There is no fund, no trustee and no account number to report

Figures relate to tax year 2025-26 (UK) · 2025 (US)

Every American tax form wants a number. What was the balance, what was the highest value, what is it worth today.

A teachers pension answers none of those questions, because no pot exists anywhere. The scheme promises an income and nothing is set aside in your name.

That one fact shapes every US question a teacher here will face. What follows is how to answer them without inventing figures.

Key takeaways

• A teachers pension promises an income rather than a balance.
• Nothing is funded, so there is no account to report.
• A transfer value is the usual figure where one is needed.
• The annual allowance measures benefit growth, not cash paid.
• Employer contributions are not your income under the treaty.
• The British tax free lump sum is fully taxable in America.
• Opting out for American tax reasons is almost never sensible.

What is a teachers pension?

A career average scheme that builds a slice of guaranteed income for each year worked, rather than a pot of invested money. For 2025-26 the accrual rate stands at one fifty seventh of pensionable pay each year. Each slice is then revalued until retirement.

Member contributions run on a tiered scale between roughly 7 and 12 per cent of salary.

Employers pay far more than that on top, currently over 28 per cent.

Why does the structure matter so much?

Because every American disclosure form is built around accounts and balances. A funded workplace pension has a statement with a number on it. An unfunded statutory scheme has a promise, a service record and no custodian holding anything for you.

So the honest answer to several form questions is that no account exists.

In our practice that answer causes more anxiety than it should.

A worked example

Take an illustrative example. An American secondary school teacher in Leeds has fifteen years of service in 2025.

Her annual benefit statement shows a projected pension rather than a balance. Her contributions totalled roughly £38,000 over those years.

None of that money sits anywhere. It funded pensions already in payment, as the scheme works on a pay as you go basis.

For her American return she reports no account and claims treaty protection on the growth in her entitlement.

Funded against unfunded

Does it need foreign account reporting?

Generally not, because the foreign account rules look for an account at a financial institution and there is none here. You hold a statutory entitlement rather than a deposit. That distinguishes a teachers pension from a personal pension held with a provider.

Our guide to UK pensions and US retirement reporting covers the funded cases.

Any extra savings you make on the side sit in a real fund, and those may need reporting.

What about the foreign asset form?

An interest in a teachers pension can count as a reportable asset once your totals cross the threshold. The difficulty is valuing something with no market value. A transfer value from the scheme is the figure most practitioners use.

Our guide to Form 8938 reporting covers the thresholds.

Request a transfer value quotation in the year you need one, since they expire.

Is it a foreign trust?

A teachers pension almost certainly is not, and the reason is unusually clean. A trust needs trustees holding property for beneficiaries, and an unfunded statutory scheme holds no property at all. Parliament created the entitlement rather than a settlor creating a trust.

So the heaviest forms drop out of the picture.

Funded public service schemes need a more careful look.

Are your contributions deductible?

The treaty allows relief for contributions to a recognised British scheme, within limits that mirror American plans. So the salary you give up each month into a teachers pension is not taxed twice. Claiming it requires a disclosure on the return rather than silence.

Our guide to employer pension contributions and US tax sets out the limits.

Without the treaty claim, the money you pay in is just taxed US pay.

What about the employer's share?

This is where an unfunded scheme gets genuinely odd. No sum is allocated to you personally, so there is nothing obvious to measure. The treaty treats employer contributions to a recognised scheme as outside your income, which resolves the point.

The published employer rate is a funding percentage rather than a credit to your name.

Nobody could calculate your share of it even if the rules required one.

How does the annual allowance work here?

It measures the growth in your promised teachers pension rather than money paid in. The scheme multiplies the increase in annual pension by a factor and compares it against the allowance. For 2025-26 the standard allowance stands at £60,000.

According to GOV.UK guidance on the annual allowance, the figure tapers for higher earners.

Promotions and large pay rises are what trigger charges in a career average scheme.

Does an allowance charge affect your US return?

It is British tax, so it can generate foreign tax credit in the usual way. Where the scheme pays the charge on your behalf your pension reduces instead. That arrangement complicates the credit position, because you never physically pay anything.

Keep the scheme pays election paperwork with your tax file.

Digging it out years later is hard work.

What happens to the tax free lump sum?

Britain exempts it within the lump sum allowance, which is £268,275 for most people. America taxes it as a pension distribution. That mismatch is the single most expensive feature of a teachers pension for an American member.

