Guide to Teachers' Pension Scheme and Benefits in 2020
This is a comprehensive guide to the Teachers' Pension Scheme and teachers' pensions benefits. In this guide I'll cover what you're eligible for.
State Pension Age
What age do you become eligible for the state pension?
The table below shows you your state pension age based on current legislation. You can keep up to date on legislation and check your state pension age at the government website.
| Pre 6th October 1954 | 65 - 66 |
| 6th October 1954 to 5th April 1960 | 66 |
| 6th April 1960 to 5th March1961 | 66 - 67 |
| 6th March 1961 to 5th April 1970 | 67 |
| 6th April 1970 to 5th April 1978 | 67 - 68 |
| After 6th April 1978 | 68 |
What is the Teachers' Pension Scheme?
The Teachers' Pension Scheme is an index-linked defined benefit scheme providing a lifetime pension income and a possible tax-free lump sum.
There are three schemes you need to be aware of depending on which year you joined the scheme. These are:
- The Original Scheme - Final Salary
- Interim Scheme - Final Salary
- Current Scheme - Career Average
It's important to know which scheme you're in as the final amount you're eligible for will vary.
Original Teachers' Pension Final Salary Scheme
The original scheme is open to members that joined before January 2007. It has a normal retirement age of 60.
Interim Teachers' Pension Scheme
The interim scheme is also a final salary scheme. It's open to members who joined between January 2007 and April 2015.
The normal retirement age for the interim scheme is 65.
And there's no automatic lump sum.
Current Teachers' Pension Scheme
The current scheme is open to all new joiners after April 2015. This scheme is a 'career average' salary scheme.
Most 'original' and 'interim' members moved in from April 2015.
The normal retirement age for members of this scheme will be your state pension age.
And there's no automatic lump sum.
Have you changed schemes?
It's possible that your scheme is protected. Members fall into two categories: Protected Members and Transitional Members.
Protected Members
Protected members have no change. You could be protected if you were on the original scheme and were born before 1st April 1962. Or if you're on the interim scheme and were born before 1st April 1957.
Transitional Members
If you're between 10 and 13.5 years of normal pension age as of 31st March 2012 then you'll be classed as a transitional member.
How long do protections last?
Your scheme will be protected as long as:
- You don't have a continuous break in service of more than 5 years; And
- You don't take your pension benefits (other than phased benefits).
Teachers' Pension Scheme Salary Calculations
Final Salary
If you're on the final salary scheme, your salary will be calculated as the higher of these two calculations:
- Your pro-rata salary for the last ten calendar years before retirement is revalued by CPI. And the average of the best consecutive three years is then used; Or
- The salary you received in the last 12 months before the date of your retirement.
Career Average
If your scheme uses a career average to determine your defined benefit it will be based on your annual salary whilst you're in the scheme. For every year that you're in the scheme 1/57th of your benefit is banked. This is revalued by CPI before your drawdown.
Contributions to Teachers' Pension Scheme
Contributions to your pension scheme are made by both you and your employer. The actual amount will vary based on your salary and is shown in the table below.
But on average you'll make a contribution of 9.6% of your salary. This is deducted from your salary each month so the amount you receive in your account will be net of this. And your employer will make an average contribution of 23.6% of your salary.
| Salary Range | ||
|---|---|---|
| £0 | £27,697.99 | 7.4% |
| £27,698 | £37,284.99 | 8.6% |
| £37,285 | £44,208.99 | 9.6% |
| £44,209 | £58,590.99 | 10.2% |
| £58,591 | £79,895.99 | 11.3% |
| £79,896+ | 11.7% | |
Calculation of Teachers' Pension Benefits
Protected Member of Original Scheme
For this scenario let's assume that you retire at 60 with 30 years’ service, and a your final salary is £30,000 per annum. Your defined benefit will be calculated based on a £30,000 Final Salary and 30 years of service. In this case 1/80th will be added to your benefit for every full year of employment, which makes:
£30,000 x 30/80 = £11,250 per annum which can be taken from age 60 onwards.
As well as a minimum tax-free lump sum, which is calculated as 3/80th for every full year of employment:
£30,000 x 90/80 = £33,750 one-off lump sum which can be taken when you reach age 60.
Switching from Original Scheme to Career Average
Here your entitlement is calculated based on your time spent in each scheme.
For this scenario let's assume you were on the original scheme for 20 years with a final salary of £30,000 per annum. In this case you'll receive 1/80th for every full year of employment. Which would work out as:
£30,000 x 20/80 = £7,500 per annum
You'd also receive a minimum tax-free lump sum equivalent to 3/80th for every full year of employment:
£30,000 x 60/80 = £22,500
We'll assume you also had 10 years on the Career Average scheme with an average salary £30,000 per annum. In which case you'd be entitled to and additional 1/57th for every full year of employment.
£30,000 x 10/57 = £5,263 per annum
You don't get a tax-free lump sum for this portion of your pension unless its for commutation of income, up to 25%. And in which case for every £1 given up, you'd receive £12 of tax-free lump sum.
So with no commutation of income, under this scenario, your total defined benefit would be £12,763 per annum and a tax-free lump sum of £22,500.
Current Scheme Teachers' Benefits
This calculation of teachers' benefits applies to current scheme members who joined after 2007.
Pre 2015 benefit
8 Years’ Service and £30,000 pensionable salary
1/60th for Every Full Year of Employment
£30,000 x 8/60 = £4000 p.a. (can be taken at age 65)
Post 2015 benefit
22 years service, and career average earnings £30,000
1/57th for Every Full Year of Employment
£30,000 x 22/57 = £11,579 (taken in line with state pension)
No Tax-Free Lump Sum unless commutation of income, up to 25% of pension value can be taken.
Taking Your Benefits
Where you're a member of 2 or more sections your pension benefits from each section must be taken at the same time if you're still employed full time as a Teacher.
And if you retire before your Normal Retirement Age (NRA) and take your pension benefits, they will be reduced by approximately 5% for every year the benefits are taken early.
Will Your Pension Be Enough in Retirement?
If you're concerned about having enough to live on in retirement, it's best to speak with a financial advisor. They'll help you to build a cashflow plan which assesses how you'll need to fund the lifestyle you want versus how much you're likely to have.
We've been working with over 400 schools and universities since 2001 to offer free consultations to staff. If you'd like to speak to an advisor about your plan, then book a FREE consultation today.