Paid holidays were always a lucrative perquisite of the teaching profession – it fell under the benefit package that came with the employeebenefits package. The Teacher’s Pension Scheme goes one step ahead and rewards the workers of the noble profession with a comfortable life even after retirement.
In the United Kingdom, majority of employed citizens are academic staffs, or more accurately teachers and professors posted in the high schools, Higher Education colleges and post 1992 Universities. The Teacher’s Pension Scheme make sure that every one of these employees get proper monetary support and provision after retirement and provides for a lump sum and regular amount every month. Not only that, the scheme ensures financial protection to the dependent family members in case a pension scheme member passes away.
In simple words, the Teacher’s Pension Scheme brings you, your employer and the Government together to help you plan a better, safer and worry-free future. There are several other pension schemes like SSAS,salary sacrifice pension scheme and Workplace pension schemes.
Which members are eligible for the Teacher’s Pension Scheme?
Teachers, professors,and lecturers of around 2400 primary, secondary and high schools, Higher Education schools and colleges, the post – 92 Universities (the former polytechnics) and some other academic institutions are eligible for the Teacher’s Pension Scheme. A person is enrolled as a benefit-receiving member of the scheme from the moment they register on the Teacher’s Pension Scheme in the member’s hub of their official website. For comparison between Pension Schemes and other Individual Savings Account (ISA) you can consult with our counsellors or drop a text to our instant chat option.
How does the pension scheme work?
The members registered under the Teacher’s Pension Scheme can avail their pensions in two ways – on a monthly income basis or convert it partially into a lump sum amount. The member has to be of age 65 or the state pension age – whichever is higher, to be eligible for this scheme.
The amount is calculated on a career average basis. So the pension amount or the benefit received by every member is the average of their income for the span of their earning career or for as long as they have been the member of the scheme.
The members receive a benefit of money equivalent to 1/57th of their annual income every year. However, this benefit is calculated keeping inflation and market surges in mind. The benefit is increased every year by 1.6% over and above the September Consumer Index,and the rate is applied at the beginning of the next financial year in April of the next year.
The basic procedure of the scheme is simple – every time a member receives their salary, a portion of it goes into the pension fund,and the employer does the same. The role of the Government is to provide tax relief on the contributory amount of the income that goes into the pension fund.
However, the amount every teacher or professor needs to contribute has a benchmarking. First of all, it obviously depends on the salary. Lower the salary; lesser is the percentage of contribution and vice-versa. Following are the contribution slabs for the Annual Year 2016-17.
a) A professional teacher earning less than £26,000 needed to contribute to the pension around 7.4% of their income.
b) For an income of £26,000 to less than £35,000, the percentage rate is 8.6%
c) From £35,000 to an income of less than £41,500, a member needs to contribute 9.6% of their earning.
d) For someone earning between £41500 and £55,000, he or she needs to make a contribution of 10.2%.
e) For an income of £55,000 to less than £75,000, the rate is 11.3%
f) For an income of £75,000 and above, the contributory rate is 11.7%
Can the contribution be more than the stipulated percentage?
A member can make extra contributions to avail added pension benefits. Additional pension income can be done in multiples of £250 in one year up to a maximum amount of £6,500 per financial year. This upper limit is reviewed and changed from year to year. The members can either do this one time with a payment of a lump sum amount or through an increased contribution, cut from their salary every month.
What are the benefits of extra contributions?
Faster accrual:Faster accrual:In an annual year, a member can go for Faster Accrual method. As mentioned earlier, the original rate of accrual is on a 1/57 basis on the annual earnings of a teacher or professor, but when one chooses the faster accrual system, they can pay higher amounts as acontribution – starting from 1/55 to as much as 1/45 parts of the yearly earning
To be eligible for this system, one has to make the choice in their pension scheme profile within one month of starting the employment. But in later years, the decision and subsequent election have to be made before the previous year-ending, which is by the end of March every year.
Buy Out: Buy Out is the procedure when a 65 plus eligible member of the Teacher’s Pension Scheme can choose to retire up to three years prior reaching the Normal Pension Age. But to avail this benefit, the members have to pay extra for the entirety of their employment under the scheme. In that way, the added amount will be adjusted against the reduced benefit for taking it earlier than the stipulated time.
However, this election needs to be madebefore six months from the date of joining pensionable employment. After the first six months are over, this benefit will not be available for the members to avail.
