What is the Teachers’ Pension?
The Teachers’ Pension Scheme is a defined benefit pension scheme that provides teachers with a guaranteed income for life when they retire. Read on to learn how the scheme works and what the benefits are.
From their first day in the classroom, all qualified teachers will be paying into the Teachers’ Pension Scheme, which will provide them with an income once they finish marking and lesson planning for good. The Teachers’ Pension is not provided to other school staff, such as teaching assistants.
But what is the Teachers’ Pension, how does it work and what income will it pay you when you retire? Read our guide to find out everything you need to know.
What is the Teachers’ Pension?
The Teachers’ Pension is a defined benefit pension scheme – this means that it will pay you a guaranteed income for life once you retire, based on your salary and the number of years you were a member of the scheme.
What are the benefits of the Teachers’ Pension?
In addition to guaranteed income in retirement, members of the scheme since 2007 can convert some of their pot into a tax-free lump sum – in order to do so, you’ll need to give up £1 of annual pension for every £12 of lump sum you want to receive.
Teachers who were a member of the scheme before 2007 will receive their lump sum automatically if they have not transferred out of the scheme or taken a repayment or benefits already.
If you die while you are working and actively paying into your pension, there is also an in-service death grant for your chosen beneficiary/ies.
The death grant includes an initial payment equivalent to three months’ salary, also called a short-term pension to the beneficiary/ies, as well as other longer-term death benefits, and a pension for life.
Do I have to join the scheme?
You can opt out of the Teachers’ Pension if you wish. However, it is worth thinking very seriously before you do so.
While you can rejoin the scheme at a later point, consider the value of the benefits you are giving up as well as how you will fund your retirement without it.
How much do I pay into the scheme?
When you get paid, a deduction will be taken from your monthly salary to go towards your pension.
How much you pay will depend on your salary:
|Annual Salary Rate for the Eligible Employment from 1 April 2021||Member Contribution Rate|
|Up to £28,309.99||7.4%|
|£28,310 to £38,108.99||8.6%|
|£38,109 to £45,185.99||9.6%|
|£45,186 to £59,885.99||10.2%|
|£59,886 to £81,661.99||11.3%|
|£81,662 and above||11.7%|
Source: Teachers’ Pension
What about employer contributions?
Your employer will pay into your pension too, currently at a rate of 23.6% of your pay.
How does the Teachers’ Pension work?
The exact deal you get will be based on when you became a teacher and joined the scheme.
For teachers joining the scheme now, benefits are based on your career-average salary and accrue at a current rate of 1/57th of your pensionable salary, including overtime, every year.
You are able to start claiming your pension when you reach the scheme’s normal pension age, which is currently your state pension age. Members in service before 2007 will be able to claim at age 60, while members joining after will be able to claim at their state pension age.
Teachers who started work before 2015 will have been in a final salary scheme, which pays a higher level of benefits than the newer career average deal. Older teachers who had normal pension age of 60 or 65 and were within 10 years of that on 1 April 1 2012, remained in the final salary scheme as protected members.
Those with 13.5 years or less to their normal pension age on this date are tapered members and will have been allowed to remain on final salary terms for a limited period before switching to the career average scheme.
Transition members – those more than 13.5 years away from normal pension age – will have entered the career average scheme in 2015 but will be entitled to keep the benefits they accrued on final salary terms.
For those with final salary terms the accrual rate is 1/80th if you have a normal pension age of 60, or 1/60th if you have an NPA of 65.
How are benefits calculated?
You can calculate your retirement benefits by multiplying your length of service by your final average salary or career-average figure. Once you have worked out this sum, you then multiply it by your accrual rate.
Can I pay more into my pension?
Yes. If you are on a career average scheme you can pay to have a faster accrual rate for that year increasing it from 1/57 to 1/55, 1/50/ or 1/45.
You can also buy Additional Pension in multiples of £250 a year. This can be deducted from your salary or you can make a lump sum payment.
Alternatively, you can purchase Additional Voluntary Contributions (AVCs) with a separate pensions company. This money will be entirely separate to your Teachers’ Pension. The Department for Education has an arrangement with Prudential but you are free to select the provider of your choice.
» MORE: Learn about AVC pensions
Can I retire early?
You can start taking benefits from your pension from the age of 55. However, if you do choose to retire before your normal pension age, your income will be reduced as a result.
How can I find out more about my pension?
The Teachers’ Pension is complicated, with different teachers getting different terms according to when they joined the profession.
You can find out exactly where you stand by checking your benefit statement online with My Pension Online. You can also use the portal to nominate your beneficiaries, update personal details and access benefit calculators to work out your retirement income.
There is also a wealth of information on the Teachers’ Pension website.
Image source: Getty Images
Rachel Lacey is freelance journalist with 20 years experience. She specialises in personal finance and retirement planning and is passionate about simplifying money matters for all. Read more