If you are wondering whether to keep contributing to the pension scheme, you should pose the question: is it worth it? Here we review the Teacher Pension Scheme and its potential benefits.
What is the Teachers’ Pension Scheme?
When you begin work as a teacher in a state school, you will automatically be enrolled in the Teachers’ Pension Scheme (TPS). The TPS is a pension scheme that offers an income once you retire based on your earnings over your career. The scheme was once a final salary scheme, meaning your pension was calculated using the last few years of your salary. Since 2015, the scheme has been a career average scheme, which means your benefits are calculated over the entirety of your career. The final salary scheme was more generous, though both plans are more generous than most work-based pensions.
How much will I pay in?
You will pay a percentage of your gross salary into your pension each month, which will be topped up by your employer. As you move through your career, the rate will increase. For instance, up to £27, 698, you will pay 7.40% into your pension (up to £2049 per annum). Later, if you earn above £79,896, you will pay 11.70% (£9347 + per annum). The contributions feel weighty. However, you will receive tax relief on this amount, as it is taken out before your salary is taxed.
When can I access my benefits?
You will access your pension at your Normal Pension Age, which is either 60 or 65, depending on when you entered the profession. It may be that if you straddle arrangements that you will have two different Normal Pension Ages. The amount you receive will be proportionate to the number of years you have served. You can find out how much you receive by visiting My Pension Online.
Even though the scheme has stopped being as generous as it was, the Teachers’ Pension Scheme still offers members a higher than average benefit on top of the state pension. It may not be enough to maintain your current lifestyle, and you may wish to speak to an independent financial advisor, exploring how you can secure a better income in retirement.
The content in this article was correct on 10th March 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 and see how we can help you.