Ignore the doom and gloom in the press: Anthony Bailey discovers the low-risk benefits of being a teacher
Don't get the wrong idea from the stream of horror stories hitting the headlines. There may be a pensions crisis, but teachers are sitting pretty. They have access to a top-notch scheme. The real crisis could come as more people retire without making proper provision. Many people reach their fifties and suddenly realise they have little time to do a lot of catching up.
You are never too young to start saving. Even with the excellent teachers'
pension scheme, you need 40 years' membership to retire on half pay. You may be unsure of your commitment to teaching, but joining the teachers'
scheme is low-risk. You can get about 55 per cent of your contributions back if you leave within two years. That's not quite as bad a deal as it sounds, because you pay more tax and national insurance on your salary if you are not in the scheme. If you change career after two years, you'll have preserved benefits protected against inflation that you can leave behind or transfer to another fund.
And if you stay, you'll get a pension based on your final salary. You may start off as a classroom teacher and end up as a headteacher but your whole pension will be based on your head's salary, even though early contributions were based on a lower salary.
But are you eligible? The Government says you are automatically covered (in England and Wales) if you work in an establishment "maintained by a local education authority or grant-aided by the secretary of state, independent schools or further and higher education establishments accepted into the scheme, in an Education Action Forum or a Function Provider". Sounds confusing but it means you almost certainly are. If you're in an independent school, check to see if they belong to the scheme. The money is deducted automatically from your salary and marked on your payslip "superannuation".
New full-time teachers in state schools (and independent schools covered by the teachers' scheme) become members, unless they tell their employer otherwise, within three months. You can opt out at any time. New part-time teachers have to apply to join. If you have more than one part-time teaching job, tell the pension scheme so that your separate entitlements are combined. Unqualified teachers on the graduate teacher programme can join. So can directly employed supply teachers, but not those who come through an agency.
The cost is 6 per cent of your before-tax pay, but works out less than that on take-home pay. It's the tax perks that give pensions the edge over other investments. In addition, your employer pays 8.35 per cent. Opting out is equivalent to taking a big pay cut. Late entrants to teaching may have two decisions to make after joining the teachers' pension: should they transfer funds from other schemes? And how should they make extra payments if they have made little provision so far? Your union may be able to provide information, but there are no universal answers. Consider paying a fee to a specialist consultant for impartial advice.
You have a year to decide whether to transfer funds into a teacher's pension. In theory, you should end up with exactly the same cash pension in either scheme. But transfer values and benefits offered are based on actuarial crystal ball gazing that could be wide of the mark.
For several reasons, you may be offered fewer years' membership of the teachers' fund. For example, a year's membership of the teachers' pension might be worth more in cash terms, so you get fewer years for your transferred funds. If you get promotion, each year's membership would probably end up worth more in the teachers' scheme. If you are transferring from a personal pension or scheme based on stockmarket performance, first find out about any transfer penalties that might cut the value of your fund.
When it comes to paying extra, you can buy added years' membership of the teachers' pension. It's an attractive option. You are buying a guaranteed increase in your pension. But unless you have a spare lump sum, you have to make a commitment to pay an extra percentage over a number of years. An alternative is paying to an additional voluntary contribution (AVC) plan.
The extra pension is not guaranteed and depends on how well the stockmarket performs before you retire. But AVC plans are more flexible. You can vary or stop payments. You could choose a "free-standing" plan run by any insurance company or other provider. Or you could go for the official teachers' AVC plan run by Prudential. It is likely to have lower administration costs and prove better value.
For more information, contact your employer or the Teachers Pension Agency. Countries are covered by separate schemes. Their terms are virtually the same, with minor differences.England and Wales 01325 745 746www.teacherspensions.co.ukScotland 01896 893 000www.scotland.gov.uksppaNorthern Ireland 028 7131 9000www.deni.gov.uk
TWO-PART DEAL WON'T LEAVE YOU SHORT
There are two parts to people's pensions: basic and the state second. Teachers who pay superannuation get the basic. But, like many schemes, the teachers' scheme is contracted out of the state second. This means you pay less national insurance and don't build up entitlement to it while you stay in the teachers' scheme. But the pension you receive on retirement will be at least as good as the state second pension you forgo and so you should be much better off.
THE MAIN BENEFITS YOU RECEIVE
* When you reach 60, you get a guaranteed pension of one eightieth of your final salary for each year of membership: if you retired on pound;30,000 after 30 years, you'd get 3080 of pound;30,000 which is pound;11,250.
* You also get a tax-free lump sum of three eightieths of your final salary for each year of membership. To take the example above, you'd get 9080 of pound;30,000 which is pound;33,750.
* Annual pension increases in line with retail prices.
* A pension for your widow(er) worth half of what you were getting.
* A tax-free lump sum of twice your salary to your heirs if you die in service.
* Flexibility to leave teaching and return: separate periods of service are added together to work out your pension and lump sum.
* You can leave teaching for up to three years (or teach abroad for up to six years) and pay into the scheme - although you will have to pay the employer's contribution as well your own.
* No penalty when you change teaching jobs in the UK: your pension can go with you - and you can take it to other jobs covered by the "public sector transfer club", such as local government, civil service and the NHS.