (this is what my private pension charge me)
• inflation: 2.63% (based on 110 years of annual average CPI records)
• Real rate of return: 4.15%

Galbraith Tables doc uses (for equities)

• growth: 6.25%, (I've added their assumed fee back in to make it comparable to my figure)
• fee: 0.25%,
• inflation 2.0% (based on inflation targets, not sure why they didn't use real data which generally gives less favourable outcomes)
• Real rate of return = 4.00%

I've actually got a meeting with a financial planner this Friday so will be interesting to see what feedback I get.

The paper that Offwidth linked to compares TPS against opting out and having a DC pension instead. The big difference to your calculations is that in their calculations you’d buy an annuity rather than using drawdown. If I take your numbers with current annuity rates then the answer seems to be much more in the ballpark of TPS. 

Don't forget paying tax as well. If you are eligible for a state pension pretty you will pay tax on nearly all of an annuity/TPS pension. Why not  take 25% tax free? 

IMO the examples (and numbers they have selected) the Union have provided are to prove a point, not help their  members make informed decisions. 

TPS retirees can still convert 25% of their pension into a tax free lump sum. From the TPS website:

https://www.teacherspensions.co.uk/members/calculators/new-estimate-your-fi...

I find that offer shockingly poor. Giving up 1k of annual pension for a 12k lump sum. 

Looking at it the other way round, the Union document you linked claimed a 100k pot would get you an annuity of 2.5k. but the TPS would demand an annual  reduction of over 8k get a lump sum of 100k. 

No those are not them. These are tables which show the probability of achieving those returns. They are more hard hitting and not so positive.

I will dig out more information for you.

The table  illustrates that say if you have 100% in shares , there is a 51% likelihood of achieving a return greater than 5%  for a 30 year horizon.

It points to the endowments fiasco as an  example of optimistic estimates which have haunted people. Alongside missselling . The Truss debacle and so on. 
 

In reply to neilh:

Which shares?

The table  illustrates that say if you have 100% in shares , there is a 51% likelihood of achieving a return greater than 5%  for a 30 year horizon.

Tim Hale  uses it in his FT published book .. a guide to smarter investing .Monevsator reference him etc etc  

But when you step back and think if a simple forecast like you suggested actually worked then we would all be alot richer …and yet …

A broad portfolio.  

Is that with inflation stripped out?

A globally diverse index would be a good starting point

What it is trying to show you is that the vagaries of the market get in the way of those numbers. It points to things like the endowment selling fiascos , Liz Truss , the LTC scandal , the dot com bust as examples of what goes wrong on in  simple predictions and being optimistic. 

I’m assuming this is based on historical data. So for their selection of shares, since records began, they’ve looked at every pair of dates that are thirty years apart, and only 51% of those thirty year periods has returned more than 5% above inflation? Assuming dividends reinvested. Is that what they are saying?

Ah, just seen your edit. I had a look at Tim Hale’s Albion Strategic Consulting website. Is your quote saying that over the last thirty years only 51% of those years yielded over a 5% return? That seems feasible and it’s in line with Hale’s blog posts about investing over the long term. I think that’s what Monty’s suggesting though isn’t it?

The old TPS was 80ths of final salary multiplied by years in the scheme and a lump sum of three 80ths final salary multiplied  by years. Compared to equivalent 60ths schemes at that time that could be said to be equivalent to a sacrifice of 1k annual pension for 9k of tax free lump sum.

Annuity rates were shit back then (being compulsory in some situations meant a lack of competition).

Compared to the current scheme which is 57ths. Are you suggesting the new scheme is better? It's far more complicated that 

I couldn't join them, so not sure why bother make the comparison. I not really bothered if a doctor, fireman, academic had a better pension scheme than me, plenty of friends particularly those who worked for big private firms at the start of their career have "better" DB pensions than me, good for them. If you want me to.make a comparison you will have to give me far more detail. What were their contributions, normal pension age, spousal benefits, how was their final salary calculated? 

Again was that an option, am I missing something, if I could convert 90k of my lump sum to a 10k annual income I would 

So the offer of 12k for 1k should be updated to take because of Osborne's pension freedoms? 

Its an an overview across all portfolios invested 100% in equities.The table shows different probabalites for different equity %.

The best way of looking at it , and why he warns against using simple excel spreadsheet example, is to take the following scenarios.

Its November 1989, you do the 30 year excel numbers based on Montys formula ,contribute and in November 2019, you hit the jackpot, your fund hits £1m . Happy bunny.

Its March 1990, you do the 30 year excel numbers, contribute. Its March 2020.Covid, global stock markets down by 20% plus. That £1million is now past history. It takes another 2/3 years for the markets to regain their prior position.( which is what happens). This played out with alot of people who planned to retire in 2020 and who have their own DC scheme.

