Transcript Teachers’ Pension Scheme

Teachers’ Pension Scheme
A brief guide
Scheme Changes
• From 1 January 2007 the normal pension age for new
members increased to 65. In return, annual pension
build up improved.
• Members of the scheme prior to 1 January 2007 kept a
normal pension age of 60.
• Employee contributions rose from 6 per cent of salary to
6.4 per cent for all.
• Employer contributions rose from 13.5 per cent of salary
to 14.1 per cent.
• Improvements to scheme – for example protection of
pension from salary reductions, phased retirement option
and improvements in death grants.
Normal Pension Ages
Existing members
New members
• Normal pension age 60
• Minimum retirement age
currently 50, increases to
55 by April 2010
• Ill-Health pensions not
subject to minimum age
requirement
• Normal pension age 65
• Minimum Retirement Age
55
• Ill-Health pensions not
subject to minimum age
requirement
Pension build up – existing
members
• Pension is 1/80 of final pensionable salary
for each year of scheme membership
• If final salary = £30,000 and 20 years’
membership then the pension will be:
£30,000 x 20/80 = £7,500 a year
• 3/80 of final salary automatically paid as
tax free cash for each year of service (i.e.
3x pension)
Tax free cash example – existing
members
• If final salary = £30,000 and 20 years’ membership then
the cash sum will be:
£30,000 x 60/80 = £22,500
• The 3/80 cash makes up approx 13 per cent of the value
of pension rights. Members currently in teaching can
convert up to 25 per cent of pension rights into cash.
• Pension converted into cash at £12 of cash for each £1
of pension given up
• In this case, maximum tax free cash available = £40,178.
Pension if maximum tax free cash taken = £6,027
• Calculator on Teachers Pensions Website
Pension build up – new members
• Pension is 1/60 of final pensionable salary for
each year of scheme membership
• If final salary = £30,000 and 20 years’
membership then the pension will be:
£30,000 x 20/60 = £9,000 a year
• No automatic tax free cash included
• Members currently in teaching can take up to 25
per cent of pension rights as cash
• Pension converted into cash at £12 of cash for
each £1 of pension given up.
Final salary
•
a)
b)
From 1 January 2007 final pensionable salary is the higher of:
Average salary in the last year.
The average of the best three consecutive years in the last ten
(revalued in line with RPI inflation) - this is a big improvement that
protects teachers who step down late in their careers.
•
Before 1 January 2007, pension was based on highest average
salary for any consecutive 365 days in the last three years of
employment. Until 31 December 2008, pensions will be worked
out on the higher of the old and new measures.
•
Deferred members prior to 1 January 2007 who never return to
teaching will have their pensions calculated on the pre 1 January
2007 basis.
Members prior to 1 January 2007
- breaks in service
• All pension benefits on service up to 31
December 2006 available in full at age 60.
• An existing member on 31 December 2006 who
leaves the scheme and returns within five years
(for a certain minimum period) will have future
pension build-up based on pre-2007 rules.
• Teachers currently out of service can have
future service dealt with under pre-2007 rules if
they return to teaching by 31 December 2007.
Additional Pension
• Not possible to buy added years from 1 January
2007 (existing contracts honoured).
• Can buy up to £5,000 a year in additional
pension in multiples of £250.
• Pay by lump sum or by monthly deductions from
salary.
• Cost is not a percentage of salary, but depends
on your age and the amount of pension you
want to buy.
Ill-Health Early Retirement (1)
• No change in criteria to qualify: the applicant must be unfit by reason
of illness or injury and despite appropriate medical treatment be
more likely than not to be incapable of serving efficiently as a
teacher in any post on a permanent basis.
• Two levels of benefit available – ‘Total Incapacity Benefit (TIB)’ and
‘Partial Incapacity Benefit (PIB)’.
• Criterion for award of TIB is based on whether the teacher could
perform a job of comparable job weight to teaching – if person only
capable of stacking supermarket shelves this is clearly below the
weight of a teaching post so TIB will be the appropriate award.
• PIB awarded if you are permanently unable to teach, but able to do
other comparable work.
Ill-Health Early Retirement (2)
• TIB gives an uplift to benefits of half prospective
service to a person’s normal pension age. So, a
40-year-old with 10 years’ service and a pension
age of 60 would be able to retire with 20 years’
service (10 + (20/2)) = 20.
• PIB gives no uplift in benefits – but accrued
pension is received with no actuarial reduction.
Phased retirement
• Allows a teacher to keep working but draw part of their pension
benefits.
• To claim, must be 55 or over, and have service in scheme after 1
January 2007.
• To exercise flexible retirement, must reduce salary by at least 25 per
cent for at least 12 months – can be as a result of going part time, or
moving to a post with lower responsibility.
• Can take up to 75 per cent of pension and keep working. Phased
retirement can be exercised twice before final retirement.
• Teachers taking phased retirement continue to build up service in
the Teachers’ Pension Scheme (unless they opt out).
• Previous ‘stepping down’ arrangements discontinued (but existing
contracts honoured) – effectively superseded by average of best 3
consecutive in 10 final salary rule.
‘Actuarially Reduced’ Early
Retirement
• Need to be 55 or over, under normal scheme pension
age and have been employed on or after 30 March 2000
• ‘Actuarial Reduction’ means that the pension is reduced
because it’s expected to be paid out for a longer period.
• Employers can’t withhold consent for more than six
months from the date you ask to leave.
• The amount the pension is reduced depends on the
number of years and months it is taken before normal
pension age. Figures from tables supplied by
Government Actuary’ Department.
• Example: if normal pension age = 60, but the person
retires at 55, the pension and lump sum paid is 77 per
cent of unreduced amount.
Premature retirement
•
Premature retirement is where your employer makes you
redundant or you leave in the ‘efficient discharge of the
employer’s function’.
The minimum age for premature retirement is
a)
50
b)
55 or over and joined the scheme on or after April 2006.
c)
55 or over for all members after April 2010.
•
•
Premature retirement is at the discretion of the employer as the
cost must be paid to the Teachers’ Pension Scheme.
Where the employer agrees to premature retirement - pension not
reduced for early payment.
Death Grant
• Death grant for all members of the
Teachers’ Pension Scheme has been
increased from two to three times
pensionable salary
• Death grant goes to person or persons
nominated. Important to fill out nomination
form and keep it up to date.
Dependents’ Pensions (1)
• Big changes in this area
• Introduction of dependents’ pensions for nominated
unmarried partners – must have been in relationship for
two years and be ‘financially interdependent’ at time of
death.
• Spouses’ and nominated partners’ pensions paid for life
for retirements from 1 January 2007 (for people with
service after this date) – rather than ceasing on
remarriage or cohabitation.
Dependents’ Pensions (2)
• Long-term pensions payable at 1/160 of final pensionable salary for
each year of survivor benefit service.
• Service from 1 April 1972 (widow or dependent), 6 April 1988
(widower or registered civil partner) or 1 January 2007 (nominated
unmarried partners) automatically counts.
• May be able to buy back additional service before these dates –
check with Teachers’ Pensions.
• Children’s pensions also available if: child under 17; between 17
and 23 and in full-time education or training; any age if child
incapacitated and dependent on you.
• Amount of pension depends on number of children and any earnings
they have.
Teachers’ Pension Scheme
That’s it!