Changes in the law have stretched the retirement age for many to 67 or 68 under the Career Average arrangement. Some teachers may have an NPA age of 60 for the final salary arrangement or NPA 65. Therefore, there are situations when the person retiring can take one pension and not another.
What is Buy Out?
Buy Out exists because there is an opportunity to retire at 65 for some individuals but cannot claim the Career Average pension until 68. Therefore, the Buy Out scheme is only available to those in the Career Average arrangement and those planning to retire before the Normal Pension Age. You can retire early without Buy Out, but your pension payments will be reduced due to actuarially adjusted benefits (AAB).
Therefore, to avoid AAB, you can buy up to three years. To do this, you will pay additional contributions.
You only have one opportunity to buy out these years, and you will need to do this within six months of joining the Career Average arrangement.
You also need to be aware that the contributions will continue to be higher throughout your career. It is a long term commitment. The rates are likely to change throughout your time working as a teacher, and if you die in-service, the benefits to your family are unchanged by this decision to buy. Your family will also not receive a refund of your Buy Out contribution. Equally, if you end up working to your NPA anyway, you won’t receive a refund of your contributions, and it won’t impact your benefits. You only benefit if you retire early.
It is difficult to plan ahead and imagine what you want to do in your late 60s. It is likely most people entering the Career Average arrangement are new starters to the teaching profession. Therefore, if you are unsure if this scheme is appropriate for you, it may be a good idea to speak to an independent financial advisor.
The content in this article was correct on 23rd May 2021. 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.