Whether it’s your first career move or something you switch to later in life, being a teacher can have many rewards. One of them you might not consider when you take the plunge is the pension scheme. When you become a teacher, you’ll automatically be enrolled into the Teachers’ Pension Scheme, a type of defined benefit pension that pays you a guaranteed income for life, and a perk that’s well worth having.
What is the Teachers’ Pension Scheme?
It’s a type of pension scheme open to those aged between 16 and 75 who are employed predominantly in a teaching role (full or part-time). It pays a guaranteed income in retirement based on your earnings as a teacher. The exact rules changed in 2015 and, as a result, how much members of the scheme receive in retirement in relation to their salary will depend on when they joined the scheme and how far away from retirement they were when the 2015 rule changes happened.
Is the Teachers’ Pension a final salary scheme?
It used to be a fully final salary scheme, which means that eligible scheme members receive pension benefits based on their salary at the point they stop being part of the scheme.
However, those joining the scheme now will instead receive benefits based on their average earnings during their career as a teacher. This is still a form of defined benefit pension (so the amount you will receive is set in advance, rather than being dictated by investment performance as with defined contribution schemes). But, in most cases, the career average version of the scheme will work out as less generous. Some members of the scheme will receive part of their benefits under the final salary scheme, and part under the career average scheme.
Which versions of the Teachers’ Pension Scheme am I eligible for?
The version of the scheme that you qualify for as a teacher depends on when you joined and how far away you were from retirement when the rules changed in 2015. This rule change created 4 categories of membership:
|What you’ll get
|Protected scheme members
|Active member of the scheme as of 31 March 2012, within 10 years of your normal pension age (NPA) on 1 April 2012
|Final salary arrangement until you take full pension entitlement*
|Tapered scheme members
|Active member of the scheme as of 1 April 2012, more than 10 years but less than 13.5 years away from your normal pension age on 1 April 2012
|Final salary arrangement for years up to a certain date, determined by your age; career average arrangement for years after this
|Transition scheme members
|Active member of the scheme as of 31 March 2012, more than 13.5 years away from normal pension age on 1 April 2012
|Final salary arrangement for years up to 1 April 2015; career average arrangement for years after this
|New scheme members
|Joined scheme on or after 1 April 2015
|Career average arrangement
*Protection kept until/unless you have a career break of more than 5 years.
However, to make things even more complicated, a 2018 court ruling (the “McCloud Judgement”), found that the protections introduced in 2015 were discriminatory against younger members of public sector pensions schemes, including the Teachers’ Pension Scheme. Following consultation, 2 key things were decided:
- From 1 April 2022, all active members of the scheme will accrue service in the career average scheme.
- Eligible members (those who were in service before 31 March 2012 and on or after 1 April 2015) will be able to choose between final salary and career average scheme benefits for service between 1 April 2015 and 31 March 2022. This choice will be made at the point of accessing benefits (usually when you retire). This choice is known as the Deferred Choice Underpin (DCU) and applies to those who have already taken benefits, as well as those yet to start taking them.
You can find out more about this change on the Teachers’ Pension website.
What is Normal Pension Age (NPA) under the scheme?
This varies depending on the version of the scheme.
The NPA for members in the final salary arrangement is as follows:
- Age 60 if you were in service before 1 January 2007, provided you haven’t transferred the service out of the scheme, or had a break where you were out of service for more than 5 years ending after 31 December 2007.
- Age 65 if you entered pensionable service on or after 1 January 2007 or after a break of more than 5 years.
The NPA for members in the career average arrangement is either your state pension age or age 65, whichever is later.
If you have benefits in more than one arrangement, you’ll have more than one NPA.
What are the benefits of the Teachers’ Pension Scheme?
As with any registered pension scheme, you receive tax relief on contributions you make to the Teachers’ Pension Scheme. This means that the contributions will be paid out of your gross income, before any tax is deducted.
Beyond this, the main benefit of the scheme is that, like all defined benefit pensions, it offers a guaranteed income in retirement based on a proportion of your earnings while you were working.
There are a couple of other benefits too:
- You can take some of your pot as a tax-free lump sum (you need to give up £1 of annual pension income for every £12 of lump sum you take).
- If you die while you are working and actively paying in to the scheme, your chosen beneficiaries will receive an in-service death grant, including an initial payment, as well as a pension income for life.
Do I have to join the Teachers’ Pension Scheme if I’m a teacher?
Provided you meet the eligibility criteria for joining, you will be automatically enrolled in the Teachers’ Pension Scheme. You can opt out if you wish, but would be giving up some significant benefits by doing so.
