We have learnt that life is uncertain in the past year. For all our planning and beliefs in our right to old age, we have had this security threatened. As a teacher, you may have been in the fortunate position to have felt no financial impact of the pandemic. Yet, it may have woken you to the need to have some flexibility in your plans and some room for things to not go quite as planned.
Here we explore what it means to secure your financial future with your pension. You have options where you could take any disposable income and put it into what is essentially the most secure long-term savings plan available to you.
What are flexibilities?
Flexibilities are a means of paying more money into your pension, so your pensions increase on retirement. Some of these flexibilities are only available to those in the Career Average arrangement, with only additional pension available to those in the Final Salary arrangement. It may be a good idea to discuss with an independent financial advisor which of the flexibilities you can purchase. You will not receive financial advice from the Teachers’ Pension Scheme, and you may want to consider the long-term consequences of your choice before committing.
You can buy additional pension in chunks of £250 with an overall limit of £6800 per financial year. It could be an option for those in the Final Salary and the Career Average arrangement. In the Career Average arrangement, there is an overall flexibilities maximum of £7000 per annum.
The additional pension could be paid in a chunk or be taken from your salary.
While Additional Pension is not subject to indexation like the rest of your pension, it will increase the amount you are paid in benefits when you retire. The amount of money within your pension fund will be higher.
If you are in the Career Average arrangement, you can opt for faster accrual. Your current pension payments each month will result in a calculation of 1/ 57th of your average salary. You could pay more to reduce this to 1/ 55th, 1/ 50th, or 1/ 45th. The lower the number, the higher your benefits when you return.
You must choose this option in the financial year before you want to start increasing your contributions. Therefore, you will need to elect to pay more before April.
When you are in the Career Average arrangement, your normal pension age may be as high as 68 years old. You may wish to retire at 65 but doing so would result in an actuarily adjusted benefit. To avoid your benefits being reduced, you could buy out 1, 2 or all 3 of these years.
How many you could buy out is dependent on your normal pension age. If your age for retirement is 66, then you can only buy 1 year.
You have one opportunity to buy out these years, and this is within 6 months of joining the Career Average arrangement. For those who started teaching in September, you may have already missed this window.
The content in this article was correct on 28th March 2021. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your Teachers’ Pension Scheme. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.