Any Financial Advisers out there?

[CAMRAMan]

My work life has had a large number of moves, including spells abroad. As a result, my pension pot is rather meagre & scattered. The largest portion will become available in just over 2 years when I turn 60.

My question is that as I won't be accessing the funds right away, am I better off leaving it with the pension provider to accrue more funds (is this possible - Teachers' Pension - I left the profession decades ago?) or would I be better off taking it and banking the money in some sort of financial package? I will probably be working until 67, so there's potential to increase the pot quite significantly, I'd've thought, but what do I know?!
(I will of course seek IFA advice, but a ball-park idea would be appreciated)

[Wowbagger]

I am certainly not a financial adviser, but I have been doing some work for my daughter, who is about to leave a teaching job in the state sector after 13 years, and teach in the private sector. She can no longer pay into the state teachers' pension scheme as she isn't going to be working there whilst in her new job.

I discovered that her pension just sits there, linked to the Consumer Price Index. I would think that yours does too. If you can, or if you feel like it, you could boost that teacher's pension considerably by taking a job in teaching for up to 3 years. The pension you will get (assuming that you are not barred from paying into the old final salary scheme) will be based on the best 3 years' salary and will therefore be much bigger than any historical amount you might have received.

Again, IANAFA: do your own research.

[Torslanda]

I am not an IFA. The way I understood the teachers' pension scheme is benefits are 1/80th final salary per year's completed service. Wowbagger's explanation of averaged best 3 years makes sense.

If you leave it where it is that is what you will get.

Other pensions may also be 'paid up' so each fund is growing but each one is subject to admin costs & charges. If the InsCo that sold it you has ceased to offer pensions you may find the funds are not being worked as well as they might.

At least seek the advice of an IFA to consider a transfer and consolidation so that your pension pot is in one lump. When I did this a couple of years ago two previously frozen accounts were transferred to managed funds which achieved real growth. At least that was the last time I looked...

[campagman]

If you can, or if you feel like it, you could boost that teacher's pension considerably by taking a job in teaching for up to 3 years. The pension you will get (assuming that you are not barred from paying into the old final salary scheme) will be based on the best 3 years' salary and will therefore be much bigger than any historical amount you might have received.

Again, IANAFA: do your own research.

I think you will find that the best 3 yrs is for continuous service.

[CAMRAMan]

I do not have QTS... Not an option, I'm afraid.

[Pedal Castro]

I am certainly not a financial adviser, but I have been doing some work for my daughter, who is about to leave a teaching job in the state sector after 13 years, and teach in the private sector. She can no longer pay into the state teachers' pension scheme as she isn't going to be working there whilst in her new job.

Most independent schools are signed up to the teachers' pension scheme.

[Adam]

(Was an IFA, until I took early retirement this year - this is not financial advice, etc etc).

For final salary schemes (unless they were really, really old ones where a person left before 1.1.1986) would have some form of increases built into them, for the pension accrued from date of leaving.  Depending upon the generosity of the scheme, and also if it had been contracted out of SERPS/S2P), some elements of that would increase at different rates, but typically either CPI  or RPI capped at 5% pa for leavers before 6.4.09 or 2.5% cap for leavers after then.

Traditionally, best advice would be not to transfer, but due to the need to reduce future long term liabilities, in the last couple of years, private sector schemes have been increasing the transfer values to bribe people to leave.  In the past, depending upon age, a transfer value might have been 20x the annual preserved pension.  This year, some were over 40x.

The Teachers Pension Scheme, in line with all other Government final salary pension arrangements do NOT allow you to transfer your pension to a money purchase scheme, such as a personal pension.  You can only transfer to another final salary scheme.  This restriction was deliberately introduced when pensions freedom was launched in 2015, to avoid millions of pounds being paid out by the Government, as most of their schemes are unfunded.

In respect of any assorted money purchase policies accumulated over the years, you can amalgamate them, but some may have severe transfer penalties, or have valuable benefits which might be lost, such as life cover; a guaranteed annuity rate far in excess of current rates (generally some pre 1990 policies); or valuable terminal bonus (older with profits policies).  Therefore you'd need to check carefully.  Having them under one plan can be cheaper, as often (but not always) more modern plans can have lower charges.  In addition you'd be able to access different funds, possibly more in line with your current attitude to investment risk.  More modern plans are generally more flexible, and so for example could allow you when you eventually decide to take benefits, to strip out the 25% tax free cash allowance but leave the rest of the fund invested.

To transfer any plan worth more than £30,000, you have to get advice from an IFA, although any firm would have to carry out a full review of your circumstances & requirements and assess all the plans, so would involve a cost.  But yes, best advice would always be to speak to an IFA.

In any event, you should get up to date details of all your plans and ask the providers to confirm the current charges, fund(s) you're invested in, any penalties for transferring.

Nothing stopping you adding to any of your personal pension plans, or starting a new one (again, check charges).  You can pay 100% of your PAYE (or self employed taxable) income, up to £40,000 pa, whichever is the lower, into pension and get full tax relief.

