As the New Year comes around and teaching feels as hard as it has ever been, you might be considering taking on less responsibility. You may have a senior leadership or middle management post and want to teach from now on. You yearn to get back to your roots, and you know the lower salary is worth the lesser stress.
You will also find a knock-on effect on your pension when you reduce your salary. Here we consider what these consequences might be.
Final Salary arrangement
The impact on your Final Salary arrangement will depend on how close you are to retirement. You Final Salary benefits are based on the three highest salaried years in the last ten years of your career. Consequently, if you are within the last ten years, there is likely to be no consequence on your Final Salary arrangement.
You may wish to check this with your independent financial advisor to feel assured that you can act without long term financial consequences.
Career Average arrangement
The consequence for your Career Average arrangement is more significant. You add to your pension fund each year as a proportion of your earnings. Therefore, if you work for several years at a lower salary, it will reduce your available amount at retirement.
The significance of this difference will depend greatly on your circumstances. You will likely receive less in your lump sum and ongoing benefits, and it is a good idea to work out these consequences with an independent financial advisor.
You can also counter some of these reductions in your benefit by taking up additional flexibilities, which you can also ask your advisor about.
Balancing stress-reduction now with contentment then
Life is often about balance. It might be worth taking a reduction in your pension to counter the stresses and strains of a high-pressure career. If it is not that challenging, really, then it might be worth sitting it out for a few years for a little more financial security in the future.
The content in this article was correct on 11th December 2021. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your teachers’ pension scheme, as well as financial matters in general. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.
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