Buy Out and Faster Accrual in the Teachers' Pension

Two flexibilities, two different jobs

When the career average scheme arrived in 2015 it brought three optional extras with it, collectively known as the flexibilities: Additional Pension, Faster Accrual and Buy Out. Additional Pension is reasonably well understood — you pay money, you get a stated amount of extra annual pension. The other two are not, and the confusion around Buy Out in particular leads teachers to buy something that does not do what they think it does, or to dismiss something that would genuinely have helped them.

The clearest way to hold them apart is by what they act on. Faster Accrual changes the size of the pension you build — it makes each year of service worth more. Buy Out changes the reduction applied to the pension you have built — and only one narrow, specific part of that reduction. They are not alternatives to one another in any meaningful sense; they are answers to different questions, and a teacher can sensibly hold both, one, or neither.

What Buy Out actually removes

To understand Buy Out you first have to understand the thing it removes, which is not the early retirement reduction most people assume.

In the career average scheme, your Normal Pension Age is your State Pension age or 65, whichever is later. For most teachers currently in service that means 67, and for younger teachers 68. But the scheme's underlying actuarial architecture is built around 65, and to bridge the gap it applies a standard rate of actuarial reduction of 3% for each year between 65 and your Normal Pension Age, capped at three years. That standard adjustment sits separately from, and on top of, the early retirement factors that apply if you take benefits before 65 — the technical guidance for the career average early retirement factor table says exactly this, noting that the factors need to be used in combination with the standard reduction that applies for a maximum of three years between age 65 and Normal Pension Age.

Buy Out is the mechanism for paying that standard adjustment away in advance. You pay a higher contribution rate throughout your career, and in exchange the 3%-per-year adjustment for the years you have bought out does not apply to the benefits you accrued while paying. Teachers' Pensions frames it as being able to buy out the actuarial adjustment for up to three years, depending on the number of years between 65 and your career average Normal Pension Age.

• Normal Pension Age 65. Nothing to buy out — no years lie between 65 and your Normal Pension Age, so no standard adjustment arises.
• Normal Pension Age 66. Up to one year's actuarial adjustment can be bought out.
• Normal Pension Age 67. Up to two years can be bought out.
• Normal Pension Age 68. Up to three years can be bought out — the maximum.
• Normal Pension Age expressed in years and months. Handled proportionately. The scheme's own example covers a member with a Normal Pension Age of 65 years and 9 months, whose Buy Out can only cover those nine months, priced at 9/12ths of a full year.

The misconception that costs people money

The name is the problem. "Buy Out of the standard actuarial adjustment" gets shortened to "buying out the reduction", which gets heard as "buying out the early retirement reduction", which is not what it does at all.

Think of it as two separate charges levied on the same pension. The first, and by far the larger, is the early retirement factor for going before 65. The second, much smaller, is the standard adjustment for the years between 65 and your Normal Pension Age. Buy Out deals with the second and leaves the first completely intact. A teacher who elects Buy Out expecting it to make early retirement affordable has bought protection against a risk they were not primarily worried about.

Put in numbers, for a member with a Normal Pension Age of 67: the standard adjustment they can buy out is worth two years at 3%, so roughly 6% of their pension. The early retirement reduction for going at 57 rather than 65 is worth around 32%. Buying out the 6% is a perfectly sensible thing to do if you expect to retire at 65; it is close to irrelevant to someone whose actual plan is to leave at 57.

The people Buy Out genuinely helps are those who intend to work to around 65 and then stop — which, for a teacher with a Normal Pension Age of 68, is a very reasonable plan and one that would otherwise carry a 9% standard adjustment for life. For them, Buy Out converts an unavoidable late-career penalty into a manageable contribution spread across decades. That is a real and valuable thing. It is just not the thing most people think they are buying.

How Buy Out is priced

The pricing is unusually transparent for a pension product, and worth walking through because it makes the long-term commitment concrete.

Teachers' Pensions looks at two things: your age last birthday when you entered the career average scheme, and how many years you are buying out. Your age produces a Buy Out factor from a published table, and that factor is multiplied by the number of years bought out to give a percentage of pensionable earnings you pay on top of your ordinary member contributions, for the rest of your career.

The scheme's published worked examples make the pattern clear. A member entering the career average scheme at 38 with a Normal Pension Age of 67 has a Buy Out factor of 0.96; buying out both available years gives 0.96 × 2 = 1.92% of pensionable earnings. A member entering at 26 with a Normal Pension Age of 68 has a factor of 0.97; buying out two of their three available years gives 0.97 × 2 = 1.94%. And the proportional case: a member entering at 60 with a Normal Pension Age of 65 years and 9 months has a factor of 0.96, applied to nine months, so 0.96 × 9/12 = 0.72%.

