What is an early retirement?
As part of the Teachers’ Pension Scheme, you’ll be entitled to your full pension benefits when you retire at or after your Normal Pension Age (NPA). For most people in the 2015 scheme, this is equal to the state pension age (66 or 67). You can delay your retirement up to the age of 75.
If you wish to retire early, you can start drawing your pension from age 55, though you’ll need to make sure you can afford to fund a longer retirement.
You’ll face an early retirement penalty if you take your pension before the Normal Pension Age (NPA). And, as a trade-off for retiring early, you’ll receive less benefits than if you were to retire at your NPA.
You need your employer’s permission to retire early. If they don’t agree to an early retirement, their decision will only remain valid for six months.
After these six months, you’ll be entitled to an early retirement. If you then leave pensionable employment, your benefits will be paid the following day.
What if you want to make a gradual move to retirement?
If you want to slow down your schedule and retire at your own pace, you can opt for a phased retirement. You’ll have to either move to a less senior position or reduce your teaching hours. This will take away some of your workload to ease you into retirement.
As you’ll still be working, you’ll continue to contribute to the Teachers’ Pension Scheme and build your benefits for when you retire. You can take up to 75% of your pension while you work, if you have your employer’s permission and your new salary is 20% less than your previous twelve months averaged earnings.
If you take your benefits before your NPA, they’ll be reduced, the same as if you choose to take an early retirement. But if you take your benefits after your NPA, you won’t face any reductions.
How will your benefits be calculated?
When you retire early, you’ll get Actuarially Adjusted Benefits (AAB). This means your benefits will be reduced to account for the fact that you’re not contributing up to normal retirement age. The size of the reduction will depend on how early you start taking your pension.
- How your benefits are calculated and reduced depends on a few factors:
- How long you’ve been in service when you choose to retire
- The age you retire (how close you were to your NPA)
- Whether you’re in final salary to career average arrangements (including if you joined the scheme before or after 2007)
- If you purchase a ‘buy-out election’
As a career average member, you have the option to pay contributions to buy out the standard reduction of 3% a year for a period of up to three years. This is known as a ‘buy-out election’. You only have this option for the first six months of taking your benefits, so you’ll need to decide quickly.
It’s difficult to know how much income and lump sum (if you’re entitled to or have purchased one) you’ll receive. It can help to speak to a Specialist Financial Adviser from Wesleyan Financial Services.
There are calculators that estimate how much you’ll receive when you retire, but they don’t always account for any optional benefits - like any additional pension or voluntary contributions.
How are benefits paid when you retire early?
If you’ve built up benefits in both career average and final salary, you’ll have to take all your benefits at the same time.
To receive your benefits, your employment contract must end. If you decide to return to teaching before the date that you’re due to be paid, your application for early retirement will be voided.
If you’re considering taking an early retirement, you must submit your application between two and six months before your chosen retirement date. This is because your salary details and employment could change during this time.