Teachers Pension Drawdown

One of the most common questions we get about occupational pensions is whether you can use a drawdown facility with a teacher’s pension.

While drawdown is not a feature of the teacher’s pension, it’s usually possible for members to switch to a different scheme that offers it. But as this means losing some of the key benefits of the teacher’s pension, it’s crucial that you get expert advice before deciding whether to transfer.

Can you drawdown a teacher’s pension?

The short answer is no, but there are likely to be options available if this is something you want and you’re okay with losing some of the most attractive features of your pension.

An expert pensions adviser will be best placed to talk you through the pros and cons of switching in your circumstances, but the main appeal of a teacher’s pension is that it’s a defined benefits scheme which brings certain advantages that cannot be transferred. In particular, it guarantees a fixed, regular income for life, based on what you earned during your career that increases with inflation each year.

Transferring your teacher’s pension would mean moving to a defined contributions scheme, where you build up savings in an invested pension fund. You’ll usually be able to start making withdrawals from it from the minimum pension age (currently age 55 but this is increasing to age 57 in April 2028), even if you haven’t yet retired, and any funds you don’t draw down are reinvested.

While this type of scheme allows for a lot more freedom around withdrawals it doesn’t guarantee an income for life, and your funds could run out altogether if you don’t manage them well or your investments perform badly.

When might you want to transfer your teacher’s pension?

In some cases it may make financial sense to transfer a teacher’s pension to a more flexible plan that allows you to withdraw lump sums, possibly even before the age of 55 depending on your circumstances.

This is most likely to be true for you if:

• You’ve been diagnosed with a terminal illness
• You are getting divorced and need access to a large sum for settlement
• Other sudden financial difficulties needing urgent resolution

In all these scenarios, sticking with a teacher’s pension could put you at a disadvantage because you can’t control the rate at which the payments are made to you. Switching to a drawdown scheme could be one way to unlock the cash held within your pension fund, but it may not be the best – certainly in the long-run – or even the only option available to you. It is important to note that most people will benefit from keeping their teacher’s pension in its original defined benefits scheme and it is rare that a pensions expert will recommend that transferring away from this type of scheme is a suitable option.

What are the alternatives?

This will depend on a number of factors, such as whether you own your own home or have other assets, as well as the amount you’re looking to raise.

Options to consider could include:

• Taking out a lifetime mortgage to release any equity in your property as a lump sum.
• Looking into other methods of refinancing, such as remortgaging or a secured loan.
• Cashing in any savings you may have built up, e.g. in an ISA.
• Downsizing your home

These are just a few possible alternatives to transferring your teacher’s pension into a drawdown plan, and there may be others that are more suitable for your needs. An experienced pensions adviser should be able to help you reach an informed decision on the best course of action in your circumstances.

How to put a teacher’s pension into drawdown

If, after careful consideration and consultation with a specialist adviser you decide to transfer your teacher’s pension to a drawdown plan, there are a few steps you’ll need to take before you can start taking cash from your pension pot.

First, if your teacher’s pension has a transfer value of more than £30,000, you’ll need to appoint an independent financial advisor to oversee the process of moving funds from your teacher’s pension to a scheme that offers a drawdown facility. As you’ll be transferring out of a defined benefits scheme, this step is a legal requirement. Make an enquiry if you’d like to be introduced to an advisor with the necessary qualifications.

Next, your advisor will estimate the cash value of your teacher’s pension benefits and acquire a document called a Cash Equivalent Transfer Value (CETV) certificate for that amount. You’ll be able to see this figure expressed as a lump sum before you commit to the transfer.

If you’re happy with the valuation and want to go ahead with the switch, the process for withdrawing funds will be the same as it would be for any pension scheme with a drawdown facility. You can take up to 25% of your pension fund tax-free straight away, while the remainder continues to be invested.