We are getting a long way into the summer term. You may have decided to retire in July or at least played with the idea. Once you reach 55 years old, the possibility of taking early retirement is an ever-present thought. Part of the excitement of retirement is not just the chance to live life with more freedom but the fact your pension pays out a lump sum amount.
How much might I be paid?
If you started teaching before 2007, you would automatically receive a lump sum three times your pension. If you start teaching after 2007, you will be asked to opt for a lump sum.
The calculation for how much lump sum you will receive is complex. If you are in the mindset where you are daydreaming about what this would mean for you, there is a lump sum calculator that helps you work out what your lump sum could be.
When you get into the details of the lump sum, there are issues to do with taxation and maximum amounts, which are best explained by an independent financial advisor.
What are the consequences?
The idea of a lump sum sounds enticing. It is difficult to resist the temptation of potentially tens of thousands of pounds in a single payment. However, the choice you make about your lump sum is irrevocable and impacts your pension permanently. Your pension benefits will be permanently reduced. For every £12 of lump sum, you receive there will be a £1 loss of pension income.
Before you decide what to do about a lump sum, you might want to consider the consequences with an independent financial advisor. There are all sorts of possibilities for how you could manage your finances into retirement that are worth further discussions with an expert.
The content in this article was correct on 19th April 2021. 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.
