Options to increase your retirement benefits
On this page:
- Additional Pension
- Faster Pension Accrual
- Stakeholder Pensions, Additional Voluntary Contributions and Free Standing Additional Voluntary Contributions
If you’re an active member of the Teachers Pension Scheme (Scotland) 2015, there are a number of options available to help you increase the amount of benefits you’ll receive when you retire.
Additional Pension is an amount of extra annual pension that can be bought when you’re in employment and contributing to the scheme. To qualify, you have to be below your normal pension age and you can’t be absent from work due to ill health. Any additional pension purchased is payable on retirement in addition to the other benefits you’ve accrued in your scheme.
Additional Pension can be bought in multiples of £250 of annual pension, up to a maximum of £7,000. You can pay for it either as a single lump sum or through additional monthly contributions over a period of 1 to 20 years.
The cost of purchasing additional pension will vary depending on many factors, including the amount purchased, your age at time of purchase and the length of repayment.
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.
Estimate the cost of buying Additional Pension
If you'd like to work out how much it's likely to cost to purchase Additional Pension to add to your Teachers retirement benefits, just use our handy Additional Pension Calculator.
It will give you an indication of the single payments or monthly contributions you'd have to pay to get the extra pension amount you require.Download the Additional Pension Calculator
Leaving early or ceasing contributions
If you wish to stop making regular contributions to an Additional Pension contract, you'll need to complete the Additional Pension – Cessation/Cancellation Of Contract application form and send it to your Employer.
If you have multiple contracts with different employers, you should contact the employer that makes your Additional Pension deductions.
If you leave teachers employment but return within 12 months and haven’t received a refund of your contributions, you may be able to restart your Additional Pension payments on your original terms. If your break in service is more than 12 months, or you received a refund, the agreement will be terminated and you’ll be credited with the proportion of the Additional Pension you’ve paid for.
You can choose to withdraw from the Additional Pension contract at any time. If you do, you’ll receive a proportionate credit of the benefits paid for when you retire.
If you retire before your normal pension age and claim your pension, your Additional Pension will be reduced for early payment. If you were paying by monthly instalments, your benefits may be reduced further as you won’t have completed your expected contract.
If you’re a member of the 2015 scheme and you’ve also taken out an Teachers Early Retirement Reduction Buy Out, the value of this contract will also be taken into account to ensure you don’t exceed the maximum amount of additional pension allowed by the regulations.
Ill Health Retirement
If you have to leave Teaching employment on ill-health grounds, your Additional Pension will be payable without reduction as long as you have paid into your contract for at least 12 months and you were in good health at the time your contract started. If you leave on ill-health grounds less than 12 months into your contract, your contributions will be refunded to you and your Additional Pension contract will be cancelled.
In the event of your death, if you’ve been paying into your Additional Pension contract for at least 12 months and you’ve elected to buy benefits for your dependants, they’ll receive a pension equal to 50% of the additional pension you would have received.
The dependants’ pension will be payable in full, even if you haven’t completed your agreed contract, as long as you were in good health when your election commenced. If you did not choose to include dependants’ cover on your Additional Pension contract, no pension will be payable to them.
How to pay for your Additional Pension contract
Lump sum: Payment must be made to SPPA within one month of your application being accepted.
Monthly contribution: Payment must be taken over whole years only. Payments are subject to tax relief through the PAYE system and will be reviewed after each scheme valuation. This may mean that your monthly repayment costs increase or decrease depending on the outcome of the valuation.
Additional Pension is index linked, both before it comes into payment, known as a ‘pre-payment increase’ and also when it is being paid, known as an ‘in payment’ increase.
If your application was made:
- on or before 31 March 2011 – pre-payment increases are made in line with the Retail Prices Index while in payment increases are made in line with the Consumer Prices Index.
- on or after 1 April 2011 – both the pre-payment and in payment increases are made in line with Consumer Prices Index.
Additional Pension and Annual Allowance
If the growth in your benefits exceeds the Annual Allowance limit, you may be subject to a tax charge. Given the potential tax implications, you should seek professional financial advice if you’re planning to make a lump sum payment to purchase Additional Pension. Information about Annual Allowance.
Additional Pension does not provide an automatic lump sum, but can be included in the total amount of pension given up in exchange for a lump sum at retirement.
It may be possible to take out more than one contract to purchase Additional Pension, however SPPA will take into account any existing contracts you may have to ensure you don’t exceed the maximum allowed. You can continue to pay any existing Additional Pension contracts you may have if you move to the 2015 scheme.
It’s your responsibility to ensure your employer deducts the correct amount from your salary. If you identify an error, you should contact them immediately.
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.
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 31 March each year (when the scheme year ends) for the contract to begin on the following 1 April.
The election to make the higher contribution runs for one scheme year only (from 1 April to 31 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,
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 and to pension arrangements known as Additional Voluntary Contributions (AVCs) and Free Standing Additional Voluntary Contributions (FSAVCs).
These options allow you to make tax-efficient contributions 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
For a wide range of free information on financial planning topics, visit MoneyHelper.