Teachers’ pensions are complicated things and can make planning for retirement a confusing prospect. Unless you’re a maths whiz or have an accountant, you’d be forgiven for ignoring the small print on your pension altogether. To make things easy, we’ve answered some of the most common questions surrounding teachers’ pensions, including how to opt out, how much you’ll pay and what you’re likely to receive when you retire.
If you’re a teacher working in a state-funded school in the UK, you will automatically be enrolled in the Teachers’ Pension Scheme. The amount you pay and the amount you’ll receive when you retire depends on which of the teachers’ pension funds you have joined.
How much will I pay?
The amount you pay into your teachers’ pension fund will vary each year. The rates are changed annually on 1 April. Payment contributions as of 1 April 2018 are as follows:
If you earn:
- Between £0 - £27,047.99 – pay 7.4 per cent
- Between £27,048 and £36,410.99 – pay 8.6 per cent
- Between £36,411 and £43,171.99 – pay 9.6 per cent
- Between £43,172 and £57,216.99 – pay 10.2 per cent
- Between £57,217 and £78,022.99 – pay 11.3 per cent
- £78,023 and above – pay 11.7 per cent
What about tax?
Because your contributions are deducted from your salary before it is taxed, you’ll reduce the amount of income tax you pay. When you come to receive your pension, it will be subject to income tax, although you won’t have to pay National Insurance.
How do I enrol?
If you began pensionable employment after January 2007 at a state maintained school or an independent school that has joined the Teachers’ Pension Scheme, you will automatically be enrolled. As with other industries, employers are now legally required to enrol their employees in a workplace pension scheme.
Can I opt out?
You can opt out of making pension contributions by logging into your account and filling in an online form. You’ll be entitled to claim back payments as long as forms are completed by you and your employer within three months of enrolment.
As reported by Tes, there have been recent concerns about the number of young teachers opting out of the Teachers’ Pension Scheme.
How much will I receive when I retire?
How much you receive in your pension depends on which of the teachers’ pensions you joined and your normal pension age (NPA). The date you joined will either put you in the final salary arrangement or the career average arrangement.
For more information on which pension arrangement you’re in, visit the Teachers’ Pensions website.
Those of you on the final salary arrangement with a normal pension age (NPA) of 60 (pre-2007 Teachers’ Pension Scheme) will receive a pension calculated by multiplying your average salary by your years and days that you have been in pensionable service and dividing by 80. You will also receive an automatic retirement lump sum equivalent to three times your annual pension.
EG. £35,000 x 30/80 = £13,125 annual pension plus £39,375 lump sum
Those of you on the final salary arrangement with a normal pension age (NPA) of 65 (2017 TPS) will receive a pension calculated by multiplying your average salary by your years and days that you have been in pensionable service and dividing by 60. There is no lump sum but provision to convert some of the annual pension for cash.
EG. £35,000 x 30/60 = £17,500 annual pension
Those of you on the career average arrangement with a normal pension age (NPA) ranging between 65 and 68 will earn 1/57 of your pensionable salary for each tax year (April to March) you contribute to the Teachers’ Pension Scheme, plus a variable amount (CPI + 1.6 per cent) dictated by the Treasury. For the purposes of this example (see table below), I’ve assumed that your salary is static at £35,000 and the variable amount is also static at 2.6 per cent for the duration of a 30-year career, which is unlikely to be the case. This will give you a pension of £27,796 after 30 years.
|Year of pension contributions||Salary (£35,000/accrual rate (57)||Pension pot||
Variable amount. Eg 2.6%
|End of tax year amount|
|1||£614||0||= £614 + 2.6%||= £630|
|2||£614||+ £630||= £1,244 + 2.6%||= £1,276|
|3||£614||+ £1,276||= £1,890 + 2.6%||= £1,936|
|5||£614||+ £2,619||= £3,233 + 2.6%||= £3,317|
|10||£614||+ £6,295||= £6,909 + 2.6%||= £7,089|
|20||£614||+ £14,998||= £15,612 + 2.6%||= £16,018|
|30||£614||+ £26,478||= £27,092 + 2.6%||= £27,796|
At what age can I access my pension?
You are entitled to retire and receive your pension when you reach your normal pension age. This will depend on when you began paying into the scheme. In most cases, if you joined the scheme before January 2007, you will have a normal pension age of 60. For those who joined after this date, your NPA (normal pension age) is either your State Pension Age or age 65 – whichever is the later date.
Can I take early retirement?
If you are 55 or over, you can apply for early retirement. In this case, the amount being paid out is reduced as it will be paid out for longer.
Another option is phased retirement, where you are able to receive part of your pension while still continuing to work.
For more information:
Teachers’ Pension Scheme (England and Wales)
Northern Ireland Teachers’ Pension Scheme
Scottish Teachers Superannuation Scheme
With thanks to Mike Beard of NAHT.
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