Leaving the Teachers’ Pension Scheme

Introduction

The Teachers’ Pension Scheme (TPS) is often seen as one of the most generous workplace pension schemes in the UK.

As the TPS presents a great amount of value to its members, it usually makes sense for most teachers to stay in it as long as they can.

Some teachers though are being asked to consider life away from the TPS, with some private schools withdrawing from the scheme due to affordability. There are other reasons you might leave the scheme too – most obviously if you move away from teaching.

Here we’ll look at the potential implications of leaving the scheme.

Why schools are leaving the TPS and what it means for you

The employer contribution rate for schools in England and Wales is set stubbornly high at 28.68%, rising to 29.1% in Northern Ireland.

For this reason, many schools that do not have to subscribe to the TPS may decide not to be a part of it. Independent and private schools, for example, commonly don’t enrol teachers into the scheme as they are not legally required to.

In fact, many schools that have previously subscribed to the TPS are now asking staff to consider taking a higher salary in place of being a member of the scheme.

If your school does not subscribe to the TPS, they will still be required to enrol you into an alternative workplace pension.

What are the financial implications of leaving the scheme?

As the TPS is one of the more generous workplace pensions in the UK, leaving the scheme will mean losing out on a 28.68% contribution towards your pension if you’re a teacher in England or Wales.

Although some employers are offering salary increases to leave the scheme, you should consider whether the increase in pay will really mean you’re better off in the long term.

As well as the reduced employer contributions, there’s other things to remember:

• The TPS is a defined benefit scheme promising a guaranteed pension value at retirement (and often a tax-free lump sum, too). Alternative defined contribution schemes are subject to the ups and downs of the stock market
• Your TPS value rises with inflation each year, protecting you against rises in the cost of living
• The TPS offers generous death in service benefits, which are unlikely to be replicated in any alternative scheme.

In many cases, leaving the scheme would likely result in less savings for retirement. For that reason, if you have no choice but to leave, it’s worth taking some time to consider how you might bridge the gap in savings to get the retirement you want.

If you’d like to understand more about planning for retirement, it may be worth speaking to a Specialist Financial Adviser from Wesleyan Financial Services. They can help you to work through your options and plan for the retirement you deserve. Charges may apply.

Why else might people leave the scheme?

It’s not just the schools that can struggle with the affordability of the scheme.

As the TPS has set contribution bands based on rates of pay, some teachers find the cost of paying into the scheme a drain on their finances. In England and Wales, the minimum employee contribution rate is set at 7.4% increasing to 12% for high earners.

Early career teachers or those on a lower wage can sometimes choose to leave the TPS purely from an affordability point of view – despite the long-term benefits the TPS can give.

Eligibility

The TPS is exclusively for the use of those engaged in teaching roles, either full or part-time. To be eligible to contribute, the majority of your time should be spent teaching, rather than on general school management or administration.

As such, teachers who are promoted into other roles within their school or academy, such as a deputy head or headteacher, may no longer be eligible to contribute to the TPS. You may instead be enrolled into another workplace pension, such as the Local Government Pension Scheme.

Similarly, if you choose to leave the classroom altogether to pursue a role outside of education, you will no longer be eligible to contribute to the TPS.

What happens to your benefits when you leave?

If you no longer contribute to the TPS, you will become a deferred member. This means your pension benefits will remain in the scheme and grow with inflation until you’re ready to retire, provided you have been paying in for at least two years.

If you’ve been paying into the scheme for less than two years, you will have the option to withdraw your contributions to date. This payment will include deductions for tax and National Insurance.

If you’d like to transfer your benefits to another pension scheme, you can do so, provided you do this within 12 months of being eligible to join the new scheme.

Before leaving, you should check your contact details and your nomination forms. It’s also worth reviewing your benefit statement to ensure your salary and service history are correct. You should speak to your school if any of these details are incorrect.

Can I re-join the scheme?

You can decide to re-join the scheme up to the age of 75, provided you are in a teaching role. If you start a new teaching job at a school that subscribes to the TPS, you’ll be re-enrolled back into the scheme automatically.

If you’re staying at the same employer, you may be re-enrolled into the scheme at a later date due to auto enrolment legislation. This is because employers in the UK are legally required to enrol eligible employees into a workplace pension scheme. Your school will therefore periodically review their records and may enrol you back into the TPS if you are not already part of an alternative workplace pension.

If you’ve previously opted out and taken a repayment of your contributions, you will be starting as a new member. Therefore, you’ll need to complete two years of service before becoming eligible for pension benefits.