Mid-Career Teachers
When it comes to financial planning, everyone's needs are different. But, many teachers we talk to want to know where they currently stand and what their options are.
If you need any financial help, advice or information during your career - our experienced Financial Consultants can help you with everything from life assurance to tax efficient ways to save.
-
What are the benefits of the Teachers Pension Scheme?
The Teachers Pension Scheme is known as a defined benefit or "final salary" scheme. This means that you contribute towards the scheme each month in return for a guaranteed pension at your retirement age, which is based on your salary level and your length of service. You will need a minimum of 2 years membership of the Teachers Pension Scheme to qualify for pension benefits.
In addition to your contribution, your employer also makes a substantial contribution towards the cost of your pension benefits.
When you retire, the Teachers Pension Scheme provides you with a regular, taxable income for the rest of your life. This income is index-linked to protect its value against the effects of inflation.
You will also be entitled to a tax free cash lump sum.
There is a flexible option that allows you to take a greater amount of tax free cash if you wish. If you choose to do this, your annual pension will be reduced.
You can increase your pension by purchasing additional pension benefits. You may also be able to transfer in pension credit from another scheme.
To find out more, go to Personal Financial Advice or phone or email us. You might want to download our leaflet:
-
How much pension will I get?
For those who joined the scheme before 1st January 2007, to determine your pension income, the Teachers Pension Scheme takes into account 1/80th of your Average Salary* for every year that you have worked. The pension will be taxable, in the same way as earned income.
This can be expressed as follows:
In addition, you will get a tax free cash lump sum which is equal to 3 times your initial annual pension.
You may forego part of your pension in favour of a higher tax free cash lump sum. The maximum lump sum that you can take is 25% of the capital value of your pension. For every £12 extra that you take in cash, your pension will be reduced by £1 per annum.
*Your Average Salary is the better of:
- The pensionable salary you received in the last 12 months or
- The average of the best 3 consecutive years salary in the last 10 years of service, revalued in line with the Retail Price Index.
Example:
A teacher retires with a final average salary of £30,000 and has 20 years of service.
Her pension would be 20/80th of £30,000 = £7,500 per annum before tax
Her standard tax free cash lump sum would be £7,500 x 3 = £22,500
If she wished to take the maximum lump sum instead, this would be £40,178
By taking the maximum tax free cash lump sum, her pension would be reduced from £7,500 per annum to £6,027 per annum, before tax.
This assumes that the teacher was in service before 1.1.2007
-
Can I afford to retire early, take a career break or go part time?
How much pension you get from the Teachers Pension Scheme depends on your salary and length of service. So, anything that reduces your earning potential or the number of years you teach can adversely affect your options.
If you want to retire early, take a career break or go part-time you may want to make extra pension provision. We can explain the best way to do this, depending on what you want to achieve.
Early retirement example
You can take your pension from age 55 onwards, but you'll get less than if you stayed on to age 60. The earlier you retire the less you get. To be sure of what you can expect, you'll need a personal calculation. This is available from Teachers Pensions on 0845 606 6166 or at www.teacherspensions.co.uk.
Example of retiring at 55
A male teacher joins the scheme aged 22 and retires at 55, after 33 years service, on a final 'average' salary of £33,000.
Pension
33/80 x £33,000 = £13,613 a year x 77.3%* = £10,522 a year pension before taxStandard Lump Sum
£13,613 x 3 = £40,839 x 77.3%* = £31,568 tax freeHighest Lump Sum
£56,367 tax free which reduces the pension to £8,455 a year before tax*77.3% is the early retirement reduction factor
-
What can I do to top up my pension?
If you feel that your pension will not be sufficient to meet your requirements in retirement you have a number of options:
You can buy an additional amount of pension income from the Teachers Pension Scheme of between £250 and £5,400 per annum.
You can choose to take out an Additional Voluntary Contribution Scheme or a Stakeholder Pension.
There are various other options open to you if you wish to invest to create a lump sum in retirement. The best option for you will depend on a number of factors including:
- Your timescale
- Your attitude to investment risk
- The amount of access to your money or flexibility you require between now and retirement
- Your tax position
- The nature of any other investments you already hold
- Whether you wish to invest a lump sum or a regular amount for capital growth
It is important to seek advice before making a decision, so if you need any help, please get in touch.
-
What other benefits are there and will they be enough?
The Teachers Pension Scheme provides some death benefits and ill health benefits.
Death benefits
Should you die before retirement, the scheme will pay a lump sum of 3 times your salary (this will be based on the full time equivalent salary for your role if you are part-time).
In addition, there are pensions available for spouses, surviving civil partners and dependants.
As these benefits are based on length of service, they will be at their lowest in the early stages of your career.
If you have a mortgage or other debts, or a family that relies on your earnings, you should consider reviewing your need for additional life assurance. For more details, please go to our Insurance page.
Our Financial Consultants can tell you how much you could expect from the Teachers Pension Scheme and help you work out whether you have any shortfalls, so if you want to put your mind at rest, please get in touch.
Ill health benefits
The Teachers Pension Scheme includes an ill health retirement package, which provides higher benefits for total incapacity and lower benefits for partial incapacity. The granting of ill health retirement benefits are not guaranteed under the Teachers Pension Scheme.
As these benefits are based on length of service, they will be at their lowest in the early stages of your career.
Most teachers should therefore consider arranging some form of income protection, in the event of ill health. There are two scenarios to consider:
Long term illness, which prevents you from working
The most common causes of long-term illness in the teaching profession, as you might expect, are stress and back problems. There is no automatic qualification for an ill health pension.
To protect your ability to pay the monthly bills, should you be too sick to work, you should consider purchasing Income Protection, sometimes referred to as Permanent Health Insurance. For more details, please go to our Insurance page.
Serious illness, which may affect your lifestyle
The most common serious illnesses are cancer, heart attack and stroke. Medical advancement means that, thankfully, in many cases people now survive these illnesses but many sufferers are forced to re-evaluate their life choices as a result.
Often it is possible to work whilst recovering or receiving treatment. This means that sick pay and ill health retirement will not be available and any income protection plans you have may not kick in. This is where Critical Illness cover can help.
For more details, please go to our Insurance page.
Our Financial Consultants can tell you how much sick pay you are entitled to, how much you could expect from the Teachers Pension Scheme if you had to retire early and help you work out whether you have any shortfalls. So if you want to put your mind at rest, please get in touch.
-
My situation has changed/ I'm not sure if I need to do anything?
It's helpful to take stock of your financial position every 5 years or at major life events, such as getting married, buying a house, having children, inheriting or winning money, getting divorced or developing a medical condition that impairs your ability to work.
If you would like to make sure you are on top of things, please ask for a free review with one of our Financial Consultants.
This will show if you:
- Need more benefits - savings, protection or pensions - than the Teachers Pension Scheme is providing for you
- Could get a better return on money currently sitting in the bank or building society
- Could be making more of your tax free or tax-efficient savings allowances - particularly if you have a specific reason for saving - such as future funding for your children's university education, early retirement or a career break
- Need to review your current mortgage arrangement or get better value buildings and contents insurance
- Would benefit from making a Will or protecting an inheritance from taxation.
To find out more, go to Personal Financial Advice or phone or email us. You might want to download our Financial Planning Guide for teachers who are Mid Career
It can help you answer questions in more detail like:
- What are the benefits of the Teachers Pension Scheme?
- How much pension will I get?
- How can I top up my benefits?
- What if I want to retire early or go part time?
- What if I can't work because of ill health?
- What will my family get if I die?
- What other financial plans should I be making?
