If you are confused about all the different Teachers’ Pensions Schemes, and what they mean for you, we are here to give you some basic guidance. Depending on when you began in teaching you will be in the NPA 60 & 65, or in the scheme called CARE. If you are trying to plan your retirement, it is important to know what each scheme offers and how this will impact your decision.
Some definitions within the Teachers’ Pension Scheme
There is much terminology in Teachers’ Pensions Schemes. Like with everything in the teaching profession, we scatter everything with acronyms and seem to speak to each other in code. Let’s deal with some of the terms first.
TPS is used as an acronym for Teachers’ Pension Scheme. You are automatically enrolled in this scheme when you begin employment in a state school or participating independent school.
NPA stands for normal pension age. This is traditionally 60 for women and 65 for men. NPA 60 & 65 is the industry code for the final salary scheme.
CARE stands for Career Average Revalued Earnings. This replaced the final salary scheme in 2012. We want to congratulate the person who came up with the acronym for the excellent marketing strategy. You could almost imagine the excitement in the meeting when they realised what this spelt out.
Final Salary Scheme means that your pension is calculated by multiplying your average salary by the number of days that you worked in pensionable service and then dividing this by 80 (NPA 60) or by 60 (NPA 65). You will also receive a lump sum of three times your annual pension.
Career Average means that your pension is calculated as 1/57th of your pensionable salary for each tax year you contribute to the TPS plus a percentage amount dictated by the Treasury to account for inflation.
What this means for your retirement planning
For your retirement planning, there is a single significant fact that could influence your choices. The NPA for anyone under the age of 50 is likely to be NPA 66 – 68. This means you will not be able to claim your full teacher pension until much later, even if you choose to retire earlier than this. If you decide to retire earlier than this, then you can, but your payout will be reduced based on the number of years early you retire.
There are options for phased retirement for those looking to reduce hours, and so making working longer more manageable. Nobody wants to become that tired teacher in the corner with low morale and poor health. However, it is essential to seek advice because in the CARE scheme there are abatement rules. This means if you choose to retire and they are re-employed, extending service with additional employment, this could result in you making contributions to the CARE scheme and the later NPAs will start to apply. This rule was back-dated to all retirements that occurred since 2012 and has managed to surprise many teachers.
There are questions you will need to ask an advisor about Teachers Pension Final Salary v Career Average. The first is: what scheme am I enrolled in? The second is: how much will this mean for my annual pension payment? The third is: when will I be able to retire on my full annual pension payment? The answers to these questions will depend on when you began service, amongst others. Therefore, seeking professional advice is the only sensible option when retirement planning.
The content in this article was correct on 23rd December 2018. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on TPS and can help you with your retirement planning. Please use the contact form below to arrange an informal chat with an adviser and see how we can help you.