Teachers face a pension gap problem. Advisors will be a key part of the solution

After a turbulent few years, people across the country have reconsidered what they want out of life – both personally and professionally.

Teachers in particular have experienced significant upheaval during the pandemic. And – as recent research we conducted at Wesleyan has shown – many are therefore exploring the possibility of early retirement.

More and more educators leaving the classroom early will have significant implications for a key public sector service.

But it will also involve specific retirement planning considerations for teachers – and for their advisers.

Chief among these will be ensuring that clients have enough saved by the time they leave the classroom to fund the retirement they want. How prepared are teachers now – and how can counselors help?

Risk and Reward

Our research, conducted earlier this year, asked 325 UK teachers about their retirement plans.

Three in four (75%) say they intend to leave the profession before the normal retirement age for their retirement savings.

Separate research from NASUWT – the teachers’ union – reveals why: workload and stress (22%) and the desire to achieve a better work-life balance (21%) were key factors influencing career ambitions. early retirement of teachers.

However, although many teachers want to end their career sooner, almost half (48%) of those surveyed said they would not have enough money to fund their retirement, a very worrying proportion.

The amount each teacher will need to fund their retirement will be unique to them, as they would be for any client.

But if we compare the average Teachers’ Pension Scheme (TPS) pension with the Retirement Living Standards guidelines, we can see how – based solely on TPS income and state pension alone – many teachers may not be up to par. what they might want.

Retirement living standards suggest that an individual will need £33,600 a year in retirement for a ‘comfortable’ standard of living – covering day-to-day expenses, as well as paying for certain luxuries such as several home holidays. abroad and beauty treatments.

However, the average pension for a teacher is £16,034 per year and £11,581 per year for a female teacher. This would mean a shortfall of up to £22,019 on retirement – ​​reduced to around £12,392 if the full flat-rate state pension was paid from state retirement age.

Overview and Support

Advisors naturally have a central role to play in helping teachers shape and develop a retirement savings strategy so they have the best chance of building up the funds they need.

But it won’t just be the amount teachers have in their retirement pots that could affect their early retirement ambitions.

There is also the question of being able to access what they need, when they need it – something made all the more confusing for many by the 2015 public sector pension reforms and the implications of the corrective measures. “McCloud” in progress.

The McCloud remediation measures mean that many educators could now essentially have two pension pots – one in a pre-2015 legacy scheme and one in the post-2015 ‘career average’ (CARE) scheme.

The Normal Retirement Age (NPA) will be different for each scheme.

For teachers with pensions in the 2007 or pre-2007 schemes, it will generally be 60 or 65, respectively. However, for the reformed scheme, the NPA is aligned with the statutory retirement age, which is currently 67.

Planning to bridge this gap between early retirement and access to retirement will be vital for all teachers.

Ultimately, they may need to stagger how they access their pension pots if they don’t want early access cuts applied to their benefits.

Identifying the need to do so and how to do it most effectively could be a complex area – and one where advisors can add real value through their support.

The road ahead

Times are particularly difficult for the education sector. With McCloud, these are also times of difficult and complex changes for teachers’ retreats.

These results point to a potential wave of early retirement among educators. But, above all, they also highlight a worrying shortfall in terms of preparing for retirement.

In these circumstances, counselors will be a key source of advice and guidance – in a class of their own when it comes to helping teachers achieve the retirement they want.

Simon Rake is head of education at Wesleyan, a mutual specializing in financial services for teachers

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