For some people, your Career Average Normal Pension Age (NPA) will be higher than 65. This means that if you retire at 65, you will not be able to claim your full benefits until your Career Average NPA. If you take your pension early, then you will be subject to actuarially adjusted benefits (AAB). This means the amount you receive will be recalculated, taking account of the extra time you will be receiving your pension benefits. If you retire at 65 and your NPA is 67, then there are two years of benefits that need to be accounted for by the scheme.
What is buy out?
Buy Out is only available to those in the Career Average arrangement. This is the means of taking your benefits early but buying out the actuarial adjustment for up to three years, depending on the number of years between your Career Average NPA and 65. To Buy Out this actuarial adjustment, you will pay higher contributions. The contributions are subject to a £7000 overall limit on extra contributions, known as flexibilities.
If your NPA is 68, this means you can make additional contributions that will allow you to claim your full allowance at 65 years old.
Limited opportunity
You only have one opportunity for this Buy Out, and it must be within six months of entering the scheme. This is a long-term commitment over the length of your career and your Buy Out contributions cannot be refunded if you have a change in circumstances. Therefore, before taking up this flexibility, you should consult with a financial advisor, who can talk you through the costs and benefits of this option.
The content in this article was correct on 15th July 2019. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on pensions for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.