Teacher thinking about leaving teaching.

What happens to my pension if I leave teaching?

Nearly half of teachers plan to quit the profession within the next five years.

Are you considering leaving teaching?  If so, you are not alone.  According to the National Education Union (NEU), who conducted a poll of 1,788 teachers, nearly half of teachers plan to quit the profession within the next five years.

Sarah, a friend of mine is one of those statistics: she is miserable in her role – lacking support from management.  With challenges at home too, it would be sooo much easier if some flexible working was available.  But of course, the requirement to attend the classroom prevents this option.  She is fit to blow a gasket.

What are the choices if she leaves teaching?

We have been looking at her options – she earns £36,961.  It turns out she would need a salary of £45,684 to compensate for the pension value because of the generous 23.6% employer contribution to Teachers Pension Scheme (TPS).

We have forecast some numbers and considered the fact that a more flexible and enjoyable role may make it bearable to work through to State Pension Age (SPA).  She could catch up on some lost pension by working longer which just wouldn’t be bearable if she stayed in her post.

I felt trapped as a teacher

As an ex teacher, I too know the pain of this process having been a member of the TPS.  I had to crunch the numbers as part of my decision making process. Although it made me appreciate the value of my pension, I recall it also had me feeling trapped.  All of a sudden replacing my earnings seemed harder than when I was just factoring in salary alone.

Luckily. I had accumulated enough service to have a foundation pension pot organised.  That meant I could consider changing my career.  With this change of employment I would be able to work longer to compensate for the initial loss in pension contributions. 

4 things to consider before taking the leap to leave teaching

I know that leaving teaching is not an easy decision to make, so here are my four financial considerations to make the before taking the leap:

1. Your employer contribution

You currently receive an above average employer contribution of 23.6% into your Teacher’s Pension.  If you are looking for a comparable salary, either through employment or self employment, you will need to take this into consideration.

Moving into private sector employment you will receive on average a lower contribution of between 7% – 14% contribution from your employer.

2. The defined benefit scheme

The Teacher’s Pension is a defined benefit scheme meaning you will get a guaranteed retirement payment that lasts throughout retirement.

If you move to the private sector you will most likely be enrolled into a defined contribution scheme.  If you move into self employment you will have to set up your own personal pension.

A defined contribution pension is based on how much you have contributed plus any investment growth and so there is a greater element of risk (but effective financial planning can reduce this!).

3. Your future career

Your pension is index-linked to protect it from rises in the cost of living.  If you remain in teaching, your future career average benefits will increase more each year than if you left teaching (currently a 1.6% annual difference).

This can add up to a sizable amount over the life of your pension as you would be foregoing the wonderful benefits of compound inflation (think interest on interest).

All is not lost!  If you return to teaching within five years then the uplift will be added again.

4. The five year break point

It can have an impact on the benefits you receive, if you are out of pensionable employment for more than five years.

If you had final salary and career average benefits when you left, then the salary link between these benefits may be broken if you return to pensionable service after more than five years.

This means when you take your benefits they’ll use the salaries at the time of the break to calculate your final salary benefits. It could be a particular issue if you moved to part-time hours in your last 12 months of service.

My opinion…

Let’s be clear, these considerations do not mean that you should not leave teaching.  However, you do need to factor in the financial implications for your pension in your decision making.

In my opinion if you can find a new career with greater earning potential, or one that allows you to work closer to your state pension age, which lets face it, is difficult to do with teaching.  Then perhaps, you can counterbalance these teacher pension penalties.

Next step…

Best of luck if you are thinking of a career change!  

If you would like to speak to me about how Women’s Wealth can help you, please book a 15 minute discovery call using the following link:

Finally, make sure you keep up to date with your pension at: www.teacherpensions.co.uk


Teachers Pensions Scheme. Financial advice for teachers.

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