Two things are worth noticing. First, the factors barely move with age — 0.96 at 38, 0.97 at 26, 0.96 at 60 — which tells you the pricing is essentially a flat annual charge for the duration of your membership rather than something that gets dramatically cheaper if you start young. Second, and more importantly, this is a percentage of pensionable earnings paid every year you remain in the scheme. A teacher electing at 30 and working to 65 pays it for thirty-five years. Teachers' Pensions flags this explicitly, warning that you will pay higher contributions throughout your career, so you need to appreciate that this is a long term commitment — and adding that the rates could change following the next Scheme valuation.

One chance, six months, and revocation

Buy Out is the least forgiving of the flexibilities on timing. Teachers' Pensions states that you only have one opportunity to Buy Out the reduction, that the application must be made within six months of first entering the career average scheme, and that you need to be in pensionable service to make an application. There is no second window, no annual re-election, and no route back if you miss it.

The McCloud remedy complicated this in a way that still affects a large group of teachers. Because all active members were moved to the career average scheme on 1 April 2022, and because service during the 2015–2022 remedy period was rolled back into the final salary scheme, teachers affected by transitional protection entered the career average scheme for the first time on 1 April 2022. Teachers' Pensions ran a retrospective Buy Out application process to handle this, backdating elections to that date. That deadline has now passed.

The practical consequence is that Buy Out is, for most teachers reading this, no longer an available decision. If you were already in service before April 2022 and did not apply retrospectively, the window is closed. Buy Out is a live option principally for teachers entering the career average scheme now — which in practice means new entrants to the profession and returners.

Revoking an election

You can stop paying, but the effect is partial rather than reversing. If you revoke a Buy Out election, you will only receive the Buy Out adjustment in respect of those benefits earned while you were paying the additional contributions. Benefits accrued after revocation have the normal actuarial adjustments applied when you come to take them.

That produces a sensible middle position for someone whose circumstances change: the years you paid for stay bought, the years you did not pay for do not, and you are not locked into a contribution you can no longer afford. What you cannot do is get the money back, or re-elect later.

Faster Accrual: buying a better build-up rate

Faster Accrual is the more straightforward of the two and, for most teachers, the more useful. The career average scheme adds 1/57th of each year's pensionable earnings to your pension pot. Faster Accrual lets you pay extra to make a particular year build up at 1/55th, 1/50th or 1/45th instead.

The crucial design feature is the time horizon. Each Faster Accrual election lasts a maximum of one year and ceases at the end of the scheme year, which runs from 1 April to 31 March. Subsequent elections must be received by Teachers' Pensions by 31 March to cover the next scheme year. You have one month to make an election from when you first join the career average scheme, and after that it is an annual decision.

That annual structure is genuinely valuable and is the opposite of Buy Out's one-shot, lifetime commitment. A teacher who gets a promotion, or whose mortgage ends, or who simply has a good year financially, can elect Faster Accrual for that year alone. A teacher whose circumstances tighten skips the following year with no penalty and no loss of what they have already bought. Pension already accrued at an enhanced rate stays accrued at that rate permanently — you are not renting the improvement, you are buying it one year at a time.

What Faster Accrual costs

Teachers' Pensions publishes a worked example that shows the cost-benefit relationship better than any general description. It concerns a career average member aged 39 at the start of the scheme year, with pensionable earnings of £30,000 for that year. At the standard 1/57th rate, that year adds £526.31 to her annual pension.

Look carefully at the relationship between the last two columns, because it is not linear and it is the whole decision. Moving from 1/57th to 1/55th costs £243 and buys £19.14 a year of extra pension for life — a payback period of roughly 12.7 years of retirement, before any inflation uprating. Moving to 1/50th costs £936 and buys £73.69 a year, a payback of about 12.7 years. Moving to 1/45th costs 5.94% of earnings, £1,782, and buys £140.36, again about 12.7 years.

The consistency is the point: the scheme is pricing all three tiers on the same actuarial basis, so there is no "best value" rate hidden among them. The choice between 1/55th, 1/50th and 1/45th is purely a question of how much you want to spend, not of which offers a better deal. That is genuinely useful to know, because it removes a question people agonise over unnecessarily.

What does vary is age. The contribution percentage is determined by a Faster Accrual factor drawn from published tables, based on your age last birthday when the election takes effect and the rate you are electing. Teachers' Pensions gives the example of a member aged 24 taking 1/45th Faster Accrual paying an additional 6.51% in contributions — higher than the 5.94% paid by the 39-year-old in the table above, reflecting the longer period over which the enhanced pension will be paid.

