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How to draw your pension... and carry on working;Personal Finance

Are you torn between the lure of earlyretirement and the need to pay for it? Teachers nearing the end of their careers could soon have the benefits of both worlds, reports Susannah Kirkman

Most teachers have mixed feelings when it comes to early retirement. Can they really afford to take the plunge? And do they really want to give up the classroom entirely?

The Government is now considering ways of allowing teachers to draw a pension before the age of 60 without fully retiring. Inland Revenue proposals*, published last month, would permit members of occupational pension schemes to take benefits from the age of 50 while continuing to work part-time.

A long-term review of the Teachers' Superannuation Scheme is also looking at ways of staggering retirement.

If the Inland Revenue recommendations are adopted, someone retiring at 55 would have their pension reduced by 25 per cent - 5 per cent knocked off for each year of pensionable service still to be completed. A teacher might opt to work half-time at any stage between 50 and 60 and claim half their pension. In the meantime, they would continue to accrue further pension benefits for their final retirement at 60.

Another important proposal would allow people to draw benefits from their Additional Voluntary Contributions before the official retirement age. This would be particularly helpful to anyone trying to finance early or partial retirement.

In theory, all state pension schemes, including the TSS, could introduce the changes, but actuaries point out that they are unlikely to do so unless the new rules are simplified. "It would be an administrative nightmare," said one actuary from a firm which deals with several state pension schemes. "We are recommending that the system should be less complicated."

As it stands, the new scheme would let you decide on a yearly basis how much pension you wanted to take. This would provide rich pickings for actuaries making thousands of different calculations every year, but it would also make the scheme extremely expensive to administer.

Actuaries are suggesting modifications to the proposals which would allow employees to opt for changes to their pensions only once between 50 and 60. For instance, a teacher might decide to work half-time from the age of 53, drawing half her pension and her AVC benefits at this stage. But she would not then be allowed to make any other changes before she retired at 60.

"Employers are keen to provide more flexibility for people wanting to retire early, but they have to find a workable way to do it," another actuary said.

Meanwhile, the Department for Education and Employment is looking at a variety of changes to the TSS which would make teachers' pensions more flexible. One option would dovetail very neatly with the Inland Revenue proposals; this is a "partial retirement" scheme which would allow someone to work for three days a week while collecting two-fifths of their pension, an idea which is under consideration in Denmark and Germany.

Another option would be to grant actuarily-reduced pensions from the age of 50 - although this system could drastically reduce the size of the pension, by as much as 50 per cent for someone retiring at 50.

Even this scheme would have some takers among stressed-out teachers, according to Brian Clegg, assistant general secretary of the National Association of Schoolmasters Union of Women Teachers. "Vastly reduced pensions would still be attractive to people desperate to retire," he said.

* Occupational Pension Schemes: Enhanced Flexibility - a discussion paper'. Inland Revenue Savings and Investment Division

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