15 Gold Hill, Shaftesbury, SP7 8HB www.ez-isa.com mark@ez-isa.com 079 8376 9606 023 8022 2410 Financial Tip Sheet For NQTs Table of Contents Financial Tip Sheet For NQTs... 1 Why is this written?... 1 Who is it for?... 1 Salary... 2 Take-Home Pay... 2 Pensions... 2 Maternity Benefits... 3 Paternity Benefits... 4 Sick Pay... 4 Death Benefits... 4 Mortgages... 5 Budgeting... 5 Saving/Investing... 6 To Do List... 7 Why is this written? I m a Chartered Financial Planner with several friends who have just completed their training to become NQTs. I ve been finding out what this will mean for them financially and have put together this sheet to share with others. I also offer an easy investment service useful for people starting to invest called EZ ISA (Easy ISA). I hope these sheets will raise awareness of the service and that you would like to use it at some point in your career. Who is it for? It s written specifically for NQTs working in the public sector, but large parts should be applicable to many other teachers- feel free to share. The information is accurate as far as I can tell in August 2014- but please take this information only as a pointer in the right direction, rather than gospel or specific advice. If you do notice anything wrong, or could add anything please let me know. 1
Salary Straight to the most important bit! All these salaries assume you are working outside London, but full details can be found here http://bit.ly/ezteachsal While you have been training you have been on a minimum of 16kpa. Once qualified this should increase to a minimum of just under 22kpa, up to about 32kpa as your career progresses. Moving higher up Leading Practitioners can earn up to 57kpa, and Heads up to 106kpa! Take-Home Pay What is more useful to know is what take-home pay this will give you. Before you get paid Income Tax, National Insurance and pension contributions will be swiped from your pay packet. As long as you earn under 40kpa you will only pay Basic Rate Income Tax which is a pretty reasonable 20% on the amount over 10k. Unfortunately you will also need to pay the much less talked about Employee s NI contributions- 12% of any salary over about 8kpa. (On top of this your employer needs to pay Employer s NI contributions of 13.8% that you never see!) As if that wasn t enough you must also contribute about 7% of your total salary to the pension scheme (more about which later). On the plus side your employer is also putting in 14% of your salary for you which you don t see. All this takes your 22k starting income down to about 18kpa/ 1,500pm net of tax and NI. (Check the excellent http://www.uktaxcalculators.co.uk/ for more details). If we take 7% off your pay for pension this leaves you with about 1,400pm to spend as a starting salary. Remember you might also have Student Loan repayments to come off this amount. Pensions The good news is that for all these deductions you should be quite well provided for. The Teacher s pension scheme is a secure, government backed Defined Benefits one. This means that as you approach retirement you will know how much you will receive, and this will be guaranteed- unlike most private sector pensions which are a risky business! 2
What you receive will be 1/60 th of your Career Average Earnings for each year that you have worked full time, and your normal retirement age will be 65. For example if you work for 40 years (i.e. from age 25 to 65) with a career average salary of 30,000pa you will receive: 40/60 x 30,000= 20,000pa This will then be taxed, but not have NI taken off. This is a generous pension. To achieve a pension like this privately you would need a fund of about 600,000! On top of this you will receive a new, higher Basic State Pension of about 7,500pa from age 68 (worth 225,000 if bought privately). A pretty serious caveat is that all this is more than likely to change over the next 30 years- so don t take this as gospel and plan for contingencies! On the plus side we find that a good, basic pension income of about 20,000pa (after tax) for a couple with their house paid off and children off their hands is sufficient for a reasonable lifestyle. With a teacher s pension of 20kpa and two state pensions (assuming a couple) of 15k you would be very comfortable with a total pension of 35,000pa. Maternity Benefits This is a bit complicated! Information has been drawn from the NUT handbook (http://bit.ly/1o7dqbd) and only pointers are given below. To qualify for full benefits you need to have been employed for at least a year as a teacher anywhere, and for at least 26 weeks by your current employer, before the 15 th week before your expected due week. A quick bit of maths suggests that given a 40 week gestation the 15 th week before that would be the 25 th week of pregnancy. A year before this would mean that you had to be employed for 27 weeks before you get pregnant to qualify for full maternity pay (I think?!) There are other levels of benefit available if you don t qualify for these full benefits, check the handbook. If you do qualify it seems you can get plenty of time off, but only some of it will be paid. During this you get: (Bold shows the amount this is worth for a 22k earner.) 4 weeks at full pay- 1,700 Next 2 weeks at 90% of full pay- 760 Next 12 weeks 50% of full pay plus 138pw (statutory maternity pay/smp)- 6,700 Next 21 weeks at 138pw (SMP)- 2,900 The rest is unpaid 3
