Teachers' Pension Phased Retirement Explained

How phased retirement works in the TPS

In a standard retirement you leave your job, your accrual stops, and your entire pension comes into payment. Phased retirement splits those events: you retire from a portion of your role and draw a matching portion of your accrued pension, while the rest of your contract — and your pension membership — continues.

The key mechanism is that Teachers' Pensions treats the transition as two separate things happening at once. On the retired portion, you become a pensioner. On the remaining portion, you stay an active member building at 1/57th of your continuing salary. The two can coexist because the TPS regulations allow partial crystallisation of benefits.

Who is phased retirement for?

Phased retirement suits teachers who want to wind down gradually rather than face the cliff edge of full retirement. Common scenarios include:

• A head teacher at 60 who wants to step back from full-time leadership but keep teaching two or three days a week.
• A teacher at 55 whose health makes full-time work difficult, but who is not ready — or cannot afford — to stop entirely.
• Anyone who wants to start drawing pension early to clear a mortgage, while keeping some salary and continuing to build new benefits.
• A teacher whose partner is already retired and who wants to share more time together without losing all earned income.

If you simply want to reduce your hours without drawing any pension yet, that is a part-time arrangement, not phased retirement. Use the part-time teacher pay calculator to model that instead.

The actuarial reduction on early phased retirement

If you take phased retirement before your Normal Pension Age, the retired portion of your pension is reduced by an actuarial factor — just as it would be for full early retirement. The factors are approximately 5% per year before NPA, compounding:

The early retirement page explains the full reduction mechanics and gives more worked examples.

Worked example: stepping down from full-time at age 60

Sarah is 60, on UPS 3 (£52,835), with £15,000 annual accrued pension and NPA 67. She wants to reduce to a 0.6 contract.

Sarah's combined income is £35,907 — less than her current £52,835, but she works three days a week and draws pension income. She also continues building £556 of new pension each year on the working portion.

If Sarah waits until NPA (67) to take the remaining 60%, there is no reduction on that portion. Alternatively she could take a second phased retirement at 63, 64, or 65 with a smaller reduction.

The lump sum option on phased retirement

You can commute part of the retired pension portion into a tax-free lump sum, using the same 12:1 factor as a full retirement. For every £1 of annual pension you give up, you receive £12 as a one-off payment. The maximum lump sum is approximately 5.36 times your annual pension on the retired portion.

Using Sarah's example above: her reduced pension of £4,206 gives a maximum lump sum of about £22,544. Taking the full lump sum would reduce her ongoing pension from the retired portion to approximately £2,327 per year. The lump sum calculator can model the trade-off.

How to apply for phased retirement

1. Discuss with your head teacher or governing body at least a term before your intended date. Phased retirement requires a genuine contractual change — your employer must agree to the reduced role.
2. Confirm the new contracted hours or FTE fraction in writing. The reduction must be at least 20% of your pensionable salary.
3. Complete the phased retirement application through your employer. They submit the notification to Teachers' Pensions.
4. Teachers' Pensions issues your benefit statement showing the pension payable on the retired portion and any actuarial reduction.
5. On the agreed date your pension payments begin on the retired portion, and your payroll switches to the reduced salary.

Tax implications of phased retirement

Your pension income and your ongoing salary are both taxable. Because they are added together for income tax purposes, you may find that a large combined income pushes you into a higher tax bracket. Use the teacher tax calculator to model your new position.

The lump sum is tax-free provided it stays within the standard allowances. Since April 2024, the tax-free lump sum is capped at £268,275 across your lifetime — most teachers will not hit this, but it is worth checking if you have other pension pots.

Phased retirement vs part-time working vs full early retirement

For support staff on the LGPS rather than TPS, the equivalent is called flexible retirement. The LGPS pension calculator covers the differences.

Common mistakes with phased retirement

• Assuming it is automatic — your employer can refuse if they need the full-time role filled.
• Forgetting that the actuarial reduction is permanent, not temporary.
• Not checking the combined tax position — salary plus pension can push you into the 40% bracket.
• Applying too late — allow at least 4 months before the intended start date.
• Confusing phased retirement with simply going part-time — they are different under the TPS regulations.