There is something you need to know about the Teachers Pension and Actuarial Reductions. This is the impact on your pension when you decide to take early retirement. My Pension Online (MPO) – the online portal from Teachers Pensions display an unreduced forecast assuming that you will work until your normal pensionable age (or ages if you a member of a number of the schemes).
This means if you are planning on finishing your career before the normal pension age, whether this is 60, 65, or 66+, depending on the scheme of which you are a member, then a reduction will need to be applied. These reduction factors are available here but the reason you should to speak to an advisor is that it can be quite complex – particularly when you are a member of schemes and you need to see how it impacts your plans for early retirement.
What is an Actuary?
What’s that? You say. Teachers Pensions actuarial reductions, who is this actuary? Let’s introduce you to the role of the actuary and their role in determining your pension, and indeed any death in service or ill health retirement benefits you receive as a teacher.
The actuary assesses risk in pensions, on behalf of the pension company. If you live for a long time with a high pension, you are a risk to a pension company, mostly because if contributions were too low and pensions too high, the scheme could become unsustainable. Therefore, the scheme needs to know two things a) how much should they charge you in pension contributions and b) how long you will live into retirement.
Essentially, it is the job of the actuary to predict the future. They are not psychics or magicians. The actuary will use statistical trends compiled from their own scheme mortality and morbidity rate along with figures from the Government Actuaries Department to make these predictions.
So, why apply reductions?
There is a myth in teaching that they will likely live only 18 months after retirement, which is why the government can afford such a generous pension scheme. This however simply isn’t true and teachers life expectancy is significantly above average.
According to a BBC report, teachers are part of an above average social, economic group. This means they are likely to live on average 18 years beyond the age of 65 years old if you are a man. If you live an affluent life, then you are likely to live even longer, something closer to 25 or 30 years. This means if you retire earlier you are more likely to have money; actuarial data would suggest you would live longer and therefore you would receive benefits for longer. This means they need to apply a reduction to the pension to ensure that the scheme continues to be viable.
The content in this article was correct on 10th December 2018. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on actuarial reduction and teacher pensions. Please use the contact form below to arrange an informal chat with an adviser and see how we can help you.