No British tax arises on it, so there is no credit to offset the American charge.

Planning the year you take it is therefore worth real money.

Can you avoid the lump sum problem?

Partly, by taking a smaller lump sum or none at all and accepting a higher ongoing pension. Spreading income attracts British tax that then generates credit. Whether that beats the lump sum depends on your other income and your horizon.

Some members take the maximum regardless, because the cash matters more.

Model both before the retirement forms go in.

How is the pension taxed once in payment?

Britain taxes a teachers pension through the usual system, and America taxes it as foreign pension income. The credit for British tax normally removes the American charge on the same money. Problems arise only where the two years fail to line up.

Electing the accrual method for credits usually helps.

Our guide to foreign tax credit carryovers covers the timing.

What about phased retirement?

Taking part of the pension while continuing to teach is common and works well in Britain. The American analysis treats each payment as it arises, so a phased approach simply spreads the income. The lump sum element still carries its own problem.

Each phase can include a lump sum, which multiplies the issue.

Weigh up the US side before you pick the shape.

Should you ever opt out?

Very rarely, and almost never for American tax reasons alone. A teachers pension is too valuable to give up. The employer funding behind the scheme is worth far more than the paperwork costs to handle properly. Opting out converts a guaranteed income into nothing at all.

The lump sum problem is a reason to plan, not a reason to leave.

We have never advised a teacher to opt out on these grounds.

What if you leave the UK?

A teachers pension stays preserved and revalues until you draw it, wherever you live. Transferring overseas raises an entirely separate charge and rarely helps. The treaty then decides which country taxes the eventual payments.

Our guide to the overseas transfer charge covers the transfer question.

Leaving the benefits where they are is usually the right answer.

Does supply or agency teaching count?

Work through a local authority supply pool normally pensions in the usual way. Agency work frequently does not, because the agency rather than the school employs you. Years of agency teaching can therefore leave a gap in an otherwise continuous record.

Check which years actually counted before assuming a full service history.

The American side simply follows what the British record says.

What about independent school teachers?

Many independent schools participate, and many have withdrawn since the employer rate rose. A school outside the scheme offers a funded alternative instead, which brings a real balance and the reporting that goes with it.

Our guide to UK pensions and the annual allowance covers funded schemes.

Moving between sectors can leave you with both kinds at once.

Does a career break change anything?

Service simply stops accruing while you are out, and the benefits built so far keep revaluing. Family leave is usually treated more generously than a plain unpaid break. Neither event creates an American reporting question on its own.

Check whether buying back the missing period is available and worthwhile.

A buy back gets treaty relief, just as normal payments do.

What happens on death in service?

The scheme pays a lump sum and a dependant's pension, which is valuable cover that members often overlook. The American estate position depends on who receives it and their own status. A non-American spouse receiving a British pension raises no American filing.

Our guide to death in service benefits and US tax covers the treatment.

Keep the nomination form current, since it drives everything else.

What records should you keep?

Keep every yearly benefit statement, any transfer value you ask for, the payments shown on your payslips and any scheme pays form. Those four items answer almost every question an American preparer will ask.

Download the statements, because online access ends when you leave teaching.

Keep them permanently rather than for six years.

How to report it

1. Confirm the teachers pension is unfunded and holds no account.
2. Separate any additional voluntary contributions, which are funded.
3. Obtain a transfer value if an asset figure is needed.
4. Claim treaty relief on your own contributions each year.
5. Check the annual allowance after any promotion or large rise.
6. Model the lump sum decision before retirement paperwork.
7. Report the pension as foreign income once in payment.
8. Keep the benefit statements permanently.

Mistakes and penalties we see with a teachers pension

The first is reporting a made up balance because software demanded one. There is no balance.

The second is taking the full lump sum without modelling the American charge on it.

The third is claiming treaty relief silently rather than disclosing the position.

The fourth is forgetting that extra savings on the side sit in a real fund, with reporting of their own.

How US UK Tax Accountants helps

We explain to clients and to their software that no account exists, then document the position so it holds up later. That alone removes most of the worry.

Before retirement we model the lump sum against a higher pension, because that choice is worth more than everything else combined. Our pensions service covers the whole analysis.

If you teach in Britain and hold an American passport, get in touch well before you file retirement paperwork.

Last reviewed 17 October 2026. This article is general information and not personal tax advice. Scheme rules change, so take advice on your own benefits.