Teacher Pensions - Pay Progression vs Pension Planning
Should You Aim for Promotion in Your Final Years?
| Estimated reading time: 6 mins
As retirement approaches, many UK teachers wonder if seeking a promotion or pay rise in their last few working years will significantly boost their pension. The answer depends on which part of the Teachers’ Pension Scheme you’re in and involves weighing financial gains against personal well-being. This article explains how late-career pay progression affects final salary pensions and the newer career average (CARE) pensions, and explores whether aiming for promotions (e.g. moving to UPS, taking on a TLR, joining the SLT or other leadership roles) in your final 3–5 years is financially advantageous. We’ll also discuss risks, caveats (like part-time work or breaks in service), and non-financial factors such as stress and work-life balance. (Note: This article is for information only and not financial advice.)
Final Salary Pension Schemes and Late-Career Pay Progression
Many long-serving teachers have accrued benefits in the Final Salary scheme (which closed to new accruals in 2022). Under this scheme, your pension is calculated based on your length of service and your average salary at retirement.
Crucially, the calculation is based on either:
- The average salary over the last 365 days of pensionable service, or
- For service before 2007 only, the best consecutive three years of pensionable salary in the last 10 years, revalued for inflation.
The "best 3 in 10" rule no longer applies to service after 2007. For post-2007 service, the calculation is based solely on the salary in the final 12 months of service. However, if you have a mix of pre- and post-2007 service, the Teachers’ Pension Scheme will use the calculation that gives you the highest benefit.
This means that promotions or pay increases in your final year can have a significant impact on your final salary pension - especially if they affect the final salary link for earlier service. Teachers nearing retirement can still benefit from salary increases, but the mechanics differ depending on the date and type of service.
How Pay Progression Affects the CARE (Career Average) Scheme
Since 2015 (and from 2022 for all active members), the Career Average Revalued Earnings (CARE) scheme has been the standard. Each year, you build up a pension worth 1/57th of your pensionable earnings for that year. This amount is then revalued annually in line with CPI inflation plus 1.6% (while you are an active member).
This structure means your pension is built up in chunks year by year, with no special emphasis on your final salary. So, a pay rise close to retirement improves only those final chunks - it doesn’t affect earlier years. Late-career promotions will improve your pension, but only proportionally based on how many years you serve at the higher salary.
For example, if your salary increases from £40,000 to £45,000 in your final three years, you’ll accrue about £789 per year in pension for those years instead of £701. Over three years, that’s a total increase of roughly £264 a year in pension (plus revaluation) - not insignificant, but far less than the impact of a final salary scheme, where that £45,000 figure would be used to calculate pension for your entire service.
Split Benefits: Maximising Both Final Salary and CARE Pension
Many teachers retiring in the 2020s will have accrued pension under both schemes. In this “split” situation, a promotion in your final years can:
- Boost the final salary portion, because your “final average salary” is higher when you leave.
- Increase the CARE portion slightly for the remaining years you serve at the higher salary.
This makes late-career progression especially valuable if you still have final salary benefits linked to your exit pay. The more years you worked before 2015 (or before 2022 for protected members), the more impact a pay rise can have.
Is It Worth Seeking Promotion in the Final Years?
If you have Final Salary benefits: Late-career promotion can significantly raise your pension. Even one year at a higher salary can lift your annual pension for life, since it applies across all your earlier service. Moving to UPS, adding a TLR, or taking a leadership role could provide thousands of pounds more pension income each year.
If you’re mostly in CARE: The benefit is smaller and more gradual. Promotions raise your pension a little for each year at the higher salary, but won’t retroactively increase earlier years’ accrual. Still, an extra £200–£500 per year in pension is possible for a few years of higher pay.
If you have split benefits: A promotion helps both parts: you increase your final salary pension immediately and your CARE pension incrementally. This is the most advantageous setup for boosting your overall retirement income.
Non-Financial Considerations: Stress, Satisfaction, and Lifestyle
While the pension benefits may be attractive, consider the emotional and physical costs of a promotion:
- Stress & workload: Senior roles come with increased pressure and responsibility. That may not be worth it in your final working years, especially if it affects your health or well-being.
- Job satisfaction: Some teachers find new motivation in a leadership role; others prefer to stay in the classroom. Know what works for you.
- Work-life balance: Consider whether a promotion will reduce your personal time at a stage when you may want more flexibility.
Other Caveats: Part-Time Work and Service Gaps
- Part-time work: Your service years are prorated under both schemes. However, your full-time equivalent salary is still used for the final salary calculation, so part-time work doesn’t reduce the salary figure - but it does reduce service length.
- Salary drops or stepping down: If you leave a leadership role or reduce your salary in the last 10 years, the scheme can still use a higher previous salary (if eligible) for final salary pension calculations.
- Breaks in service: A break of over 5 years can break the “final salary link.” If you return after a long gap, your previous final salary service will be calculated using your old leaving salary (adjusted for inflation), not your new one.
Planning your last 3–5 years?
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Conclusion
In short: a promotion near retirement can be financially worthwhile, particularly if you have final salary benefits. The CARE scheme rewards consistent pay progression more than last-minute jumps, but even there, late-career promotions help a little. For those with split pensions, promotions have a double benefit and are often worth considering.
But don’t forget the bigger picture: stress, job satisfaction, and personal goals matter too. Some teachers prefer to finish their careers in calmer roles, even if it means slightly less pension. Others are energised by the opportunity to lead and improve schools in their final years.
Whatever your path, knowing how your pension is affected can help you make the best decision for your future.
This article provides general information only and is not financial advice. For tailored guidance, consider speaking with an independent financial adviser or using resources such as Teachers’ Pensions.