Newly Qualified Teachers

Like many new teachers you may be feeling the pinch if you have emerged from your training with student debt.

If so, you may think that you're not ready to put money aside for your retirement. We can't say strongly enough that opting out of the Teachers Pension Scheme is tempting fate.

It is an excellent pension scheme, and without it you could be very hard pushed for money to live on when your career comes to an end. So, if you do nothing else for the time being, we would urge you not to opt out of the Teachers Pension Scheme, as it is highly unlikely that opting out would be good for you.

As well as a pension, the Teachers Pension Scheme provides some life assurance and an early retirement disability pension. Because these benefits are based on your salary and length of service they are at their lowest when you're new to teaching. If you want to make up any shortfalls please talk to us and we'll explain how this can be done.

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.

  There is a flexible option that allows you to take part of your pension fund as tax free cash. 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:

  Financial Planning Guide for Newly Qualified Teachers

• How much pension will I get?

  For those who joined the scheme on or after 1st January 2007, to determine your pension income, the Teachers Pension Scheme takes into account 1/60th 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:

  

  You may forego part of your pension in favour of a 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 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.
• 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 can provide some death and ill health benefits to members.

  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 heath 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.

  Newly qualified 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. Neither of these conditions would automatically qualify you 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.

• What should I do to review my situation?

  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 Newly Qualified Teachers

  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?

©Teachers Assurance 2008

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