The final salary calculation has two parts – the obvious part, i.e. the last 12 month’s worth, but also another calculation – this explains both.
The Final Salary x 2
Lump Sum – Extra
A sheet that looks at how much extra lump sum you can get by commuting some of your pension. With a table to show the effect of taking it before your Normal Pension Age (Final Salary or Career Average Schemes)
Spreadsheets – Open
All of my spreadsheets are now collected in one section of the website. These can be copied which allows users to enter their own data and check the formulae.
Annual Allowance Calculator
Everyone has an annual allowance, currently £60,000, (before 2024/25 it was £40,000) that can be used on their pensions. However, with defined benefit schemes like the TPS this is not the amount of money paid…it is the growth in value of the benefits. This sheet will tell you how much of the allowance has been used.
Pension Details
This is the sheet I use the most when looking at an individual’s circumstances. It allows me to enter their salary profile and use it to work out their best final salary figures in a variety of scenarios.
Rough CA to FS Conversion (McCloud)
The McCloud Age Discrimination result means that almost every teacher who is, or was, in both Final Salary (FS) and Career Average (CA) Pension Schemes is going to be allowed to convert their Career Average Pension back to the Final Salary Scheme that they were in. Most were moved across to this scheme in April 2015, some in the time since.
This calculator will give you a rough idea of how much will be added to their Final Salary pension if they choose to give up the Career Average pension.
Early Benefits and AAB
Early Benefits and AAB All-in-one calculator.
If you take your pension before your ‘Normal Pension Age’ the benefits are actuarially reduced to take account that you will be paid them for longer…up to 10 years longer!
This sheet allows you to enter your age in years and months and see what effect it will have on your pension.
Taking benefits early means you are better off for a number of years, the sheet has tabs that also show at what age you stop being better off.
I explain more on this post: https://dfountain.co.uk/lose-20-not-true/
Historical Salary to 2021 Value
Older salaries are revalued using inflation to being their value up-to-date. This sheet allows you to enter the date and corresponding salary to see what it would be worth in March 2021.
Revalued salaries are used in working out your best Final Average Salary – the best 3 consecutive years from the last 10.
Lump in the throat
Could you be owed hundreds of pounds?
If you bought additional pension with a lump sum, quite possibly.
HMRC are not used to dealing with pension schemes that are NOT set up for automatic tax relief.
The relevant HMRC manual page to quote if the first person you talk to doesn’t understand this fully is the 3rd bullet point on this page:
www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044210
- where a member makes gross contributions to a registered pension scheme, they can make a claim to HMRC to obtain the tax relief on the contribution. The amount of the contribution is then relieved by being deducted from the member’s total income for the tax year in which the payment is made. The deduction will be shown on the member’s Self-Assessment to give them the correct amount of tax relief. Further information on claims is at PTM044240.
The Annual Allowance
Maximum Per Year £60k (previously £40k)
“£60,000 – you must be JOKING…no way am I putting that much into my pension.” You may be shocked!
A teacher’s contribution to their pension is around 10% (twice the normal private pension rate)..so somewhere in the range £3k to £5k per year for a classroom teacher.
School Contributions
Employers have to also put in 28.6% (that’s nearly TEN times the minimum private pension scheme employer’s have to pay).
In addition, defined benefit schemes, such as the TPS have their ‘value’ calculated differently, so you may be surprised at just how much of your £60k Annual Allowance you have used.
Before 2024/25 the allowance was £40k and because of the way inflation is added and not accounted for until the following year quite a few teachers exceeded the £40k allowance in 2023 when inflation of 10.1% was added.