You may have just qualified as a teacher, maybe as young as 22, and you are aware that you have been enrolled in a pension. You might be one of the lucky ones who doesn’t notice the lump sum leaving your salary even before you are taxed. You might even have some disposable income that you want to squirrel away for a later date. There is, of course, the more realistic option, which is that your salary barely covers your living expenses. You likely could do with not paying anything towards your pension at all.
Things to consider
Before we go through your options, it is worth considering the formula we should all be applying to our pension saving. The general rule is that on the day you start paying your pension, you should halve your age, and this is how much of your salary should go towards your pension. If you are 22, then you should consider paying 11% of your salary towards your pension. Consequently, any deferment now will likely result in higher contributions later.
You may also want to think ahead a little and think about when you will want to retire. The idea of teaching for the next 45 years of your life might not fill you with glee. So, what can you do now, which means you will have the freedom to make choices much earlier in your life? Taking responsibility for your financial future now could save you a lot of heartache in the decades to come. The younger you take this responsibility, the easier it will be.
Despite all these things to think about, life is life, and there are practicalities to consider. You still have to live now, and you shouldn’t have to sacrifice your youth for a better experience when you are older. So, it is about finding a sensible compromise.
Therefore, if you are struggling to maintain your lifestyle while paying your Teacher Pension Scheme contributions, you can choose to defer. You need to research “opting out” of your pension and what this will mean. You should really only consider this if you are noticeably struggling. The issue is that when you stop paying into your pension, so does your employer. It is a lot of lost savings toward your future.
If you genuinely don’t notice the pension payments leaving your salary, then leave it alone. You are getting some significant tax bonuses, as it is taken out of your pay before tax is applied.
Then, there is the third option. You can choose to start saving more into your pension, so you have more freedoms when you are older. You will need to research “flexibilities” to further understand your options for paying more into your Teacher Pension Scheme fund.
A simple premise
If all these choices are making you dizzy, try sticking to the basic principle. Look to pay in between 12% and 15% throughout most of your career. Then, as soon as you feel you have room in your monthly outgoings, paying in 1%, more can make a huge difference.
The content in this article was correct on 16th October 2020. 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.