Teachers’ pensions are changing from April 2022. Depending on when you first became eligible for a teachers’ pension, you may no longer be able to claim a final salary option as your pension.
Find out what your pension will look like and what you should expect from April 2022.
In this article we will cover:
- What are teachers’ pensions?
- How does the Teachers’ Pension Scheme work?
- How do teachers’ pension contributions work?
- What is the average teacher’s pension?
- Leaving the Teachers’ Pension Scheme
- What happens to your teacher’s pension if you die?
- Consult a financial adviser
What are teachers’ pensions?
The Teachers’ Pension Scheme is a ‘defined benefits’ scheme that allows both you and your employer to make contributions towards your retirement.
The current system means that you’ll make monthly contributions depending on your salary and when you joined the scheme.
Currently, members fall into one of four categories which outline exactly what kind of contributions you and your employer will make. Depending on which category you fall into, your pension may be based on your final salary or your career average earnings – the latter of which is typically less generous. These categories are:
‘Protected’ scheme members: You’ll be in this scheme if you were an active member before 2012 and were 10 years or less from your pension age
‘Tapered’ members: You were a member before 2012 and were less than 13 and a half years before your pensions age
‘Transition’ members: You were more than 13 and a half years from your retirement age before 1st April 2012
How does the Teachers’ Pension Scheme work?
A legal ruling judged that this method of calculating pensions discriminated against younger members of the Teachers’ Pensions Scheme who joined the pension more recently. As a result, changes from the 1st April 2022 mean that all members will have their pensions moved to a career average scheme.
This means that members will receive an amount based on pensionable earnings each year that members are participants in the scheme.
Until 2015, teachers’ pensions were based on the final salary of members close to or at the time of retirement. The career average scheme will base the final salary of members on a career average of earnings during the period that members were enrolled in the scheme.
Where members of the teachers’ pension scheme may be given a choice if they are eligible for both – and should continue with their retirement plans as normal – younger members, or those who were covered under the transition or new categories, will only be able to count on a career average pension plan.
In practice, this means that many people’s pensions might be lower than under the previous scheme.
As your final amount takes into account the salaries you accrued over your career, from entry-level salaries at the early part of your career to more senior salaries later on, averages are likely to be dragged down. In principle, this could mean that people choose to work for longer to make up for this differential.
While some teachers who have already accrued most of their pensions are approaching retirement will be given the choice, if you’re a younger teacher, you may want to speak to a financial adviser to see how you can make sure you’re getting the best arrangement for your retirement.
How do teachers’ pension contributions work?
Regardless of whether you are a full-time or part-time teacher, you will continue to make contributions to your pension in the same way.
Depending on your salary, you will make monthly contributions from your gross salary which will be topped up by your employer. For the 2021-2022, the contribution thresholds are:
Incomes below £28,310 – 7.4%
Incomes between £28,311 and £38,109 – 8.6%
Incomes between £38,110 and £45,186 – 9.6%
Incomes between £45,187 and £59,886 – 10.20%
Incomes between £59,887 and £82,662 – 11.3%
Incomes £81,662 – 11.7%
What is the average teacher’s pension?
There is no average pension for teachers to retire with, as calculations are unique to the individual and when they enrolled on the pension scheme.
For example, a teacher who has been enrolled in the scheme for 30 years but never began earning a senior salary might have accrued a pension with a lower average or final salary than someone who has been enrolled for less time, but worked in more senior positions.
Your pension will also be adjusted in line with inflation, ensuring that you get a real pension increase. Your pension is tied to the Consumer Price Index (CPI), which means that whatever the inflation rate comes to, as measured by the CPI, your pension will always increase or decrease by the exact same amount.
Leaving the Teachers’ Pension Scheme
Leaving the Teachers’ Pension Scheme or taking an extended leave from the profession could affect your final pension pot.
If you don’t want a teacher’s pension in the first instance, you are able to opt out of the scheme. When you start teaching, your employer is legally bound to automatically enrol you so you will need to consent to leaving.
If you opt out and then decide to start making contribution again later, you can opt in again and continue making contributions. However, you should remember that changes in April may affect your final pension.
While you can take a break and return to making contributions, leaving teaching altogether means that contributions will be stopped. You may be able to bring your existing pension to your future employment, otherwise you will be able to claim your teaching pension once you reach 60 or 65.
What happens to your teacher’s pension if you die?
As is the case with pensions from April onwards, it will depend what salary category you fall under. If you die while in service, or still teaching, your next of kin will be paid a final salary – if you fall under the protected and tapered scheme – of three times.
If you joined the teachers pension later, a career average of three times will be paid.
If you die while collecting your pension, your partner or spouse will receive a full pension – final salary or career average – for three months, before a continued amount is paid going forward, albeit at a reduced rate.
For final salary options, your partner will receive 1/160th of your final average salary for each year of your pensionable work, while for the career average option, your partner will receive 37.5% of the pension for each year.
Consult a financial adviser
If you aren’t sure whether you’ll be given the option of using a final salary or career average pension and want to start planning for your retirement, speak to an independent financial adviser (IFA) who can help you start planning for the future you want.
Find an adviser on Unbiased today.