[Wowbagger]

I am certainly not a financial adviser, but I have been doing some work for my daughter, who is about to leave a teaching job in the state sector after 13 years, and teach in the private sector. She can no longer pay into the state teachers' pension scheme as she isn't going to be working there whilst in her new job.

Most independent schools are signed up to the teachers' pension scheme.

It seems that hers isn't. She checked.

[CAMRAMan]

Thank you for all the comments, in particular Adam for his very full advice.

I have a couple of years to ponder things, but I will probably be taking the Teachers' pension at 60 and putting it into a high-yield, though safe (I know the two aren't necessarily mutually compatible!) plan and cashing it in when 67. Unless things change, of course.

[Pedal Castro]

I am certainly not a financial adviser, but I have been doing some work for my daughter, who is about to leave a teaching job in the state sector after 13 years, and teach in the private sector. She can no longer pay into the state teachers' pension scheme as she isn't going to be working there whilst in her new job.

Most independent schools are signed up to the teachers' pension scheme.

It seems that hers isn't. She checked.

Not a school I'd recommend then, probably a private company owned school rather than a charitable trust. The employer contributions have gone up so much in recent years it's a big financial issue for independent schools so it's not inconceivable that a charitable trust school has to pull out or close.

[Adam]

You can't cash in the Teachers' Pension Scheme.  At whatever age you take benefits, then it has to be in the stated format of tax free cash plus a pension payable for the rest of your life.  The pension is calculated by multiplying your years of employment by your average salary and then dividing by 80 plus the tax free cash sum of three times your pension.

You don't have to take the Teacher's benefits at age 60 as clearly if you're still working, you'll be paying tax on your income plus the pension.  You can defer it, but as your scheme retirement is 60, I *think* they don't actually provide any enhancement for deferring, but you'd have to check that with them.

[CAMRAMan]

Thanks again. Can you suggest a way of taking the pension lump sum and avoiding tax on the monthly income?

[Adam]

Sorry - it won't be possible, as the Teacher's Pension Scheme, in common with other Government final salary schemes, don't make allowance for the options under pensions freedom, so it's all or nothing.

[CAMRAMan]

Ah, OK. Nearer the time I'll ask about tax-efficient ways of investing the money.

[Adam]

What you can do is make use of the tax relief available, in a very cunning way.  The Government blocked recycling of tax free cash over 10 years ago, meaning if you get a lump sum from one pension, there are restrictions on how much you can then put back into a new pension.  If you try and put in more than 30% of your lump sum, or increase your current contributions by more than 30%, then they hit you with penalties. 

However, if your lump sum is less than £7,500 then it's allowed.  If it's more than that, you have to wait at least 12 months before putting it back into a pension.  So for example if you're going to get say £20,000 tax free cash from the Teachers' Pension at age 60, if you take the cash and put it into say a 1 year interest account, then at age 61, pay £20,000 into a personal pension, then basic rate tax relief will be added on by the provider, meaning £25,000 will be invested.  If you're a higher rate taxpayer, then you can apply for the balance 20% tax relief. 

Bear in mind, as stated above, you're restricted to putting in a maximum of the lower of your taxable income or £40,000 in the tax year.  If you run your own limited company then there can be scope for making up unused amounts from the previous 3 years, if you already have a dormant personal pension set up in the past. 

Even a non taxpayer can take advantage of this, as non-earners are allowed to pay in £2,800 pa into a pension, and get 20% tax relief, so £3,600 is invested.  Some companies, like Standard Life, even have a specific contract just for this lower amount, to be paid in, and instantly stripped out again.

In your scenario, provided the money has gone into a modern style contract which offers flexible drawdown, what you can do immediately after investing the £25,000 gross, is take out the 25% tax free cash allowance from that pension (£6,250), and leaving the rest untouched.  As that sum is less than recycling limit, you can put it back into a pension, and get tax relief on it.  Again.   So £6,250 becomes £7,812.50 invested for a basic rate taxpayer. 

Rinse & repeat.

Obviously these higher amounts are only possible if you have the taxable income to justify the contributions in the first place. And you still have the other pension funds invested, and being in a pension, they don't form part of your estate if you were to die, and can be passed onto any named beneficiary.

[Wowbagger]

I am certainly not a financial adviser, but I have been doing some work for my daughter, who is about to leave a teaching job in the state sector after 13 years, and teach in the private sector. She can no longer pay into the state teachers' pension scheme as she isn't going to be working there whilst in her new job.

Most independent schools are signed up to the teachers' pension scheme.

It seems that hers isn't. She checked.

Not a school I'd recommend then, probably a private company owned school rather than a charitable trust. The employer contributions have gone up so much in recent years it's a big financial issue for independent schools so it's not inconceivable that a charitable trust school has to pull out or close.

It's an interesting "mish-mash" that started life as a group of tutors and expanded into some rather plush premises and seems to have morphed into an establishment specialising in getting kids through resits. They have just been taken over by a bigger organisation so everything is in a state of flux. My daughter has been brought in to get some sort of order into the place - which has a very "homespun" and friendly atmosphere which she is keen to retain whilst allowing for the school to meet certain criteria which they currently don't! From her point of view, her "old place" was going down the tubes under an appallingly poor HT and she had to get out for her own sanity.