Some background details
If you start with the teachers’ pension scheme today, you will be joining a career average scheme. Basically, this means you will receive a pension worked out as an average of your earnings during your membership in the scheme. Every year you work you will receive a benefit that is equal to 1/57th of your annual pay. This increases with inflation, using the September Consumer Prices Index plus 1.6%, which is added the following April.
Your contributions to this pension are proportional to your salary — the smaller your income, the lower the percentage of money taken for your pension.
It is likely that your Normal Pension Age when you will receive your teacher benefits without adjustment will be 66 years of age.
You have the choice to take the money as an income or choose to convert some of this benefit to a lump sum payment.
So, is a teachers’ pension good?
Let’s start with a significant positive. The government funds the teachers’ pension scheme; it is not underwritten by an investment fund. This means it is unfunded, and not susceptible to stock market fluctuations that could endanger your benefits. The government is acting like a backstop, offering much more significant security on your investment.
The teachers’ pension is useful if you consider that there is a death-in-service benefit. This includes potential payment for dependents left behind after death.
However, there are ways that you could lose out of vital income if you make the wrong choices. If you take your pension as a lump sum, you could be heavily penalised. The lump sum is subject to a maximum 25% value of the pension. The impact on your remaining pension fund is for every £12 of lump sum taken you trade in £1 of annual pension income.
Yet, the career average scheme offered to new teachers is nowhere near as generous as the final-salary scheme offered to older colleagues. Some teachers are on a mix of final salary and career average – and like younger colleagues will receive reduced benefits than if the final salary scheme had continued.
The content in this article was correct on 19th May 2019. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on the Teachers’ Pension Scheme. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.