The Covid-19 pandemic affected the education world in all sorts of ways, from requiring staff to learn how to teach online at little notice, to managing the ongoing pastoral challenges presented by the traumatic global upheaval.
But it also prompted people all over the world to reconsider what they are looking for from life, both personally and professionally. And for some teachers and school leaders, that has meant exploring the possibility of early retirement.
Research from Wesleyan Financial Services found that 21 per cent of headteachers at schools in England accelerated their retirement plans in the 12 months to April 2021, with nearly one in 10 (8 per cent) now planning to retire before the end of 2022.
Meanwhile, 19 per cent of teachers with more than 20 years’ experience are also now planning to leave the classroom early, with those who have changed their plans citing their motivation as a lack of work-life balance (83 per cent), workload (72 per cent) and stress (70 per cent).
Early retirement is unquestionably a major life change, and one that needs careful planning, particularly when it comes to finances, says Daniela Attenborough, a specialist financial adviser for teachers. The crucial first step is to “get good financial advice”, she says, “mainly because pensions are very complicated”.
Wesleyan’s research found a lack of understanding among some staff who were planning to lower their hours or leave the profession. Some 41 per cent didn’t understand the impact reducing hours could have on their pension and 40 per cent had not financially planned for the change.
And so taking the time to carefully consider your retirement goals and ambitions - asking questions such as what you want to spend your time doing, whether you’ll want to continue working and crucially what your expenses will be - is key, Attenborough says.
“What a financial adviser will do is consider your financial needs for the future,” she explains. “Essentially it’s a full financial review, which will include looking at income, committed outgoings, short-term, medium-term and long-term income needs, and any other holdings that you have.”
This includes things like property, cash savings, premium bonds, ISAs and other pensions, she continues, all of which can be used to “maximise benefit” and ensure you can have the retirement you want.
Particularly important, however, is understanding the details of your pension, as “teachers’ pensions are a very specific type of pension, with certain rules and restrictions,” Attenborough says, “and a lot of those specifics are not always clear to teachers”.
If you are a member of the Teachers’ Pension Scheme (TPS), you’re automatically entitled to your full pension benefits if you retire at your normal pension age (NPA). But if you want to retire early, you can start drawing your pension from age 55. For this, you’ll need your employer’s permission, and you’ll face an early retirement penalty, meaning you’ll receive less benefits than if you were to retire at your NPA.
“The earliest NPA is 60,” Attenborough continues. “That is the age that you could accept your pension in full without any actuarial reduction.”
It is worth noting, however, that a teacher’s NPA will depend on which section of the TPS they are a member of. It is likely that many members will have benefits in two sections, each with a different NPA, and one of which is the State Pension age.
“You absolutely can take your pension from the age of 55 but a penalty would be applied on income as well as the lump sum if there is one,” she explains.
One possible option, particularly if you wish to continue working and securing an income, is phased retirement, allowing you to either move to a less senior position or reduce your teaching hours.
In the TPS, you can take up to 75 per cent of your pension while you work, provided you have your employer’s permission, and your new salary is 20 per cent less than your previous 12 months’ averaged earnings. However, if you take your benefits before your NPA they’ll be reduced - the same as if you choose to take an early retirement.
“Part of the financial planning that we do is around those calculations and projections, including the actual reduction and see if it matches the teacher’s requirements,” Attenborough adds.
Another important element to be aware of is the “McCloud case”, which ruled that transitional protections introduced with new career average pension schemes in 2015 were discriminatory to younger members. The ruling affects members of all public sector pension schemes - including the TPS.
Those affected are members who were in service on or before March 31, 2012 and were a member of the scheme on or after April 1, 2015 or had a break in service after 31 March 2012 but returned within five years.
To remove the discrimination, affected members - including those who’ve taken their pension benefits since April 1, 2015 - will now get to decide which scheme they accrue benefits for the period between 2015 and 2022. The choice will be made when they access their benefits.
The government has given public sector schemes until 1 October 2023 to put processes in place to allow teachers to make this decision. Teachers will not be able to make their choice until these processes are in place. If members have already retired before October 2023 they will still be offered the choice and any change in benefits will be backdated.
The right option will depend on individual circumstances and could be difficult to calculate. Again, speaking to a professional financial adviser who understands the TPS and the McCloud judgement will be key. And even for those who aren’t looking to retire in the short term, there is enormous value in beginning to consider these questions, Attenborough says.
“In terms of general retirement planning, the sooner you get started, the better,” she explains. “If there are any steps that we need to take to build up the pension or other parts to support the retirement, if you have more time, it costs less money.”
But ultimately, she says, these discussions are all about ensuring you can have the kind of retirement you want.
“It’s not just about the yes or no, it’s about how we can get you where you need to be and how fast. It’s very much an open conversation.”
Wesleyan Financial Services is hosting a series of free-to-attend retirement planning webinars, providing the perfect opportunity for you to learn more about the benefits available to you and your loved ones from the Teachers’ Pension Scheme, strategies for ensuring you maximise your retirement income and if early retirement could be an option for you.
Each session is led by a Specialist Financial Adviser who has extensive knowledge and experience of the teaching profession. You’ll have the opportunity to ask questions and discuss your retirement goals, aspirations, circumstances and how best to maximise your income for the years ahead.
Webinars are taking place across a range of dates and times during March and April. Places are limited so be certain to book your place to avoid disappointment.
To book your webinar visit www.wesleyan.co.uk/teacher-retirement
