Further savings options to increase your pension
Although the various official pension schemes for teachers in Scotland offer valuable benefits, there are a number of ways that you can make extra pension contributions to increase the amount you’ll get when you retire. Your options – both within the Teachers’ schemes and with external pension providers – are outlined below.
Faster pension accrual
In the Scottish Teachers Pension Scheme 2015, the combination of your employer’s contribution and the standard contribution rates you pay earns you pension at a rate of 1/57 of your pensionable pay in each year.
However, you can elect to earn pension at a faster rate than this by making extra monthly contributions from your salary. To qualify you have to be in pensionable employment and under your normal State Pension age.
Any additional pension you build up is then added to your pension pot and revalued each year in line with the consumer price index plus 1.6%, throughout your membership in the scheme.
How much does it cost?
Faster accrual contributions are based on two factors: your age at the start date of your higher contribution election and the amount of extra pension you want to accumulate. While the standard accrual rate is 1/57th of pensionable pay, there are three faster accrual options: 1/45th, 1/50th and 1/55th. The table below shows the type of extra percentage of salary you’d contribute, depending on age, in each of the three options.
% extra contribution
% extra contribution
% extra contribution
|Age 20||4.58%||Age 20||2.41%||Age 20||0.62%|
|Age 30||5.17%||Age 30||2.71%||Age 30||0.70%|
|Age 40||5.96%||Age 40||3.13%||Age 40||0.81%|
|Age 50||6.79%||Age 50||3.56%||Age 50||0.93%|
|Age 60||7.82%||Age 60||4.10%||Age 60||1.07%|
Multiple employment contracts
If you have more than one employment, you can choose whether you want to pay the higher contributions on just one of your contracts or all of them. It’s up to you.
If you change to a new employer during the year, you must tell them about the higher contributions you’re paying in order for your faster accrual contract to continue.
Application time limits
The timing of faster accrual applications is very important. When you first join the Scottish Teachers’ Pension Scheme 2015, you must apply within one month for your higher contributions to take effect from your start date.
Once you’re in the scheme, applications must be in place before the 31st March each year (when the scheme year ends) for the contract to begin on the following 1st April.
The election to make the higher contribution runs for one scheme year only (from 1st April to 31st March) – so you have to make sure you apply annually if you want your faster accrual arrangements to continue throughout your career. We’ll advise your employer each time you amend your accrual rate for a specific year.
There is an annual limit on increasing your pension by making additional contributions. The current maximum annual allowable increase is £6,500 a year. This total would include all the purchase options available: faster accrual, additional pension and buying out the early reduction factor. This limit will be amended each year by a rate equal to the change in prices (currently the Consumer Price Index).
Impact on your final pension
By electing to pay faster accrual contributions, you build up more pension in that year than you would have if you’d only paid the standard accrual rate. The table below shows how the pension of a member earning £30,000 of pensionable pay would be affected by making faster accrual contributions.
Pension for that year
How to apply
To apply, please download and complete the application form.
Additional Pension is an amount of extra pension that can be bought while you’re in employment. It’s then paid in addition to your scheme benefits when you retire.
Additional Pension is index linked both before it comes into payment and also when the actual pension is being paid. Additional Pension payments made on or before 31 March 2011 attract pre-payment increases in line with the Retail Prices Index (RPI) and in-payment increases in line with the Consumer Prices Index (CPI). For Additional Pension payments made on or after 1 April 2011 - both the pre-payment and the in payment increases are aligned with the CPI.
Who can buy Additional Pension?
You can only buy Additional Pension if you’re an actively contributing member of either the Scottish Teachers Pension Scheme 2015 or the STSS final salary schemes and haven’t reached your normal pension age (which could either be the scheme pension age if you have full protection or your State Pension age).
How much does Additional Pension cost?
The cost of purchasing Additional Pension depends on a number of factors including:
- your age at the date of your election
- your normal pension age
- the amount you wish to purchase
- whether you’re paying for your Additional Pension by lump sum or regular contributions
- whether the pension is just for you or for you AND your dependants
Your Additional Pension purchases can cover either:
- an increase in pension for yourself only or;
- an increase in pension for yourself AND the pension payable to your dependants (spouse, partner or dependent children) after your death.
Minimum and maximum purchase amounts
AP must be bought in multiples of £250 so, the minimum amount available is £250. The maximum amount is £6750 for the STSS final salary schemes and £7000 for the Teachers’ 2015 scheme. If the maximum amounts allowable change, we’ll publish details on our website.
