Teachers' Pension Scheme

What kind of pension is the TPS?

The Government introduced major reforms to the Teachers’ Pension Scheme (TPS) in April 2015. Most teachers were transferred from a ‘final salary’ to a ‘career average’ pension. New entrants joined the career average scheme. Some older members were protected and stayed in their existing final salary schemes.

An age discrimination case was launched by members of the judges and firefighters’ schemes claiming age discrimination against younger people. There was a legal battle which they won (known as the McCloud judgement).

The upshot is that all teachers (including older teachers) were moved into the career average scheme from 1 April 2022.

Eligible scheme members will choose between final salary or career average scheme benefits for the period April 2015 to March 2022 – effectively getting the better of the two schemes. The choice for most people will be made at the point of retirement.

Rights in the final salary scheme will be fully protected.

Teachers who joined on or after 1 April 2012 received no protection and had career average accrual only from 1 April 2015.

What is career average?

Career average is a way of calculating how much pension you will get. Under career average, pension is based on your salary over the whole of your career. Until April 2015, the Teachers’ Pension Scheme was a ‘final salary’ scheme – where pension was based on your salary at or near retirement.

How does career average work?

Teachers in the career average scheme build up pension at 1/57 of their pensionable earnings each year. So, if your pensionable earnings are £28,500, you’ll build up £500 of pension for that year. From April 2015, overtime was included in the definition of pensionable pay.

This pension is then increased each year until retirement. The annual increase before you retire for teachers who stay in teaching is Consumer Prices Index (CPI) inflation + 1.6 per cent. This is slightly less than the expected long-term growth in average earnings.

If a teacher leaves service before retirement and doesn’t return within five years, the ‘banked’ pension is just increased with CPI.

Each year is essentially treated as a separate unit, and at retirement, it’s all added together to form your total pension. Once the pension is in payment, it just increases annually with CPI.

Under career average, every month’s pay throughout your career will decide your pension. The growing fragmentation of the school system means a growing number of small employers, and more changes of employer for teachers over their careers. These are perfect conditions for mistakes to be made.

What do I have to do?

Keep every payslip! Payslips are the main evidence members will have to challenge errors in their records. It’s vital to keep payslips and other salary records (like P60s).

Pension statements are provided through the Teachers’ Pension Scheme’s MyPensionOnline service, so it’s important that teachers register. Teachers will be informed that the relevant information is online. This is updated monthly in most cases.

It’s important that you check this information and correct it if necessary. It’s easier to sort problems out at the time rather than close to retirement.

When can I get my pension rights in full?

The new scheme links the TPS normal pension age (NPA) (the age at which teachers can get their teachers’ pension in full) to the State pension age. Retiring earlier would only be possible on a reduced pension.

This means (based on ages as at April 2023) – people aged 45 and under have a pension age of 68, people aged 46 to 61 have a pension age of 67 and people aged 62 to 66 have a pension age of 66.

How much do I have to pay?

The current employer contribution is 23.6 per cent. Employees pay contributions on a sliding scale. The average employee contribution is 9.6 per cent.

A key point is that contributions are based on a member’s actual salary (formerly contributions were calculated on the full-time equivalent salary). This is a gain for part-time employees, the majority of whom are women.

Your contributions are taken from your salary before it is taxed – therefore you receive tax relief at your highest marginal rate of tax.

Can I take an additional tax free lump sum?

If you have service on or after 1 January 2007, you can take up to 25 per cent of the total value of your pension rights as a tax free lump sum – exchanging each £1 of annual pension for £12 of lump sum.

What happens to my final salary pension?

If you were switched into career average, you’ll have “mixed service”. Part of your pension will be from the career average scheme and part will be from the final salary scheme. Your final salary pension will be based on your salary when you leave teaching (or the period leading up to it), not your salary in 2015.

You can in theory take your final salary pension in full at its scheme pension age (either 60 or 65). But you will have to end your contract to get it.

Do I have to take both pensions at once?

If you take your final salary pension at or beyond your final salary scheme pension age, you can take the two parts separately.

If you take your final salary pension before your final salary scheme pension age, you have to take your career average pension rights as well. This would mean a large actuarial reduction in most cases.

How can I work out my pension?

It is extremely difficult to work out your career average pension as it depends on past earnings while you’ve been a member of the career average section. It will be possible to see the information if you have joined the Teachers’ Pension Scheme’s MyPensionOnline service. Otherwise you will have to request a statement from Teachers’ Pensions.

Calculating your pension – What happens if I work part time?

You just need to know your pensionable salary and the fraction that you work. So, if you work at 0.5 and earn £28,500 FTE, you will build up £28,500 x 0.5 x 1/57 = £250 in pension for that year.

How is my pension increased in retirement?

Your teachers’ pension is increased each April based on the previous September’s inflation figure. The Government currently uses the Consumer Prices Index (CPI) to work out increases.

What if I want to retire early?

Actuarially reduced benefits allow you to take your pension before your Normal Pension Age (NPA). To be able to claim, you must be 55 or over. Your pension (and any associated lump sum) will be reduced because you’re retiring early and can expect to get it for a greater number of years. The earlier you take the pension, the bigger the reduction. There are different tables depending on your NPA.

Can I retire early through ill health?

If you are under NPA and have to stop teaching through ill health, you can apply for ill health retirement. Ill health pensions can be paid at two levels:

• Total Incapacity Benefit (TIB) for those permanently unable to teach and unable to undertake any other gainful employment.
• Partial Incapacity Benefit (PIB) for those permanently unable to teach but able to do other non-teaching work.

The decision to award an Ill Health pension is based on medical evidence. Before you even think about applying for ill health retirement, you should contact your NEU District Secretary or the Adviceline.

What if my employer makes me redundant?

If you’re 55 or over and are made redundant or leave work on the grounds of organisational efficiency, your employer can choose to pay you an unreduced pension. In some cases, the employer can add extra years of reckonable service in calculating your pension. However, your employer is not obliged to do either.

What is ‘Phased retirement’?

Phased retirement allows teachers to keep working but in a reduced capacity – perhaps by moving to part-time work or a less strenuous post, but mitigate the income loss by drawing part of their pension.

To claim phased retirement you must be aged between 55 and 75 and have service in the Teachers’ Pension Scheme after 31 December 2006. To qualify, you must reduce your pensionable salary by 20 per cent or more for at least 12 months. The reduction in salary is compared to your average salary over the previous 6 months. Your employer must agree to the change in arrangements.

You can draw up to 75 per cent of your pension benefits and carry on working. You can currently exercise phased retirement three times (at least once after 60) before finally retiring.

What happens if I die in service?

An in-service death grant of three times your FTE salary is paid if you die while in pensionable employment. It can also be paid if you die within a year of leaving pensionable employment (and haven’t claimed ill health retirement).

The death grant goes to your spouse, civil partner, or nominated unmarried partner unless you make a separate death grant nomination. It is vital to keep your nomination details up to date. For deaths shortly after retirement, a supplementary death grant is payable of the difference between the pension paid up to the date of death and five times the annual rate of pension.

What about my dependents?

For those who die in service or after retirement, survivors’ pensions may be payable to their beneficiaries. Long-term pensions are payable at 37.5 per cent of the career average pension. Dependents’ pensions available to widows, widowers, civil partners and unmarried partners. Unmarried partners must have been in relationship for two years and be ‘financially interdependent’ at time of death. Children’s pensions can also be payable depending on the age of the children.

Further Resources

More information is available from the Teachers’ Pension Scheme website.

You can telephone Teachers’ Pensions on 0345 6066166 or write to Teachers’ Pensions, Lingfield Point, Darlington, DL1 1AX.