When you are 25, and you earn about £26,000 a year, and you see 7.4% of your salary disappear into a pension, it is easy to wonder if you should opt out of the scheme. You have been told that your retirement is, in the best-case-scenario, 41 years away. You are struggling to make monthly payments, and the immediate needs of the present might be weighing heavily. It is possible to leave the payments behind, and we can advise you on how to opt out of the Teachers’ Pension Scheme. But the question we want to ask you first is: should you opt out?
Teacher Pension & Opting Out: Should I do it?
There are few occasions when opting out of the Teacher Pension Scheme is a good idea. Even with all the changes to the recent public pension funds, the pension you receive on retirement will be critical to your ability to live comfortably into old age.
The payments you make into the pension are taken out before you are charged tax and national insurance. This means even though you are paying let’s say £160 a month into your pension from your £26,000 a year salary, if you opt out this will only show up as about £120 extra in your account each month. However, the value of this payment could turn out to be about £350 per month when you retire. Remember your employer also contributes to your pension each time you do; therefore, you will lose this investment in your future too.
You would not be alone in considering opting out of the pension. There has been an almost 20% increase in the number of young teachers opting out, and this is thought to be because of the impact of student debt and the rising cost of living. The lack of salary increases that match inflation and the growth in pension contributions have made it more difficult for young teachers to survive on a teacher salary. This means it becomes imperative that these young teachers gain more money somehow.
The Department for Education argues those opting out still only represent 1% of people in the scheme. The point of concern in the media is that this is a short-term solution but creates a long-term problem for those who will later retire without adequate funds.
There are certain times when you are close to retirement when knowing how to opt out of the Teachers’ Pension Scheme is useful to you. These circumstances are quite specific to older to teachers, and it is necessary to seek advice from an independent advisor to make sure.
How to opt out of the Teachers’ Pension Scheme
The process of opting out of the Teachers’ Pension Scheme is technically easy. You can log in to “My Teacher Pension” and complete the form for opting out. It is worth checking, however, to see if your employer will then need to re-enroll you in a pension scheme after three years. You can check this with your pension advisor.
The content in this article was correct on 21st December 2018. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers opting out of the Teachers’ Pension Scheme. Please use the contact form below to arrange an informal chat with an adviser and see how we can help you.