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Think before changing pension

The Government clampdown on early retirement is not a cause for rash action, the unions tell Susannah Kirkman. Union pensions advisers are urging extreme caution to teachers who are thinking about changing their pension arrangements in the wake of the proposed clampdown on early retirement.

The unions have been inundated with calls from staff anxious about the changes in the pension rules mooted by the Government, which would force local education authorities to meet the extra pension costs of most teachers who retire before 60.

One common fear is that those who have made additional voluntary contributions (AVCs) may be over-funding their pensions; generally, teachers' pensions are not allowed to exceed half of the final salary, plus the corresponding lump sum.

But many calls have come from teachers desperate to find an alternative pension route to fund their early retirement. The unions say that some schools have already been contacted by insurance companies and financial advisers suggesting that teachers should switch their pension benefits out of the superannuation scheme and into personal pension plans which would still allow them to escape early. Peter Smith, general secretary of the Association of Teachers and Lecturers, has accused insurance companies of "circling like vultures" to get their talons on the rich pickings from teachers' pension funds.

Pensions experts have been swift to reassure teachers that over-funding is very unlikely. Steve Bee, head of pensions at the Prudential, points out that in-house AVCs are calculated on the basis that teachers will retire at 60, not earlier. Over-funding may occur if large amounts have been invested in free-standing AVCs to finance early retirement, but teachers would still get all the extra money back, minus the tax relief.

"This would certainly not be a disaster. It would still be a better investment return than if you had put the money in a building society," he says. "Over-funding is an excellent problem to have. Teachers have such generous pension arrangements that they must be the only group with this worry."

June Easden, head of an independent firm of financial advisers specialising in advice for teachers, suggests they contact their AVC-provider and ask for a projection of their pension benefits. If they are paying too much, the excess could eventually be used to top up a dependant's pension, or they could simply stop making contributions.

As for transferring pension funds out of the Teachers' Superannuation Scheme (TSS), the unions are warning their members against it. "We haven't been battling for three years to get Pounds 3 million back out of personal pension plans for teachers to throw it all away again,'' says Marion Bird, deputy head of pensions at the ATL.

Mike Beard, head of pensions at the National Association of Head Teachers, thinks that all teachers should wait until they know exactly what the new pension regulations are before they make any changes to their pensions.

"We don't want our members to go ahead and do something they will regret, " he says. "With a personal pension scheme, there's no guarantee of index-linking and no automatic family benefits. And administration charges may be so high that they wipe out the advantages of transferring from the TSS."

At the very least, teachers should seek independent financial advice from a firm which understands the TSS, and be prepared to pay for it. "If you pay to see someone, they're not then hanging on for a rake-off from your investments,'' says Marion Bird.

u Next week: Weighing up the pros and cons of going early Easden Pension Consultants Limited Tel: 01202 296789. Fax: 01202 291860.

Seven things to look for when you choose an independent financial adviser.

1 Check his or her pedigree by asking for recommendations from other clients.

2 Is he or she familiar with the Teachers' Superannuation Scheme? No one who isn't will be able to give accurate advice to teachers.

3 Make sure he or she is not tied to one provider. (A list of six independent financial advisers in your area can be provided by Independent Financial Adviser Promotions, tel. 0117 971 1177.) 4 See that the adviser knows all your financial circumstances. He or she shouldn't be advising on your pension in isolation from everything else.

5 Ensure that the adviser's report answers all your questions about his or her final recommendations.

6 Find out what service you will get in the future. The adviser should be prepared to monitor your investments and be available to offer advice on other financial issues, such as savings and mortgages.

7 Be prepared to pay if you want to feel confident that you're getting impartial advice.

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