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No matter if you are at the beginning of your teaching journey or if retirement is approaching or on the horizon, our Teachers Pension consultation helps you understand and make the most of your teachers pension.
What does the Teachers Pension consultation cover?
Our consultation covers the following:
The differences between the Career Average Scheme and what this means for your retirement
The Teachers pension is comprised of three schemes – two of which are final salary, with the third the introduction of the career average scheme in 2015.
The reality is that most Teachers may belong to two different schemes which have subtle, but very important differences that you may not be aware of. For example, the two final salary schemes have a normal pension age of 60 and 65 respectively, whereas the career average normal pension age is the latter of either age 65 or your state pension age. If you plan on retiring early from teaching and taking your Teacher pension before this normal pension age, you can incur hefty early retirement penalties which can reduce the amount of pension you may be entitled to.
Calculating how much income your Teachers Pension may generate
We look at how you build up benefits within the different schemes and show you a method that you can use to calculate what pension you may be entitled too.
For example, if you are member of the career average scheme and your pensionable pay is £40,000, then for that year of your service, you will bank an annual pension of £701 per year (£40,000 x 1/57th).
What you can do to increase your Teacher Pension
It’s possible to increase your Teachers pension by the following ways; Fater Accrual, buying additional pension and finally ‘buying out’ up to three years of actuarial reduction from the Career Average scheme.
Whether you are member of the final salary, career average or both schemes, we will share with you examples of what effect increasing your pension can have and what the costs are so that you can conduct your own cost benefit analysis to see if it is worth it for you.
Take faster accrual from earlier, if you opt for faster accrual at 1/50th of your pensionable pay instead of the standard 1/57th, then you would accrue a pension for that year of £800. This is almost an additional annual pension of £100 compared to the standard accrual rate.
What impact early retirement can have on your teachers pension
If you are considering early retirement or have one eye on it, we’ll cover what impact early retirement can have.
It’s generally possible to take your pension benefits from age 55, although each scheme will have a particular normal pension age which is later than this.
If you retire before your normal pension age, this means the Teachers Pension will have to pay you the pension for longer, all else being equal.
To account for this potentially longer payout period, your pension will be actuarily reduced which is basically a penalty applied to your pension. The exact penalty will depend on your scheme and individual circumstances, but this is approximately 3% a year.
If your normal pension age was 66 and you retired ten years before this at 56, this means your pension could be reduced by as much as 30%!
The difference between your annual pension and tax free lump sum and the effect they have on one another
With one of the final salary schemes, depending on when you joined the scheme you may be entitled to an automatic tax free lump sum.
However, with the other final salary scheme and career average pension scheme, you do not get an automatic lump sum.
Instead, you can commute some of your pension income in return for a tax free lump sum. In other words you can give up some of the annual pension in return for a tax free lump sum. We will go over and provide calculations on the impact taking a tax free lump sum can have on your annual Teachers pension income.
We’ll also cover off the maximum amount of tax free cash that you can take from your pension benefits and what impact this will have on your annual pension.
Is your Teacher pension enough to retire?
You may be wondering do you have enough to retire and if so, how much do you need.
We can look at several scenarios to calculate how much you may need to retire comfortably in the UK and if your Teachers pension isn’t enough, we’ll show you a rough and ready calculation that you can use to work out what you will need to meet the shortfall.
We’ll cover several alternative pension and investment vehicles that you can use to try and meet any deficit in your retirement income and expenditure such as money purchase pensions (often referred to as private pensions), ISA’s, state pension and increasing your Teachers pension.
How the state pension works
With the new full state pension worth £221 per week for the 2024/25 tax year, or just under £11,500 per year, assuming you qualify for the full state pension, this is likely to be a key source of income in retirement.
To qualify for the full state pension you will need 35 qualifying years of paying the necessary National Insurance contributions. To receive the minimum amount of state pension you will need 10 qualifying years.
We will touch on how you can check your state pension forecast, what you can do if it look like you wont qualify for the full state pension, what age it is payable and how it interacts with your Teachers pension.
How much is your Teachers Pension consultation?
If you are looking for a consultation solely focused on your Teachers Pension, we charge a fixed fee of £500. The consultation is delivered over Teams video call.
If you would prefer guidance around not just your Teachers pension but also your wider financial affairs and financial planning, we charge £1,500 and this also covers a comprehensive cash flow which looks at your various retirement income streams and plans for retirement to help ascertain if these plans are realistic and affordable. We can also discuss your options with any money purchase pensions (often called private pensions) or Additional Voluntary Contributions (AVC’s) you may have and the options available to you.
Before carrying out any work for you, we will always ocnfirm what our charges will be upfront.
Get In Touch With Heritage Financial Planning Today
If you’re looking to arrange a consultation please call us on 01244 257587or fill out our contact form.
Please note employer pensions are regulated by the The Pensions Regulator. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. The Financial Conduct Authority does not regulate tax planning.
What is the teachers pension based
At a very high level ti is based on your length of service and your pensionable earnings.
For the final salary schemes, your earnings will be based on your average salary which is the higher of either the average of your best consecutive salary for three years in the last ten years of your service OR just your pensionable salary in the previous 12 months.
In the career average scheme your earnings are based on your average earnings over your career and not just your salary in your final years.
What happens to my Teachers pension when I die?
What you will get depend on when you die. Generally, thereare three different scenarios: If you died in service as an active member of the scheme, secondly if you died whilst in payment and in receipt of your pension and finally if you are a deferred member.
It’s possible to nominate someone to receive a lump sum tax free payment which is referred to as a death grant. An annual pension may able be available and exactly who this will go towards will depend on your circumstances. A survivor pension can be payable to the likes of your spouse, civil partner, qualifying partner if you aren’t married and even children if they are under 23 and in full time education.
When you choose our pensions service, you can be confident that you are receiving reliable, professional, and impartial advice to help you make the most of your saving
