Growing your pension quicker is known in the trade as faster accrual. To increase the rate of accrual, you will need to apply for flexibilities. Flexibilities are a range of schemes that allow you to pay more into your pension. You can only apply for this if you are in pensionable service. It is also available only to those in the Career Average arrangement. As most teachers in service now have all or some of their pension in this arrangement, this likely applies to you. However, you should look at My Pension Online (MPO) to check your arrangement.
What does faster accrual entail?
In the Career Average arrangement, your pension grows at a standard rate of 1/57th of your pensionable earnings. Faster accrual is a way of building quicker. You can elect to purchase a faster rate of accrual by paying more contributions. This is called an election – but not the voting kind – the choice kind. Each election period lasts for a year. This means you need to make the election each year to make higher contributions. The period usually runs from April to April, like the tax year.
You can purchase accrual rates of 1/55th, 1/50th or 1/45th. The lower the number, the better your pension will be when you retire. However, the lower the number the higher your contributions will be too.
Should you opt for a faster accrual?
Whether you should choose to pay more contributions or not depends on your circumstances. It also depends on your level of financial confidence. You may have a lot of disposable income. You may have noticed that your pension calculations projected on My Pensions Online would be insufficient to fund the lifestyle you hope for in retirement. At this point, you may well consider a faster accrual rate.
You may be confident with financial matters. You may know a lot about investment and/ or have plans to invest in Buy to Let property to subsidise a better retirement. If this is you, then faster accrual may not be the right option. Equally, if you are barely surviving on your teacher salary, saving this way towards your pension at this time might also not be the right option.
You should always keep an eye on your potential retirement income. You should speak to an independent financial advisor to work out the best use of your resources today, so you have room to consider the future.
The content in this article was correct on 15th January 2020. 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. See how we can help you.