You can opt out initially and rejoin at a later date but, again, would potentially have missed out on building up several years’ worth of pension income.
How is the income I’ll receive from the Teachers’ Pension calculated?
The way the pension you’ll receive on retirement is calculated depends on which part (or parts) of the scheme you are in. For the sake of straightforward comparison between the 2 scheme types, we’ve assumed that the teachers in each of our examples have fairly short-lived (3-year) careers in this profession. Over a longer period, they’d build up a much higher annual pension income.
Career average scheme
Each year, you’ll accumulate income worth 1/57 of your earnings for that year (including overtime). This will be increased over time in line so that it keeps up with inflation.
As the table above shows, under the career average scheme our teacher would receive an annual pension income of £1,535.96.
Final salary scheme
The pension benefits are calculated in slightly different ways for those who joined the scheme before and after 1 January 2007.
- Pre-2007 members: Benefits are made up of an annual pension and a lump sum. Annual pension is calculated by multiplying your years of service by your average salary, then dividing by 80. You’ll also receive a lump sum equal to 3 times your pension. You can also choose to convert part of your pension into an extra lump sum.
- Post-2007 members: Annual pension income is calculated by multiplying your years of service by your average salary, then dividing by 60. You don’t automatically get a lump sum, but you can convert part of your pension into a lump sum. This will, in turn, impact your annual pension.
Let’s assume in this scenario that our teacher joined the scheme after 1 January 2007, and stayed in it for 3 years. Their salary during their last year of employment as a teacher was £35,000.
To calculate their annual pension income under the scheme, they multiply their salary (£35,000) by 3 years of service (£105,000) and divide by 60. This equates to an annual pension income of £1,750.
How much must I and my employer pay in to the Teachers’ Pension Scheme?
The percentage of your salary that you contribute depends on how much you earn and where in the UK you live. The percentage your employer pays in is fixed, though it’s slightly different in Scotland than in England, Northern Ireland and Wales.
Can I pay extra into the Teachers’ Pension?
If you are in the career average scheme, you can pay extra to accrue pension income at a faster rate for each year (increasing it from 1/57 to 1/55, 1/50 or 1/45). If, for example, the teacher in our worked example above had paid to increase their rate to 1/45 only in the third year of their employment, they’d receive a pension income of £1,704.62, rather than £1,535.96. The extra contributions you must pay depend on factors such as your age and the rate you’re purchasing.
For both types of scheme, you can also choose to buy Additional Pension (in blocks of £250), or choose to top up your workplace pension via an Additional Voluntary Contribution pension. With this scheme, it lets you build up an additional pension that is separate to your teacher’s pension.
Can I have a personal pension as well as the Teachers’ Pension?
Yes. There’s nothing stopping you taking out a personal pension if you want to make more contributions than the Teachers’ Pension Scheme allows. However, this will inevitably be a defined contribution rather than a defined benefit scheme. And, given the benefits of the Teachers’ Pension, you’re probably best off maximising your payments into it before opening another pension to pay into.
How can I find out more about the Teachers’ Pension Scheme?
You can find out more about the Teachers’ Pension Scheme on the official websites for the part of the UK you live in.
When can I start receiving the Teachers’ Pension?
You can start receiving the full amount of your Teachers’ Pension when you reach Normal Pension Age (NPA). As we’ve explained above, this age will be either 60, 65 or state pension age, depending on which scheme you’re part of and when you joined.
You can start taking benefits earlier if you wish (though not before age 55). But if you do, your income will be reduced as a result.
What happens to my Teachers’ Pension when I die?
When you die, your spouse, civil partner or a partner that you’re co-habiting with will usually receive some of your pension benefits as a regular income. Children or adult dependants may also be eligible to receive benefits. The conditions and the amount they receive depends on the periods during which you were in pensionable service and certain other factors, so check these directly with your employer.
If you die while still in service, your beneficiaries will also receive a one-off payment on top of any ongoing income. The amount of this depends on which scheme you are a member of. If you’re a member of the career average scheme, it will be equivalent to 3 times your annual rate of pensionable earnings when you die or leave service (if applicable). If you’re in the final salary arrangement, it’s 3 times the average salary which would be used to calculate your own benefits.
While the exact details of the pension you’ll receive under the Teachers’ Pension Scheme can be a tad complicated, regardless of the specific scheme (or schemes) you are part of, the certainty of a retirement income for life is not to be sniffed at.
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