The Teachers' Pension Scheme (TPS) is one of the largest occupational pension schemes in the UK, covering teachers and lecturers in state-funded schools and colleges across England and Wales. It is a defined benefit scheme, meaning your pension is based on your earnings and service rather than investment returns. With over 2 million active and deferred members, the TPS provides valuable retirement, ill-health, and death benefits that most private sector schemes cannot match.
How the Teachers' Pension Scheme Works
Since 1 April 2015, the TPS has operated as a career average revalued earnings (CARE) scheme. Each year, 1/57th of your pensionable earnings is added to your pension account. That amount is then revalued each year in line with the Consumer Prices Index (CPI) plus 1.6%, ensuring your pension keeps pace with inflation. When you retire, all your revalued annual pension amounts are added together to produce your total annual pension.
Before April 2015, the TPS was a final salary scheme. If you have service before this date, your legacy benefits are calculated differently — based on your final salary and years of service in the scheme. These benefits are protected and will be added to your 2015 career average benefits at retirement.
Contribution Rates
Employee contribution rates in the TPS are tiered based on your annual salary. The employer contribution rate is 28.68% (from April 2024), which is paid by your employer. Your own contributions are deducted from your salary before tax (known as "net pay" arrangement), which means you automatically receive full tax relief.
Employee Contribution Rates (2024/25)
| Annual Salary | Contribution Rate |
|---|---|
| Up to £32,947 | 7.4% |
| £32,948 to £46,526 | 8.6% |
| £46,527 to £55,347 | 9.6% |
| £55,348 to £64,914 | 10.2% |
| £64,915 to £85,418 | 11.3% |
| £85,419 and above | 11.7% |
Contribution rates are based on actual pensionable pay. Source: Teachers' Pensions
How Benefits Are Calculated
In the 2015 career average scheme, you build up a pension of 1/57th of your pensionable earnings each year. For example, a teacher earning £35,000 would accrue £614.04 of annual pension for that year. This amount is then revalued by CPI + 1.6% each year until retirement.
If you also have legacy final salary benefits, those are calculated separately. In the final salary scheme, your pension was based on 1/80th of final salary per year of service (for service before January 2007) or 1/60th (for service from January 2007 to March 2015). Legacy benefits carry an automatic lump sum of three times the annual pension for pre-2007 service.
Normal Pension Age
In the 2015 scheme, your normal pension age is linked to your State Pension age. For most current teachers, this will be 67 or 68. In the legacy final salary scheme, the normal pension age was 60 (for service before January 2007) or 65 (for service from January 2007 to March 2015).
Early and Late Retirement
You can take your 2015 scheme benefits early from age 55 (rising to 57 from April 2028), but they will be actuarially reduced to reflect the longer expected payment period. Typical reductions are around 3% to 5% per year you retire before your normal pension age.
Conversely, if you defer taking your pension beyond your normal pension age, your benefits receive a late retirement enhancement. This can be valuable if you continue working past State Pension age, as your pension will be increased to reflect the shorter expected payment period.
Lump Sum Commutation
In the 2015 scheme, there is no automatic lump sum. However, you can commute part of your annual pension for a tax-free lump sum at a rate of 12:1. For every £1 of annual pension you give up, you receive £12 as a tax-free lump sum. The maximum lump sum you can take is 25% of the capital value of your pension benefits.
If you have pre-2007 legacy benefits, you will also receive an automatic lump sum of three times the annual pension for that service. You can commute additional pension on top of this if you wish.
Part-Time Service and Career Breaks
In the 2015 career average scheme, part-time service is straightforward — you accrue 1/57th of your actual pensionable pay. If you work three days a week and earn £21,000, you accrue a pension based on £21,000. This is simpler than the legacy final salary arrangements, where part-time service was calculated using a full-time equivalent salary and a part-time fraction.
Career breaks mean you stop accruing pension for the period you are not working and not being paid. However, your previously accrued benefits continue to be revalued during a break. If you take a maternity or adoption leave, you continue to accrue pension during the paid portion of the leave.
Death-in-Service Benefits
- Death grant: A lump sum of three times your annual pensionable pay, paid to your nominated beneficiary.
- Survivor pension: A pension is payable to your surviving spouse, civil partner, or nominated partner — equal to 37.5% of your pension in the 2015 scheme.
- Children's pension: A pension may be payable to eligible dependent children.
Buying Additional Pension
You can purchase additional pension to boost your retirement income. The TPS allows you to buy up to £7,501 of extra annual pension (2024/25 limit). You can pay for this through regular monthly payments from your salary or as a one-off lump sum. The cost depends on your age — the younger you are when you start, the cheaper it is per pound of extra pension.
Because contributions are deducted before tax, you receive full tax relief on additional pension purchases. This can make buying extra pension a tax-efficient way to boost your retirement income, particularly for higher-rate taxpayers.
Phased Retirement
Phased retirement allows you to draw some of your pension benefits while continuing to work and build up further pension. You must be at least 55 (or normal pension age for an unreduced pension), reduce your pensionable salary by at least 20%, and take between 75% and 100% of the accrued pension built up to the phased retirement date. This provides a way to transition gradually into full retirement while supplementing a reduced salary with pension income.
Annual Allowance Considerations
The annual allowance (£60,000 for 2024/25) limits the amount of pension savings you can make in a tax year without incurring a tax charge. In the TPS, your pension input amount is calculated as the increase in the capital value of your pension benefits over the year. This can catch out senior teachers — particularly headteachers and those receiving significant pay rises — who may unexpectedly breach the allowance.
When Annual Allowance Becomes an Issue
Headteachers, principals, and senior leaders with salaries above approximately £80,000 should be particularly mindful of the annual allowance. A significant pay rise, promotion, or back-dated pay award can cause a spike in pension growth that breaches the £60,000 limit. For those with adjusted income above £260,000, the tapered annual allowance reduces the limit further — down to a minimum of £10,000. The TPS offers a "Scheme Pays" facility that allows any tax charge to be paid from your pension benefits.
How a Financial Adviser Can Help
A financial adviser familiar with the Teachers' Pension Scheme can provide valuable support in several areas:
- Retirement planning: Modelling your projected pension at different retirement ages to find the optimal date.
- Lump sum decisions: Calculating whether commuting pension for a tax-free lump sum is financially beneficial for your circumstances.
- Annual allowance management: Monitoring pension growth and advising on strategies to mitigate tax charges.
- Supplementary savings: Advising on additional pension savings options alongside the TPS, such as ISAs or SIPPs.
- Phased retirement guidance: Helping you structure a phased retirement that balances income needs with continued pension accrual.
For broader guidance on planning your retirement income, see our retirement planning guide. If you are considering a transfer out of the TPS (which is only possible for deferred members and rarely done), read our pension transfers guide.
This guide is for general information only and does not constitute financial advice. The information is based on publicly available data from Teachers' Pensions, HMRC, and other government sources. Always seek professional advice before making financial decisions. Figures and thresholds are subject to change — check official sources for the latest values.