Stephen Sumner, Director of Explore Wealth Management, asks: are you making the most of the Teachers' Pension Scheme?
At the commencement of your teaching career you will be offered membership of the Teachers’ Pension Scheme. It is a very attractive pension scheme designed to guarantee to provide a retirement income at age 65, which could be as high as 50% of your salary at retirement, as well as a tax-free payment which can be as high as one and a half times your salary when you retire. Not only that, the pension income paid will increase each year in line with inflation and will continue to be paid until you die. If you are married at the date of your death then the pension income will be paid to your spouse, however this will be a reduced income of 50% of the income you were receiving at the time of your death.
Another perk is provided in the form of a lump sum payment equivalent to your annual gross salary. This will be paid out in the event of your death before retirement age and also an immediate pension will be allocated to your spouse payable for life should you die before retirement.
These to me are very valuable extras and not to be taken lightly if you were contemplating your overall job package as it may well be the case that other employers don’t provide such generous extra benefits such as these. I would urge people to join this pension scheme even if you only have several years to go before you retire.
Those of you who are looking to retire well before the age of 65 or who are unlikely to complete 40-years’ service during their teaching career, can make additional monthly payments (officially known as Additional Voluntary Contributions) to allow this. You can decide how much you can afford to pay every month and you also have the added flexibility to alter or stop your monthly payments as and when you wish to do so.
By way of an incentive the UK government will apply a credit to your monthly payments of 20% for a basic rate tax payer and as much as 40% for higher earners. By way of an example, if you were to pay £80 per month into such a scheme then you would find your payment would be topped up by £20 which means £100 per month would be invested. It is never too late to make Additional Voluntary Contributions, though the sooner you start saving the greater the impact will be on your financial wellbeing when you retire.