Additional Pension:Additional Pension benefit can be purchased by the member for him/herself or together for themselves as well as their partners or spouses. This sum can be either paid on a lump sum basis or have it deducted every month from the salary.
This scheme does not have the assurance of the primary Teacher’s Pension Scheme, but it sure has its advantages; for example, ability to access the pension from an age as early as 55 and to take any amount of the whole as a lump sum. Also, the pension contributions are deducted at the very source so they would not have to go through the entire tax return claiming procedure of the particular amount contributed.
- Allows you to take realistic decisions that will garner more profit and benefit for the company in the long run.
What are the options for early retirement?
Teachers do have the option of an early retirement at the age of 55. The major problem of early retirement is that the benefits that could have been received from apensionare reduced in an actuary manner, according to the age when early retirement is optedfor.
Another form of retirement option available to the teachers is one of a phased retirement.
It’s also possible to take a phased retirement.This has been best explained by Nilesh Shah, an associate with actuarial firm Barnett Waddingham, explains: “A teacher can take up to 75% of their benefits before age 65, providing they reduce their pensionable earnings by 20% – effectively moving from five to four days a week – for at least a year.”
By this method, teachers can actively reduce the amount of time and effort they spend slowly up to their retirement.
What are the best and worst features of the Teacher’s Pension scheme?
Teacher’s Pension Schemes find their best advantage in being an unfunded scheme. By this reason, they are not dependent on the returns that may or may not come from the quality of investments that were made. The security of the Teacher’s Pension Scheme is extremely high for this very reason, as the money comes directly from the Government. There is a reliable place where the money is coming from, ensuring that there is a form of payment for them which is secure in every sense of the term.
The Teacher’s Pension Scheme may benefit from having Government backing, but the problem lies elsewhere. While it is easy for the teachers to be sure that they will receive their due from the Government, the fact of the matter is that those who elect to take the Lump Sum payment will be penalized by some factors.
i. It is restricted to 25% of the Pension Benefits that are due to the retired academic.
ii. The maximum amount that can be claimed is that of £12 for every Annual £1 that is sacrificed by the retired professional. This gives the payment of a lump sum of a maximum of 12 years and no more.
iii. The assumption made here is that there is a life expectancy of teachers who are taking alump sum to live for 12 years, whereas the reality of the matter is that they may live for much longer.
High earners have to be extra mindful of the annual and lifetime pension allowances of £40,000 and £1 million, respectively. The pension scheme offers benefits such as ‘Death in Service’ payment to thefamily. To avail of this many are ready to pay the high tax burden that is included instead of leaving the scheme if and when they feel it needed.
What are the recent changes to the Teacher’s Pension Scheme?
The current scheme rules have only been in place since April 2015. Prior to that, it was a final salary scheme rather than being based on acareer average. The new scheme that has been introduced takes the average of the entire career instead of basing it on the final salary in place at the time of retirement.
By this scheme change, those teachers who had a level career throughout tend to gain, whereas those who started at a lower salary and increased an incredible amount will lose out.
Other key changes include the accrual rate, which improved from 1/60th to 1/57th. The retirement age of the teachers was also changed by this scheme. It was switched from 65 to the higher of 65 and the prevailing State pension age.
Contribution rates have also risen steadily, with the rate for a teacher earning £60,000 increasing from 8% in 2012/13 to 11.3% in 2016/17.
There were transitional rules present for the teachers for by the new scheme. Those teachers who were members of the scheme before the date of April of 2012, while also being within 13.5 years of their retirement, were able to avail of the Final Salary scheme instead of the new one. Other than these teachers, all others were inducted into the new scheme.
Are teachers happy with the changes?
The Summer’s Strike was due to the dissatisfaction the teachers had with their payment. The youngest teachers were hit the hardest, losing out on large amount of money. For most teachers, it is a scheme that they are not happy with as it means working for longer amounts of time only to get paid less at the time of retirement.
How does it compare to other schemes?
Seeing their benefits reduce is cause for concern, but the teachers’ pension scheme still stacks up favorably when compared to other workplace schemes.While the benefits are nowhere near what they were before, and the membership contribution fees are much more taking up a significant portion more of their salaries than it did before, it compares well when put up against other schemes which are available in different workplaces.
Where can I get advice?
Some independent financial advisers (IFAs) have set up separate arms to provide advice to teachers. These are extremely approachable and cater to teachers in the best way.
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If you want an instant help, you can consult with our counsellor for best advice.