Should I retire earlier from teaching to avoid a hit to my pension?

I was considering retiring from teaching next August. I have worked full time in education, at a local college from 1994 to 2001 and at my current post since 2001 to the present.

I have noticed that Teachers’ Pensions are changing the way it calculates final pensions from April 2022.

Also, the Teachers’ Pension Scheme has said that pension age will rise to 65 for all members.

Planning ahead: Should I retire earlier from teaching to avoid unfavourable new rules hitting my pension?

I thought I was a protected member who can retire from 60 onwards (I was 60 in October).

TPS has said it is now going to calculate final pensions based on average wage rather than final wage.

Will this affect me as well? Will I be financially better off to retire at the end of March 2022 rather than August 2022 as I had originally planned?

Any information will be gratefully received. TPS has said we are protected when a colleague phoned but it does not state that on its website.

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Steve Webb replies: Public service pension schemes such as those for teachers have been going through major changes in recent years and it is understandable that you are not clear exactly how these changes will affect you.

I will explain in slightly more detail below, but the good news is that the service you have already built up should not be affected by the changes happening in April 2022, and there is no need to retire prematurely.

As you know, in the past, public service pensions schemes commonly had normal pension ages well below age 65.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Pension ages of 60 were common in the NHS, civil service, local government and teaching, whilst pension schemes for uniformed services (military, police, firefighters and so on) often had even lower pension ages.

These schemes were generally ‘final salary’ pensions where the amount you received was a percentage of your final salary based on your length of membership of the scheme.

In 2011 the Coalition government published the results of an independent review of public service pensions chaired by Lord Hutton which recommended sweeping changes to these schemes.

Two major features of the reforms were that pension ages for public service schemes would in future be linked to the state pension age, and that pensions would in future be based on average earnings over your career rather than final salary.

These proposals were passed into law and implemented for most schemes with effect from 2015.

One important point about changes like this is that they generally affect ‘future service’ only.

In other words, if you had a period of time in which you were building up a teacher’s pension due at age 60, they don’t suddenly decide you will have to wait another five years or more to receive it.

Years of membership after the rules change may build up entitlement at age 65 (or later), but the pension you’ve already got ‘in the bank’ is still payable at 60.

And new pension rights you do build up that are payable in full at 65 can generally still be taken at age 60, albeit at a reduced rate.

When the rules changed in 2015, the Government put in place some transitional protection so that (for most schemes) those within 10 years of pension age would not be affected at all and would continue to build up rights under the old rules.

These transitional protections were challenged in the courts on the basis of age discrimination.

It was pointed out that a worker one year under the age cut-off would immediately switch to the new rules whilst a worker over the age cut-off would stay on the old rules for the rest of their working life.

The courts agreed with this challenge in what is now commonly referred to as the ‘McCloud judgment’. 

In response to this ruling, the government has agreed to a ‘fix’ to try to undo this age discrimination.

Under the changes, the new rules will apply to future service for everyone from April 2022. But for the period from April 2015 to April 2022 workers will generally be awarded at retirement whichever of the old or new rules would give them the better pension.

The crucial point for you is that although things change in April 2022, all this means is that any service in 2022/23 and beyond will generate a pension payable under the new rules.

But the pension you have already built up should not be affected.

This post first appeared on Dailymail.co.uk