Teachers get pensions cash bonanza

Teachers get pensions cash bonanza

About 160,000 teachers who have paid extra pension contributions through the Prudential are being allowed to take a quarter of this pension fund as tax-free cash.

The change for these additional voluntary contribution (AVC) plans came into effect on 6 April, the start of the new tax year, and applies to people who decide to convert their funds into a pension on or after that date.

The Pru was unable to announce the change until last week as the rule change was being cleared with the Department for Education and Skills. But hundreds of teachers who retired recently have left their Prudential fund in place in the hope that they would be allowed to use it this way.

Other changes to the Teachers' Pension Scheme are expected to be announced in May. Teachers are expected to be allowed to invest as much of their salary as they want into a combination of the main final salary scheme, the Added Years AVC and the Pru AVC scheme. This means a teacher could put the usual 6 per cent of salary into the main scheme, up to another 9 per cent into the Added Years scheme and a further 85 per cent into the Pru scheme.

As the name suggests, under the Added Years scheme teachers can retrospectively pay contributions for years they have missed - and their contributions will give them a right to a bigger pension based on their salary when they finish teaching.

Teachers as a group are particularly conscious of the need to save for retirement, and about.....continued below

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a third of scheme members have AVCs, three times the proportion of people in other employer pension schemes.

The DFES is in the last stages of discussion with teacher unions and employers about the changes, which should be backdated to 6 April, known as A day. It is expected that new arrangements will be set up to make it easier for teachers who want to work part-time towards the end of their career to draw a pension and a salary simultaneously. Another change is expected to be the extension of widows' and widowers' pension rights to unmarried partners.

But teachers are not the only employees to benefit from A day changes. According to a survey of 1,000 final salary pension schemes by Mercer Human Resource Consulting, three-quarters of main pension schemes are introducing changes that will allow members to take higher cash lump sums. Tim Keogh, a partner with the firm, says that as a result of the changes most schemes are making to their cash options, a typical member could choose to double the amount of cash they receive and take a lower pension.

The A day changes mean that employers are no longer obliged to offer AVC schemes, and some pension experts have predicted the demise of this type of pension savings.

But according to the survey, only 20 per cent of main pension schemes are closing their AVC facilities for new scheme members, while just 5 per cent are stopping them altogether.

· www.teacherspensions.co.uk

· www.pru-teachers.co.uk

· www.pensions-ombudsman.org.uk

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