So Hale's message is be cautious about using excel numbers like Monty was originally proposing and really think it through. And if you think about the now message of moving to safer funds away from equities closer to the end of the 30 Years. You then have to consider what happened to those funds in Truss's tenure, they suffered badly.alot of people were hit badly by that.

OK,  just checked and NHS and Local Government pensions are currently 1k sacrifice for 12k increase in lump sum. 

It might be shit but it is what it is.

I had 14 to 1 in my head. That was probably the initial offer I had when helping sister in law. It was a small DB pension from early in her late husbands career. 

It think the whoever was now administrating the scheme was keen to limit their liabilities/close the scheme. I didn't get the 40 to 1 that the Union document you linked claims I needed to, but not far off. 

My advice to anyone is understand your worth and negotiate accordingly. Young staff are opting out of the TPS and either the school or treasury are benefiting from their decision because they think it's shit but  "that is what it is" When I did the same, I kept my (20% at the time) employer contribution, because I had an over inflated value of myself and was prepared to negotiate accordingly. Having a basic understanding of the system and consequences also helped a bit. 

Edit. Surely it would be better if someone from the Union was negotiating on members behalf, to secure some benefits for members opting out of the TPS scheme, than me? 

Thanks. Yes I can see the dangers you describe, particularly if your plan is to buy an annuity so that the value of your investments when you buy your annuity is everything. In that scenario you’d obviously want to be moving towards bonds or whatever. And that uncertainty is one of the potential but manageable disadvantages of Monty’s approach. 
A couple of other features of Monty’s fag packet analysis struck me. Firstly the assumption of death at 90. Someone his age has a 6% chance of making it to 100. The state pension might be sufficient at that stage but you wouldn’t want to be penniless for those years. Secondly, the TPS has to support people whose salary grows in real terms (I think it’s career average isn’t it) whereas his assumption is no real growth in salary. That might be one reason for the disparity. 
 

edit: stupid bonds / equities mix up

Annuities have a mixed review .They have been very poor until recently. So it’s difficult to predict where they will be in the future.

Its tough when you are doing it yourself, no easy decisions. The big plus of staying in something like a  DB TPS scheme is that its alot easier/ less risk. 

The Wesleyan give financial advice to the NAHT. The link below isn't current but I doubt their view has changed much.

https://www.wesleyan.co.uk/insights/2023/06/teachers-leaving-tps

Personally I was on a mission with a like-minded  colleague to get my local union members and non-unionised staff to consider their pension arrangements more seriously. Hardly anyone we spoke to knew the main pension details. The retire and return just before 60 was a particularlly excellent TPS benefit for those wanting to work past 60, as their earnings after 60 were uncapped. It cost the department nothing (the only proviso was they really needed you or wouldn't agree, to encourage retirement). I think two people took up this 'no brainer' decision after we had spoken to tens of those who subsequently kept working beyond 60 (thence with capped earnings). Another often overlooked issue was the defined 'Final Salary' back then was the average of the best three years in the last ten... important as following the 2008 financial crash salaries stalled but inflation didn't. Hence following the crash for someone on top of their scale in 2008, for the next decade those three years were generally 2007 to 2009. Hence if 58 years or above around 2018, retiring a year or two early could almost counter the actuarial reduction.

Our overall  humorous conclusion was very clever people can be very dumb about their finances and we were terrible in sales

At the time I got frustrated that very few teachers seemed to care about the changes in 2015. It seemed a bit perverse that those that did, like me, were affected the least. I think that is why I'm so keen to protect young staff now, they were students in 2015, so it seems unfair that they are suffering because of the apathy of their teachers. 

That's not understood by many, but is exactly the reason I opted out of the scheme in 2018. When doctors/teachers etc. talk about a 30%+ pay rise, that is what they would need to get close to  catchung up with the old TPS increase. 

I think I mentioned upthread, students/pupils learning a bit about financial planning is probably a good thing, getting academics/teachers to deliver it, would be catastrophic. 

One of the key messages is that it is sometimes complicated so don't worry if you don't understand everthing, but know when to seek help. Citizens Advise used to be excellent before they started getting overwhelmed in the cost of living crisis.

Ouch!  If my success with students was as bad as that of getting academics to take pensions more seriously I would have given up in the first year and gone back to an engineering consultancy job that paid loads more.

Do you have reference for this? I've just had to calculate my wife's TPS pension, as the online calculators don't seem to have a built in function to retire at say 55, but delay payments until 65.

I've calculated it all assuming average salary scheme only and haven't come across anything limiting payments in to 28 years (unless it's only relevant to final salary, but struggled to find anything from a quick read on that).

Whilst it's fresh in my mind, there appears to be quite a few bugs/oddities with the online TPS calculators. If anyone can shed some light on these I'd be interested to understand more.

