What happens to my Teachers Pension When I die? | Examples Given - Heritage Financial Planning

What happens to my Teachers Pension When I die? | Examples Given

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    For some of you, you may be relying solely on your Teachers pension to support you throughout retirement. But what happens if the worst was to happen and you died prematurely. Would your loved ones be looked for after you have gone? Does it make a difference when you die and what happens if you have or haven’t retired, will that make a difference?

    How The Teachers Pension Works?

    Before we look at the death benefits, we need to explain quickly how you build up benefits in the teachers pension. It is based on your length of service and your earnings.

    Once you reach a certain age, the pension is paid to you as an income so you don’t have to worry about managing a pot of money. Let’s take the career average scheme as an example.

    Members bank 1/57 of their pensionable earnings for each year of service. The amount banked after a successful year increases by a revaluation factor. For active members the banked amount increases by Consumer Price Index (CPI) plus 1.6%. If you are a deferred member, the banked amount will still increase, but only by CPI. Let’s see an example:

     Debra joined the scheme and in her first year her earnings were £35,000 per year. The Career Average pension she built up is:

    1. £35,000 x 1/57 = £614 banked pension,
    2. In the second year her salary increased to thirty eight thousand pounds. What pension has she built up then? So for the second year we take £38,000 x 1/57 to give us banked amount of pension of £606 per year.
    3. We need to increase the first year banked amount by  CPI plus 1.6%. Let’s made an assumption and assume inflation in that first year was three percent.
    4. We take £614 pounds and multiply this by 4.6% to give us £642 pounds and add this to the most recent year of accrued pension (£606), which would give Debra an accrued pension to date of £1,308 per year,

    What happens to my Teachers Pension if I Die in Service?

    Death Grant (Lump Sum)

    So what would happen if Debra was to die. Let’s look at the first scenario, if she died in service, in other words when she was still an active member of the Teachers pension and effectively still working.

    If we assume she was in the career average scheme, a death grant will be payable, which is a tax free lump sum, equivalent to three times your salary at the date of your death. So who does this go to? Well you can nominate anybody you like to receive this death grant, which is why its really important to update this regularly.

    If you haven’t nominated anybody, then it will be paid your spouse, civil partner or qualifying partner and if you haven’t got any of those, it will just be paid to your estate.

    Dependent Pension

    Is that it then, just a lump sum? No, an annual pension is typically also available if you have more than two years pensionable service and exactly who this will go towards will depend on your own circumstances.

    A survivor or ‘long term 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. 

    Exactly how much the dependent pension will be depends on if you have any final salary benefits or if they are career average benefits. The dependent pension for the career average pension will be 37.50% of the accrued pension to date. If you have any final salary benefits and die in service, then the dependent pension will be paid at 1/160th of your pensionable pay in the year in which you died.

    So let’s see two examples of how that would work for the difference in the career average scheme vs final salary benefits:

      Career Average:

    So Debra from the example earlier had two years of pensionable service in the career average scheme and her salary at the time she died was £38,000. She had nominated her husband Mark to receive her death grant.

    Mark would be entitled to a lump sum of £114,000 and if we assume Debra’s accrued annual pension whilst in service was that £1,308 per year, Mark would be entitled to a pension of £490 per year.

    It actually gets better though if you die in service as an enhancement will apply. This can be quite a complex calculation but it basically takes 37.50% of what pension benefits you would have accrued had you worked from your death up to your normal pension age.  

    Final Salary Benefits:

    How about if you had accrued final salary benefits and you are still in service at the time you died? What will the annual pension be. Well let’s assume that Mark had accrued 15 years in the final salary scheme at the time of his death and his salary was £45,000 when he died. What pension would his wife be entitled to?

    If we take his salary of £45,000 and multiply this by his 15 years of service and divide this by 160, his wife would be entitled to a pension of £4,218 per year.  

    What happens to the Teachers pension if you die in payment?

    What happens if you die whilst you are collecting and in receipt of your pension? Well for your career average benefits, the dependent pension will be 37.50%. For final salary benefits, your partner will get 1/160th of your final average salary for each year of service.

    For example, if your final salary was £40,000 and you had 20 years of service, if you died your dependents could receive a pension equivalent to £40,000 x 20/160, which equals a pension of £5,000 per annum.  

    If you have been collecting and in receipt of your pension for five years or less at the time you die, then your dependents may be entitled to an additional lump sum equivalent to five times your annual pension, less any payments you have already received.

    To give you example let’s say Dave retired and is in receipt of his pension which comes to £7,000 per annum. He dies two years later. In that case, his dependents may receive a further death grant of £35,000 less the £14,000 he has already received.  

    What happens to my Teachers pension if I die and I haven’t taken my benefits?

    If you are no longer in the Teachers pension scheme but you haven’t taken your Teachers pension, perhaps if you left teaching for another job or you have retired but you haven’t taken your Teacher pension yet, then you are known as a deferred member.

    Like the other two examples, you can nominate someone to receive your death grant. For your final salary benefits, this would be your average salary and multiply this by 30/80. If you had benefits in the career average scheme, it would be 2.25 times your accrued annual pension.  

    A dependent pension would also be available in the ways described earlier depending on if your benefits were final salary or career average.  

    If I’m not married will my partner get my Teachers Pension when I die?

    What about if my partner and I aren’t my married you might be asking, will they get a dependents pension?

    A survivor pension may still be payable assuming at the date of our death you met the following conditions:

    1. You are able to marry or form a civil partnership with your partner.
    2. You and your partner are living with each other as if you’re a married couple or civil partner.
    3. Neither you nor your partner has been living with a third person as if a married couple or civil partners.
    4. You and your partner are financially interdependent or your partner is financially dependent on you.

    The surviving partner may have to evidence this and their dependence by providing the likes of evidence they lived together, shared household spending, shared bank accounts and joint mortgage accounts.

    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.

    Picture of Alex Norman-Jones​

    Alex Norman-Jones​

    I am one of the founders of Heritage and I am highly motivated to deliver bespoke financial planning solutions to my clients.

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