Teachers' Pension Scheme: Four common retirement options and their implications

What are the main retirement options for teachers – and what should you be aware of when it comes to financial planning and your pension? Specialist financial adviser Karen Baxter explains.

When it comes to thinking of what retirement options teachers have, there are numerous routes to consider. These include age-related retirement, phased retirement, early retirement, and “retire and return”.

Age-related retirement

Some teachers choose to take their retirement at the age specified by the Teachers’ Pension Scheme (TPS). This has become somewhat more complicated recently, as there are now two schemes with three different retirement ages – pre-2007 is age 60, post-2007 is age 65, and post-2015 is the state pension age.

It is probably fair to say that we don’t come across a high number of teachers who wish to work until age 67 or 68. In general we see a greater number of teachers seeking to retire younger.

In most cases, when we ask a teacher what they consider their Normal Pension Age (NPA) to be, in general, the reply is around 60-years-old – this was the NPA of the pre-2007 final salary scheme. Therefore, desired retirement age and NPA could differ – and this is something that requires planning.

Another type of age-related retirement may be where a teacher has a specific age in mind at which they wish to retire. This could be on a significant birthday, e.g. 60 or 65 for example, or it could be one that aligns with an event such as their children finishing university, or the date at which mortgage payments will come to an end.

An important factor to be aware of here is actuarial adjustments under the TPS. This can occur if you take your teachers’ pension before the scheme’s NPA(s). Essentially what this means, is that if you are retiring earlier than the scheme expects you to, you will be receiving your pension income for a longer period of time. As a result, the scheme stretches the value of the pot to accommodate for this – giving you less of the pot that you have created, over a longer period of time.

This is something to always be mindful of when planning for retirement. The later you take your pension, however, the more likely it is that you will avoid some or all actuarial adjustments that could apply. 

Phased retirement

If you are not yet ready to fully retire, but wish to slow down your schedule, phased retirement allows you to access part of your pension while you are still teaching under set conditions.

To do this you will need to reduce your pensionable earnings by at least 20%, in conjunction this allows you to access up to 75% of your pension benefits. This can be achieved by either reducing your working hours or moving to a different role, with less responsibility.

Under the rules of the TPS, you must be between the ages of 55 and 75 to be eligible for phased retirement.

Taking phased retirement allows you to have a different work/life balance, before giving up work entirely, while continuing to build your pension.

However, it is important to bear in mind that if you choose to access your pension before your NPA, you will face actuarial reductions, as mentioned above.

Another consideration is that not all employers will be able to accommodate phased retirement, therefore even if phased retirement is financially viable, there is no guarantee it will be approved – this depends on your employer and the needs of the school.

Early retirement

Most types of pension, including the TPS, can only be accessed from the age of 55. As the TPS offers flexible options for early retirement from age 55, it is possible to leave the teaching profession entirely with your pension. Of course, it is worth bearing in mind that your pension income will be lower if you retire before your NPA due to lower service and any actuarial adjustments, as noted above.

When it comes to early retirement, there are emerging trends where teachers are changing how they reach their retirement goals. One is to take their pension early and supplement it by taking a job in a completely unrelated career.

Others may decide to leave the profession earlier than age 55 to change their career path, but not access their pension until a later date and as such become a deferred member of the TPS. In this case, the pension remains untouched and is revalued for inflation year-on-year. Here, the former teacher has pivoted into a new career with a different salary, potentially less stress and/or pressure – they would then collect their teachers’ pension later on.

Early retirement is something that generally needs to be carefully planned for. It may be possible to even go earlier than you thought, or you may need to reconsider based on your own reality. This is where a specialist financial adviser can help you to plan to achieve the retirement that you want, in a way that makes good financial sense.

Retire and return

Some teachers may wish to reinvent themselves within education – rather than abandon the profession entirely. They may choose to leave teaching, take a break, but then return to a different role.

For example, let’s imagine a senior leader who steps down from their role but returns to the school to offer consultancy work, or returns to classroom teaching part-time.

It is important here to be mindful of the rules surrounding abatement – this is when you enter, or continue in, pensionable employment, following your entitlement to your final salary pension. Therefore, if you are intending to work past the age of 60 and potentially return to the education profession, you should investigate the implications before acting. A specialist financial adviser can help you to better understand your position and how you could be affected.

Financial planning considerations

The first step should be to consider your own personal retirement goals, which can be very different to those of friends and colleagues. This should include asking yourself important questions such as, what do you want to spend your time doing? Do you want to continue working? And crucially, what will your expenses be, and will you be able to cover these comfortably with your pension income? In short, what does your ideal retirement look like and what will it cost?

This is where financial planning is key to your security in retirement. During a review, your adviser will help you to establish your aspirations and to understand the position you are in now, taking into consideration all aspects of your finances, including your desired standard of living during retirement, paying off your mortgage, supporting any adult children, and so forth.

By using tools, such as cashflow modelling, they will be able to look forward and suggest adjustments, changes and tweaks, and then be able to project the income that you will need for your desired retirement.

This is what will keep you financially solvent in retirement, while helping to ensure that you can afford to do the things you would like to and achieve your desired retirement at the right time, in a financially solvent way.

The TPS will provide an income in retirement, but it is important that you plan for the retirement that you want – this needs to be quantified in terms of what the scheme will provide you with, and whether that will be enough for you to retire when you would like to. A specialist financial adviser can help to identify what that actually means for you and your individual circumstances. There is no one-size-fits-all solution in this area.

Some teachers and education leaders may also have tax considerations – for example, if you take your pension but continue in employment, depending on your salary, this could push you into a higher rate tax threshold. There may be options here to mitigate your tax liabilities, e.g. by contributing to a personal pension.

Overall, advisers can be thought of as problem-solvers. They help you to put the pieces of the puzzle together, identify needs and what changes could be made to make the most of your hard-earned income to ensure that you get what you need, at the right time, to achieve your desired retirement. 

Further information

Tax treatment depends on individual circumstances and may be subject to change in future.

If you would like support or guidance on understanding your financial position, speak to a specialist financial adviser or planner at Wesleyan Financial Services for a financial review. Find out more via www.wesleyan.co.uk/financial-advice/teachers  

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