• There are big discrepancies (circa 10%) between the Generic online calculator, and the personalized online calculator. My wife has a below average wage history due to maternity leave and being part time for a while, yet the personalised calculator predicts 10% higher than the generic one. Must be either a mistake or very poor assumptions that haven't been declared in one of the calculators.
• I can get very close to the the personalized result with my own excel calculator, provided I strip out inflation between her starting work and now. This makes no sense whatsoever. That inflation should now be baked in. I guess they didn't want to update it every year with new inflation data, but it offers a result in todays money, so ignoring inflation to date is the wrong answer. Unless my calc has an error, but I've checked it a few times now.
• On the personalized one, if you click the button to have the pension in todays money, future inflation should surely be ignored. Yet the slide bar is still there, and if you crank up inflation, it reduces the estimate. Again, this makes no sense as inflation is applied each year to the calculation so it can't be eroded. I don't understand how this eroded number can be used or why anybody might want it. Seems like a UI error to me.

Personalized teacher pension: https://www.teacherspensions.co.uk/members/your-pension/personalised-calcul...

Generic one: https://www.teacherspensions.co.uk/members/calculators/new-estimate-your-fi...

I had a quick Google and couldn't find anything. Will try again when I have a bit more time. Hopefully things might have changed as my concern stems from the old scheme capping the pension at 40/80ths (well 45 in some circumstances). This wasn't clear at the time and I know some people who “over paid“ into that and only got a refund equivalent to the value of there useless contributions. When the new scheme was introduced some staff were concerned who had say 20 years in the old scheme that they would only have 16 or so years in the new scheme. This was 10 years ago and many changes have been instigated since then, I haven't heard of this one, but that doesn't mean it hasn't happened.

Regarding your wife's pensions, hasn't she now opted out, in which case she is in the same position as Bingers and I. No need to estimate it's value, the annual statement should tell you exactly what it is worth and it's current value should be protected against being eroded by inflation, by increasing by CPI. There is probably a lot to check (mainly have all her contributions been paid by the school and  registered by TPS) and some decisions to make due to the McCloud judgement and whet she joined the scheme before 2007 of 2012. Usually the more years she is eligible to opt onto the old scheme the better. 

As an aside teacherstapp have surveyed 10k teachers, around half of those under 40 would prefer the pay rise and smaller pension contributions, if available. 

It’s going back quite a few years now but the online calculators for TPS didn’t cater for the circumstances I was looking at. TPS were utterly intransigent until I formally complained and threatened to take it to the ombudsman. They then responded with manually calculated forecasts which were close enough to my own guesses / calculations. Their letter of apology began with “We are sorry you have found it necessary to complain”.

She's still in for the time being as the teachers went on strike over the proposals.she may still leave if/when we move so being able to forecast scenarios with different amounts of contribution is quite handy.

I think this translates to "we think you're a pain".

I'd still double check her annual statement, does the  the personalised online one forecast this accurately with no additional contributions. The generic one does list a number of things it doesn't take into account, which include breaks in service/part time working, so the personalised one presumably does and is more accurate?

In terms of forecasting 10% doesn't sound like a significant difference to me. The one I did 15 years ago is over 30% out now. I wouldn't be confident predicting teachers wages, within 10% in 5 years time, never mind 20

You're being way too kind. Capita managed TPS for decades and now a  Tata subsidiary manage it ( for £233 million). Such is government private outsourcing. Monty's wife should ask for a personal estimate. I had a few of these in the last few years of my position when considering early retirement.

https://schoolsweek.co.uk/capita-loses-out-on-233m-teachers-pension-scheme-...

You're being way too kind. Capita managed TPS for decades and now a  Tata subsidiary manage it ( for £233 million). Such is government private outsourcing. Monty's wife should ask for a personal estimate. I had a few of these in the last few years of my position when considering early retirement.

https://schoolsweek.co.uk/capita-loses-out-on-233m-teachers-pension-scheme-...

Yes it does. 

I think I mentioned earlier, my own calculation aligns well with the personalized one (provided I ignore inflation to date). But this is what is strange, the generic one should be over estimating for my Wife, not under estimating, because she does have breaks and Part Time.

I don't expect the forecast to be accurate as it's ignoring future inflation. But I expect that given all other parameters are the same, i.e. 1.6% uplift, no change to salary etc, the results should be similar.

The assumption is no change.

I found therse here: https://www.teacherspensions.co.uk/-/media/documents/member/documents/facto...

Retirement Age Factor.

There's a whole host of different factors and these appear to be closest to my wife's circumstances. They are a handy reference.

• 55 - 0.648
• 56 - 0.673
• 57 - 0.700
• 58 - 0.729
• 59 - 0.760
• 60 - 0.793
• 61 - 0.829
• 62 - 0.867
• 63 - 0.909
• 64 - 0.953
• 65 - 1.000
• 66 - 1.037
• 67 - 1.076
• 68 - 1.118
• 69 - 1.164
• 70 - 1.215