So assuming 22k salary maternity leave is worth about 12k before tax. Paternity Benefits Are sadly far less generous! In short you re allowed up to two weeks off, paid at the rate of 138pw. These days however you can get your partner to transfer up to 6 months of her statutory maternity leave/pay to you if she returns to work early. Sick Pay Full details can be found here http://bit.ly/ezteachsick but these are the rough sick pay conditions: During the first year of service: During the second year of service: During the third year of service: During the fourth and successive years: Full pay for 1½ months; and, after four calendar months service, half pay for 3 months. Full pay for 3 months; half pay for 3 months. Full pay for 4½ months; half pay for 4½ months. Full pay for 6 months; half pay for 6 months. There is also a provision under the pension scheme to start paying your pension early if you are deemed permanently incapable of working, either in teaching or outside, but the details seem a bit vague. These sick pay conditions are okay for short-term ill-health but leave you a bit exposed to long-term ill-health before you have been in teaching for a long time. It is possible to cover yourself further privately which might be appropriate if you/your family would be totally doomed without your income (i.e. no income from a partner/no support from family). This would cost in the region of 50pm- let me know if you d like to find out more or get a personal quote. Death Benefits The pension scheme also provides some death benefits. Again, this is very rough but you can check details here http://bit.ly/ezteachdeath There will be a payment made of 3x your annual salary as a lump sum in the event of your death before retirement There will also be a survivor s pension paid to your dependents of very roughly half of your annual pension earned until that point In addition there may be a pension payable in respect of your dependent children up to a further half of your pension earned until that point While these benefits would be handy in the event of your premature death, if you have a family which is heavily dependent on your salary for their lifestyle you should consider some private life insurance. This is pretty cheap these days- about 30pm would provide a very useful level of cover for most people. Feel free to get in touch to find out more about this. Death after retirement will result in very roughly half of the pension you were getting continuing to be paid to your partner for their life, and possibly a children s pension as well. 4
To be honest the survivor only receiving 50% of your pension should you die first is quite poor and this significant drop should certainly be taken into account in your planning one way or another. You could either fund a personal pension or ISAs to provide a more flexible income to the survivoragain, let me know if you want some ideas. Mortgages It seems the mortgage market these days is split into simple mortgage products and specialist mortgages. As a teacher you are likely to be popular with mortgage providers and can probably get a simple mortgage without much need for advice. The High Street banks seem fine for these; HSBC has good rates and a good mortgage calculator to play with and so is a good place to start: http://www.hsbc.co.uk/1/2/mortgages/mortgage-calculators If you would like help with a mortgage, particularly if you don t have a standard situation (i.e. your partner is selfemployed) then we use a chap called Kevin Oliver who is excellent. Let me know if you d like me to put you in touch with him. He will charge a fee, but this is likely to be worth it if you need his help. A good little dodge to rustle up a deposit is to borrow it off your parents. Of course not many parents have that much money just lying around, but often they do have valuable properties with small mortgages on them. In this case you might be able to find they can extend their mortgage quite cheaply/easily and lend you the money for your deposit. If you cover the costs they incur they won t be out of pocket and you can get a cheaper mortgage by laying down a bigger deposit on your place. Budgeting By far the easiest way I ve found to budget is to set up several accounts and automatically fund these at the start of each month as soon as I m paid, along with other bills. Just as my rent/mortgage and council tax etc goes out so does an amount to long term savings (see below) and another amount into a holiday/treats account. This means that I expect to run out of money by the end of every month, but that s okay because I ve already set something aside for my future freedom/security and I ve got a stash of cash for holidays/festivals etc that I can raid guilt-free as well. Work out what s important to you, how much you think it s worth, set up Standing Orders to an account for each of those things and let your budgeting take care of itself. 5
Saving/Investing I really believe these are the keys to financial security and freedom for you and your family. Saving It might sound ambitious but if you can save 100pm through your 40 year career you would have saved up 73,000 (assuming 2%pa interest). Saving is the hardest bit. Investing However, if you can boost your return to 7%pa (which you can only do through investing) you would have saved up 240,000! Investing isn t as hard as saving, but can make all the difference to your future. EZ ISA has been designed to be as simple a way to save and invest as possible using your Stocks & Shares ISA allowance. There are no up-front charges, you can put money in and take it out whenever you like and the investments are easy to pick and take care of themselves. Check out the http://ez-isa.com/about-us/how-it-works/ page for details, and get in touch with me on 07983 769 606 or mark@ez-isa.com if you would like to set up an investment. 6
To Do List Work out if you think you need any extra life or sickness insurance (2 mins- you ll know if you might do) Think about your Budget based on your Take Home Pay and existing commitments (5 mins with a bank statement to see what comes in and goes out regularly) Work out what s important to you and set up accounts with Standing Orders for each of those things (30 mins on the phone with your bank) From this work out if you can afford to save anything for the long term (more than a few years) o If you can check out the EZ ISA website (http://ez-isa.com/about-us/how-it-works/) or email me (mark@ez-isa.com) to find out more about investing the easy way o Set up an account over the phone with me (10 mins). 7