If you hold Buy Out as well

The two flexibilities combine into a single contribution rate. Where a member holds both, Teachers' Pensions takes the factor for their age and Faster Accrual rate and adds the corresponding Buy Out factor multiplied by the number of years being bought out. A member who has elected the maximum of both can therefore be paying a materially higher proportion of salary into the scheme than the standard tiered member contribution rate alone — something worth modelling against take-home pay before committing, particularly given that Buy Out is a lifetime commitment while Faster Accrual is not.

Choosing between the flexibilities

There is a structural asymmetry here that is easy to miss. Faster Accrual buys you pension — a real, permanent addition to what the scheme owes you, which is uprated in service and in payment and which pays out whenever and however you eventually retire, including on ill-health grounds. Buy Out buys you the removal of a specific adjustment in a specific window, and pays out only if you happen to retire in that window.

That does not make Buy Out bad. For a teacher with a Normal Pension Age of 68 who is confident they will stop at 65, it removes a 9% lifetime reduction for a contribution of a little under 3% of earnings, which is a reasonable trade. But it is a conditional bet on a retirement date decades away, and most teachers are not in a position to make that bet with any confidence at the point they have to decide — within six months of joining the scheme, typically in their twenties.

The related watch-out: abatement

Any conversation about optimising a teacher's pension eventually runs into abatement, and it deserves a section here because the rules are considerably more favourable than most teachers believe — and because the exceptions are precisely the ones that matter to people planning a return to supply or part-time teaching.

Abatement is the rule under which a pension in payment can be suspended or reduced if the pensioner returns to teaching and their earnings, added to the pension, exceed a reference figure. Teachers' Pensions defines your salary of reference as the highest salary in the average salary period as calculated at retirement, adjusted each year for inflation, and sets the earnings limit as that index-linked salary of reference minus your annual pension. Go above the limit in a tax year and the abatable part of your pension is affected.

The critical question is which pensions are abatable at all, and the answer is narrower than the reputation suggests.

• Final salary Age and Premature pensions — abatable. Teachers' Pensions states that if you're receiving Age or Premature final salary benefits, your pension may be temporarily suspended, depending upon your earnings.
• Final salary Early Retirement (AAB) pensions — not abatable. In the scheme's own words: if you took your final salary pension early (actuarially adjusted benefits), before the normal pension age for the benefit, your pension will not be abated.
• All career average benefits — not abatable. Career average benefits will not be affected by re-employment, unless you are in receipt of ill-health retirement benefits.

That produces a genuinely underappreciated conclusion. A teacher who retired early with actuarially adjusted benefits, or whose pension is largely or wholly career average — which increasingly describes everyone — can return to as much supply teaching, part-time work, tutoring or examining as they like without abatement touching their pension. The abatement risk is concentrated in a shrinking group: holders of final salary Age or Premature pensions, who took the unreduced route out.

A final practical note: where abatement does apply, it is a limit on earnings rather than a prohibition on working. Since the limit is the index-linked salary of reference minus the pension, a teacher who retired on a senior salary and returns to occasional supply work will typically be a long way below it. The rule bites when someone returns to something close to their former role at close to their former pay, which is exactly the circumstance it was written for.

Who each option actually suits

Pulling all of this together into something actionable.

• Consider Buy Out if you are newly entering the career average scheme, have a Normal Pension Age of 67 or 68, and genuinely expect to work to around 65 and then stop — the scenario where the standard adjustment would otherwise cost you 6% or 9% of your pension for life.
• Do not elect Buy Out if your plan is to retire in your fifties, because the early retirement reduction it does not touch will dwarf the standard adjustment it does. Check the actual factor tables before deciding.
• Consider Faster Accrual if you have surplus income in a particular year and want a permanent, unconditional addition to your pension — it pays out on every retirement route including ill-health, and you are never locked in beyond the current scheme year.
• Diarise 31 March if you intend to use Faster Accrual, since elections must reach Teachers' Pensions by then to cover the following scheme year, and the scheme's guidance suggests getting it in well before that so payroll can be adjusted without arrears being recovered later.
• Do not rely on Buy Out being available to you without checking, since the retrospective application deadline for members rolled back under the McCloud remedy has passed and the ordinary window is six months from first entering career average.
• Check your abatement position before planning a return to work, but do not assume the worst — career average benefits and actuarially adjusted final salary pensions are both outside the abatement rules.
• Take regulated financial advice for any large or long-term commitment. Buy Out in particular is a decades-long contribution decision made on assumptions about a retirement date thirty or forty years away, and nothing on this page is advice.

The broader point worth leaving with is that these flexibilities are marketed as ways to improve your pension, and only one of them straightforwardly is. Faster Accrual adds to what you own. Buy Out removes a particular charge under a particular set of circumstances, and the circumstances are much narrower than the name implies. Knowing the difference precisely is worth more than any amount of general enthusiasm about "topping up your teachers' pension".