When you retire, the Teacher Pension Scheme offer you the option of converting up to 25% of your benefits into a lump sum payment. For every £1 you give up in benefits, you receive £12 in a lump sum, meaning the amount you receive could be well beyond a hundred thousand pounds. Better news still, this lump sum payment is not subject to income tax.
Making the right choices
While you can take up to 25% of the total value of your teacher benefits, it might leave you short in benefits throughout your retirement. While it sounds appealing to get such a large amount of money in one go, when you are reaching your 80s, you might have wished there was more money available for your benefits each month.
It is worthwhile using the Teacher’s Pension Calculator, which helps you calculate your lump sum and estimate the outcomes for your pension. Your situation may also impact your payment, for instance, if you have had a gap in service, so using the calculator is essential.
If you take the lump sum, it is worth speaking to an independent advisor who can help you use these funds.
For instance, it might be that you use the lump sum to pay off mortgages and other debts, reducing the monthly outgoings you are burdened with. Alternatively, you could invest the money in other property and rent this out for the benefits of some passive income.
Alternatively, you could invest the lump sum and have it work for you over time. While all investment comes with a risk, you will be asked to set your comfort level in this risk. The lower the chances of losing your money, the less return you will see. Hearing all the potential ups and downs of this decision is essential.
Finally, you could put the money in a high-interest savings account, which will gain some interest. With the current levels of interest rates, this might not be the best option.
A complex decision
Knowing how to structure your benefits can be complete if you are coming up to retirement. The lump-sum sounds appealing but so does a regular payment that keeps you out of pension poverty. Asking for independent financial advice can help you make the right choices.
The content in this article was correct on 31st January 2022. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on the teachers’ pension scheme. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.