information

We use cookies to give you the best possible experience online. By continuing to use our website, you agree to receiving our cookies on your web browser. Visit our cookie policy page to find out more and how to change your cookie settings.

skip to main content

Pension Planning

  • Give yourself peace of mind that you're prepared for retirement
  • Watch our videos to help you better understand your pension
  • Our Pension Specialists can help you make the most from your pension savings
Teachers Assurance logo

Video library

Our videos are for teachers who started paying into the teacher’s pension scheme before 1 January 2007 and who are not affected by the scheme reforms. If you need any additional information on your Teachers Pension Scheme, you can read our FAQ's.

How your pension is calculated

A short video outlining how your final salary pension scheme is used to calculate your teacher's pension and when you can retire.

Video transcript

Hello, I’m here to explain how your pension is calculated.

Your final salary pension scheme, also known as a defined benefit scheme, means your final salary is used to calculate your teacher’s pension. This is guaranteed for life and will always rise in line with inflation.

Benefits of your pension include a guaranteed annual pension and an automatic tax free lump sum which must be taken at retirement.

This is calculated at three times your guaranteed annual pension amount. You do have the option to take more money from your teachers’ pension as a maximum tax free lump sum in exchange for less annual pension. This is capped at 25% of the capital value of your pension pot.

So, how is your pension calculated?

The number of years of service divided by 80, multiplied by your ‘final salary’ equals your annual pension

Let’s take Heather for example.

Heather has a final salary of £36,000, she has 40 years of service and is retiring at age 60

Therefore we divide her 40 years of service by 80 and times this figure by 36,000, which equals £18,000. This is Heather’s annual pension before tax.

Heather also has her automatic lump sum

Your lump sum is 3 times your annual pension before tax, therefore Heather now has an automatic tax-free* lump sum of £54,000

The ‘final salary’ in the teacher’s pension scheme is worked out by taking:

The average salary of your best 3 consecutive years in your last 10 years, or your salary during the last 12 months before retirement, whichever is higher.

Note: There may be some restrictions if your salary has increased within the last three years, if so please visit the TPS website for more information.

Don’t worry about any part time employment in your teaching career, Teachers pension scheme calculate out the number of days worth of full time equivalent salary you’ve worked.

So when can you retire?

You can retire from age 55; however the amount of pensions and lump sum you receive will be reduced. The extent of the reduction depends on your age in years and months at the point of retirement.

Let’s take a look at how it works for Heather

Will Heather’s budget stretch if she takes less pension by taking early retirement or if she decides to take more than her standard lump sum?

Heather can choose anything between the standard and maximum lump sum depending upon her financial plans and individual circumstances.

Visual: Age 60 and Age 55 graph:

55: £14,328 annual pension and a lump sum of £42,984

60: £18,000 annual pension and a lump sum of £54,000

If you’re thinking of retiring early, please visit the TPS website for more information.

In summary:

Do you understand how your pension is calculated?

Do you understand your pension will be reduced if you retire early?

Do you understand your pension is guaranteed for life and will rise in line with inflation?

If not, please watch this video again or visit Teachers Pension for further help and information.

How your tax free lump sum is calculated

A short video outlining how your tax free lump sum is calculated and what options are available to change the amount you receive.

Video transcript

Hello, I’m here to explain how your tax free lump sum is calculated and what options there are to change the amount you receive.

Your lump sum, often called a Pension Commencement Lump Sum or PCLS is an automatic benefit if you are a member of the Pre 2007 Teachers Pension Scheme. It is a tax free one off payment paid at the start of your retirement and is calculated as a standard amount. There is an option to increase this lump sum and this needs careful planning.

Your number of years of service divided by eighty multiplied by your final salary =Your annual Pension

Your standard tax free lump sum is calculated by taking: Your annual Pension multiplied by three equals your Standard lump sum

If for example your annual pension is calculated at £10,000, then your standard lump sum would be three times your annual pension which is = £30,000

“What if you need more money as a lump sum in exchange for less pension income in retirement?”

Well you can exchange a max of 25% of the capital value of pension as a tax free lump sum, based on current HMRC rules and legislation which could change in the future

Now let us look at how much pension is lost from taking more as a lump sum.

The ratio working out the exchange from annual pension to more lump sum is 12:1.

So for every 12 pounds you add to your standard tax free lump sum,you will lose 1 pound per year of guaranteed pension income.

That does not sound too bad perhaps depending on your retirement budget. But if you needed an extra £12000 as a lump sum to help you with your initial retirement spending plans perhaps you will then be giving up £1000 per year of guaranteed annual pension for life. That probably sounds much more of a significant impact to your annual retirement budget than the first two examples.

Q “Why might you take more?”

A “There are many reasons why people decide to take more money from their pension as a tax free lump sum rather than as a regular retirement income. For example:

Individual circumstances such as health, debt payments, lifestyle decisions

Planned retirement spending plans such as buying a camper van, home improvements, a new car

Investing money for growth

Income tax planning – where the reduction in your teachers pension significantly reduces your income tax bill

You or your partner already having sufficient guaranteed income for retirement.

You will need to think very carefully about why you personally need more lump sum and most of all you will need to make sure that you can manage on less pension income for the rest of your retirement.

Q. So it seems there is a lot to think about with taking more of a lump sum then.

A. Yes there needs to be a lot of thought behind the decision such as

What do you need the lump sum for? and can you survive on a lower guaranteed income for life.

In summary: Do you understand what your standard lump sum is? Do you require any more lump sum? Have you considered the impact on your retirement budget?

If not please watch this video again or go to the TPS website for further help of information.