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Planning for Retirement – what the rise in pension contributions could mean for you

Parminder Gill, Advice Policy Consultant at specialist financial mutual Wesleyan discusses what the upcoming increase in employer pension contributions could mean for teachers' pensions.

This September, the teachers' employer pension contribution rates are set to increase from 16.4% to 23.6%. While there is no change in the employee pension rates paid by teachers there may be issues for teachers who work in independent schools.

Unlike state schools, which will get additional funding from central government to fund the mandatory 43% rise, many independent schools will have to find the money themselves. This could mean an increase in school fees to offset the cost or a more challenging decision to leave the Teachers' Pension Scheme (TPS) altogether.

What leaving the TPS means for you

If a school takes the decision to leave the TPS it will mean its teaching staff stop accruing their public-sector pension.  All employers have a responsibility to provide their staff with access to a workplace pension, which means that if the school leaves the TPS it would need to provide an alternative scheme for its employees. This may not be as generous as the TPS.

The TPS is a defined benefit scheme, which means that retirement income is based on annual pensionable earnings, but many private schemes are defined contribution schemes, meaning that retirement income will depend on how much is paid in and the growth of the investment fund.

If a school chooses to arrange an alternative scheme it can choose from a range of providers, this includes NEST the workplace pension set up by the government.

What you'll need to do

Your school should tell you if it decides to leave the TPS. Once you've been informed your first step is to speak to your bursar or an independent financial adviser to find out what it means for you and your retirement plans.

If you find yourself in a new pension scheme it's important you fully understand the features it offers. Where your money is invested and the likely amount you could get in retirement to make sure it is adequate for your retirement needs.

Seek specialist advice

Regardless of whether independent schools remain in the TPS or not, the upcoming contributions increase is likely to have an impact on their finances.

When navigating this uncertain financial landscape, it's definitely worth seeking out the advice of a trusted financial consultant who understands teachers' and schools' financial needs.

With the right advice and knowledge in place, teachers will be able to confidently navigate whatever challenges the coming months may bring.

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This information is based on our current understanding of legislation. The information contained in this article does not constitute financial advice.

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'WESLEYAN’ is a trading name of the Wesleyan Group of companies.

Wesleyan Assurance Society and Wesleyan Bank Ltd are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Wesleyan Financial Services Ltd, Wesleyan Unit Trust Managers Ltd, Practice Plan Ltd and DPAS Ltd are authorised and regulated by the Financial Conduct Authority.  Advice about investments, insurance and mortgages is provided by Wesleyan Financial Services Ltd.

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