Tracy Isaac, business development manager at Wesleyan, answers the five questions that teachers should be asking their financial consultant in the face of COVID-19
Coronavirus has had a significant impact on teachers, with school shutdowns, centre assessment grades and the shift to teaching from home creating new pressures on the profession.
As they now look ahead to the gradual return of more students to class and the challenges of supporting the educational and pastoral needs of pupils in a post-coronavirus landscape, it’s understandable that questions of personal finance may have fallen to the bottom of teachers’ busy to-do lists.
Here are five questions that every teacher should be asking their financial consultant when it comes to navigating the current climate.
How does this impact my teachers’ pension benefits?
Many teachers will be members of the Teachers’ Pension Scheme (TPS).
Although this has seen no fundamental changes as a result of the pandemic, changes to members’ circumstances may affect their accrual.
For example, some teachers may have been furloughed through the government’s Coronavirus Job Retention Scheme (CJRS).
Furlough pay will be pensionable. But employee contributions will be calculated based on their actual pay, not their normal rate of pensionable pay, with an exception for those who are furloughed while on pensionable leave. The same will apply to employer contributions.
As the build-up of a member’s pension pot is generally proportionate to their pensionable pay, if furlough pay is less than what a teacher would usually earn, the amount of pension built-up over furlough will be less too – this applies to both the TPS’ career average arrangement, and the final salary arrangement.
It is important to remember that, for most, this will have a minimal impact on their overall pension.
If you have any questions about what your own circumstances could mean for your pension, speak to your financial adviser.
Recent months have also seen an increase in the number of teachers considering opting-out of the TPS.
The TPS offers guaranteed retirement income directly linked to a teacher’s salary and service, with clear employer and employee contributions outlined. Alternative pension schemes may not be as generous, the contributions and retirement income not always as certain, and the structure more complex.
Before making any decision about your position in the TPS, it’s important that you first consider what any change in scheme could mean for you and your long-term retirement plans. Your financial adviser will be able to help you with this process.
Are there any other implications for my retirement plans?
The coronavirus outbreak may have implications for teachers who have pension plans outside of or in addition to the Teachers’ Pension Scheme, specifically defined contribution (DC) pension schemes.
Here, the value of the pension pot is driven by the performance of its underlying investments, and may have been affected by recent market conditions.
Each individual’s circumstances will be different, and it’s essential that you first speak to your financial adviser to help you understand what the coronavirus outbreak might mean for your own situation and your retirement plans before making any decisions.
Your intentions and your personal circumstances may have changed in recent months, and your adviser will be able to help you understand the options available to you, and the implications of any courses of action.
What should I be doing with my savings? And what about investments?
In times like these, you may find yourself with the need to draw from your savings to help cover expenses.
If this is the case, the first step is to determine exactly how much you need to spend. You can then consider diverting some funds into an instant-access account, so that it’s easily accessible as and when you need it.
Interest rates are at historic lows, and so it’s advisable that money is only kept in low-interest accounts to provide for planned expenditure, or emergencies, over the short term. If kept for longer, the value of your savings could depreciate in real terms.
When it comes to investments, everyone’s specific circumstances will vary. In the current environment, however, it generally recommended that investments are left untouched to give them the chance to regain any value lost in recent months, if you can afford to do so.
If you have some spare capital, market conditions could make this a good time to invest.
It’s important that you consider whether market conditions match your own appetite for risk, and remember that investing is usually conducted over periods of at least five years or more.
In all cases, it’s important to remember that you could get less out than you put in. Speak to your financial adviser before making any investment decisions.
What about protection?
Recent conditions will have highlighted the importance of ensuring that you have the right protection in place.
Teachers should take the time to review what protection measures they currently hold, and whether these are adequate for their requirements now, or anticipated future needs. Your financial adviser will be able to support you with this process, and help you understand any options available.
A solution like income protection, for example, could prove useful, providing you with continued income to replace a proportion of your earnings if injury or illness prevents you from working.
What does this mean for mortgages?
Despite well-documented disruption to the housing market, it’s important to remember that lenders are still offering mortgages.
Carefully review the full range of options available to you to ensure you’re taking out a deal that best suits your situation before settling on a decision – your financial adviser will be able to help you in this process.
Given the current low-interest rate environment, this could be a good time to consider re-mortgaging – a process that could help you to save money.
If you have already agreed a mortgage, check with your lender to ensure that the offer is still valid. You should also consider whether the borrowing you have agreed is still suitable – recent changes in your circumstances may mean it is no longer right for you.