If you choose to take out more than one contract, we’ll take into account the value of all of your contracts to ensure you don’t exceed the maximum allowable amount.
If you have existing Additional Pension contracts with either of the STSS final salary schemes, you can continue to pay these when you move to the new 2015 scheme.
You can pay for Additional Pension either by lump sum or by making regular contributions through your salary.
Lump sum payments must be received by us within one month of the acceptance of your application. To claim tax relief against an Additional Pension purchase, contact HMRC. Note, that supply teachers can only buy Additional Pension by lump sum.
Regular contribution deductions must be taken over whole years only, up to a maximum of 20 years. Payments receive tax relief through the PAYE system. Regular payments are also reviewed after each scheme valuation by the Government Actuary’s Department, which means they may increase or decrease depending on the outcome of the valuation.
It’s your responsibility to ensure your employer is deducting the correct amount from your salary. If you identify an error, you should contact them immediately.
Additional Pension and the Annual Allowance
If the growth in your benefits exceeds the Annual Allowance, you may be subject to an Annual Allowance charge. Given the potential tax consequences, you should seek advice from an Independent Financial Advisor if you’re planning to make a lump sum payment to purchase additional pension. Please see HMRC’s website for more information about the Annual Allowance.
Additional Pension examples
Teachers' pre 1 April 2015
|Teacher member age 30 who wants to increase their pension by £1,000 per year and to pay by regular contributions over 20 years|
|NPA 60||NPA 65|
|Cost at start of contract||£56.80 per month||£45.20 per month|
|Cost per year||£681.60||£542.40|
|Total amount payable||£13,632.00||£10,848.00|
|Teacher member aged 45 who wishes to increase their pension by £500 per year to cover both themself and a dependant by a single payment.|
|Total cost payable||£6,920.00||£5,520.00|
Teachers' 2015 scheme
|Teacher member age 35 purchases additional pension of £250 per annum by regular contributions over 20 years. (NPA is equal to state pension age of 68)|
|Purchase of £250||Self only||Self and dependants|
|Cost at start of contract||£11.10 per month||£12.10 per month|
|Cost per year||£133.20||£145.20|
|Total amount payable||£2,664.00||£2,904.00|
|One off lump sum cost||£1,690.00||£1,840.00|
Retirement options that affect Additional Pension
There are a number of circumstances that affect the amount of Additional Pension payable to you. For example, if you choose phased or partial retirement you’ll have the option either to take your Additional Pension at that time or when you decide to fully retire.
If you chose to receive your pension early, your Additional Pension will be reduced as it is being paid earlier. Also if you're paying by monthly contributions you'll be credited with the Additional Pension you have already purchased (this amount will be reduced for early retirement).
If you continue to work beyond your normal pension age, your Additional Pension will be increased to reflect the later than expected payment.
Benefits payable on death
If you've been paying Additional Pension contributions for 12 months and elected to buy benefits for dependants as well, they would receive a pension of 50% of what you would have received. The dependant's pension would be paid in full, even if you haven't completed all the payments, as long as you were in good health when the contract was taken out.
Maximum extra pension allowance in STPS 2015 scheme
If you have elected to take out a Teachers’ Early Retirement Reduction Buy Out or Faster Accrual contract, the value of any Additional Pension contract will also be taken into account to ensure you don’t exceed the maximum extra pension allowance.
How to apply
When we receive your completed form, we’ll send you a quote detailing how much it will cost for the amount of Additional Pension you want to purchase. You can then decide if you wish to go ahead with the contract.
Alternatively, if you’ve registered with our My Pension online member services, you can use the calculator and complete the initial quote application online.
Stakeholder Pensions, Additional Voluntary Contributions and Free Standing Additional Voluntary Contributions
As well as paying into your Teachers’ pension scheme, you can also contribute to a stakeholder pension, a personal pension and to arrangements known as Additional Voluntary Contributions (AVCs) and Free Standing Additional Voluntary Contributions (FSAVCs).
These options allow you to make tax-efficient contribution that allow you to build up a separate pension pot in addition to your Teachers’ pension. These contracts are offered by a wide range of financial services providers and it makes sense to seek independent financial advice before proceeding with these types of arrangement.
Teachers’ AVCs from Prudential
The official provider of Teachers’ AVCs to the Scottish Teachers’ Pension Scheme is Prudential. Their scheme is designed with teachers in mind and offers:
- flexible options to take benefits from age 55
- tax-efficient contributions direct from your salary
- contribution levels you can control to suit your needs
- a broad range of investment options
- a wide range of cash and income options in retirement
- a comprehensive website to support your decision making
- online application forms