Pensions advice. Calculation of pension benefits. Pension factsheet 12 1

Transcription

1 Pensions advice Calculation of pension benefits In Northern Ireland, the teachers pension scheme is known as the Northern Ireland Teachers Pension Scheme. In Scotland, the teachers pension scheme is known as the Scottish Teachers Superannuation Scheme. Changes to these schemes on the 1 April 2007 bring them broadly in line with the Teachers Pension Scheme (TPS) in England and Wales. Unless specified otherwise, dates of changes to the TPS quoted in this factsheet as 1 January 2007 apply in Scotland and Northern Ireland from 1 April 2007, and consequential dates also follow three months later. Where the factsheet refers to contacting Teachers Pensions this should be read as the Department for Education in Northern Ireland and the Scottish Public Pensions Agency in Scotland. Your TPS pension is calculated on a formula linked to your length of service and pensionable salary. The formula that is used depends on whether your normal pension age (NPA) is 60 or 65. Qualification for pension benefits Your NPA is the earliest age at which you can retire voluntarily and receive immediate payment of unreduced pension benefits. NPA is 60 years if you were in service before 1 January For new entrants after that date NPA is 65 (see below for the definition of new entrant ). The nationally agreed conditions of service for teachers/lecturers provide for you to remain in teaching until the end of the term in which you are 65 years-old. Employment beyond this age is at the discretion of the employer. However, if you do remain in teaching beyond the age of 65, you can continue to contribute to the TPS until age 75, provided you do not accumulate more than 45 years pensionable service before then. If you do not have any pensionable service on or after 1 January 2007, you can only accrue a maximum 40 years pensionable service. In independent schools, it used to be common for contracts to state that a teacher must retire at the end of the term in which s/he reached the age of 60. Since October 2006, however, it has been unlawful to require employees to retire before age 65, unless there is objective justification for a lower age. To be eligible to receive your pension benefits, you must have completed: two years pensionable service undertaken after 5 April 1988; or if you were in pensionable service on 6 April 1988, a total of two years pensionable service; or a total of five years pensionable service undertaken at any time. Please note, part-time service counts at its full-time equivalent for the purposes of qualifying for pension benefits but counts only on a pro rata basis in the actual calculation of benefits. Pension factsheet 12 1

2 Retirement before NPA Unless you are awarded ill-health retirement or premature retirement compensation, or unless you claim actuarially reduced benefits (for more details please refer to factsheets 4, 6 and 16), pension benefits are not payable before your NPA. Pensionable service A record of your pensionable service (previously known as reckonable service) in the TPS is compiled throughout your teaching career by Teachers Pensions from annual returns submitted by your employer. It is therefore important that you keep all your pay slips in case there is any dispute as to your pensionable service when you eventually retire. Errors made when recording service are the exception rather than the rule though, and mistakes can normally be rectified if you can produce your pay slips as evidence. You should, as a matter of course, check your annual benefit statements from Teachers Pensions; this is particularly important if you work on a part-time basis. Pension benefits are based on your total pensionable service in years and days, so it is not necessary to have accumulated complete years of service. Service that is pensionable The following constitute pensionable service. Full-time teaching/lecturing in: a school maintained by a local authority (LA) a city technology college an institution providing further or higher education which is in receipt of grants made by the Secretary of State (all colleges maintained by LAs up to 31 March 1993 automatically continued to participate in the TPS after incorporation) a university that was formerly a polytechnic an independent school or further education establishment that has been accepted into the TPS a former employment in an Education Action Zone service on a GTP course may be pensionable if your employer regards you as an employed teacher and records you as such on the annual return of information to Teachers Pensions. Part-time/supply teaching: in any of the above will also be pensionable service if your contract started on or after 1 January If your contract started before that date, your service will be pensionable only if you have opted to pay contributions (see factsheet 9 for more information). See below for details on how part-time service is calculated. Time spent on maternity leave: provided you were in receipt of a salary or statutory maternity pay. Service transferred into the TPS from another pension scheme: you must apply for a transfer within 12 months of entering pensionable service unless you are transferring service from another TPS applicable in the British Isles (see factsheet 1 for more information). Past added years: these are additional years of service, which have been purchased at full cost (withdrawn with effect from 1 January 2007). Current added years: these are periods during which employee and employer pension contributions were paid direct to Teachers Pensions, throughout a teacher s/lecturer s absence from pensionable service (withdrawn with effect from 1 January 2007). Reinstated service: this is service where contributions were withdrawn before 1 June 1973 but subsequently repaid (see factsheet 14 for more information). Service in another teachers pension scheme in the British Isles: provided this service is transferred to the scheme you are in at the time of your Pension factsheet 12 2

3 retirement. Transfer does not take place automatically so it will be necessary for you to apply to Teachers Pensions. While this service can be transferred into the TPS at any time during your career (unlike other occupational pension schemes), it is preferable for you to apply for the transfer well in advance of retirement in order to avoid lengthy processing times. Additional credit (England and Wales only): teachers and lecturers in England and Wales overpaid pension contributions by 0.75% from 1 December 1973 to 31 March Instead of receiving a refund they were credited with an additional two days service for each complete month of overpayment. Therefore, teachers and lecturers who overpaid contributions for the full four months have been credited with an additional eight days service. Pensionable part-time service is credited on a pro rata basis by comparing the salary that has been received with the full-time equivalent salary for the post using the following formula: Salary earned x 365 = service credit Full-time equivalent salary Pensionable supply work is credited on the same basis. This method of crediting service means that a teacher/lecturer receives a greater service credit than the number of days actually worked. If you are an irregular (i.e. supply) teacher you need to work for 195 days to accrue one year of pensionable service. All service on which you pay pension contributions will be added to your total of reckonable service. Supply organised through an agency is not pensionable. Example: A teacher works for 25 days at a rate of per day and earns a total of 3, Her service credit is calculated as follows: 3,681 x 365 = 47 days 28,707 Service that is not pensionable The following do not count as pensionable service: periods of maternity leave during which no salary or statutory maternity pay is received work undertaken via a supply agency periods for which incremental credit is awarded (unremunerated experience/ employment outside of teaching, for example). Increments may be awarded for salary purposes but not for pension purposes periods of training, unless you were in receipt of full pay from your employer pensionable service in any other occupational pension scheme, unless it has been transferred to the TPS any further service after 45 years pensionable service have been completed. Statements of service You will receive a statement of your pension benefits from Teachers Pensions each year based on information held on your service record. This will include all service up to 31 March of that year. It is important that you check that the service you think you have worked is reflected on this statement. If you think there is service missing please contact your employer in the first instance to ensure that the information has been passed to Teachers Pensions. Please note, if you have accessed your pension information online, you will not automatically receive a hard copy of the annual statement. Contact Teachers Pensions if you would like a hard copy. If you have taught in the independent sector you should be aware that in the past some independent schools did not participate in the main TPS but were in the admitted schools scheme. Service in admitted schools does not count in the calculation of TPS benefits in the same way as other service, so members with service in such schools should contact ATL for advice. Pension factsheet 12 3

4 ATL recommends that you retain copies of your pay slips and your annual pension statements in case there is a query with your service at a later date. New entrants from 1 January 2007 The pension benefits of new entrants from 1 January 2007 will differ in two important respects from those of staff in post as at 31 December 2006: NPA will be 65 not 60. This does not mean that staff will have to continue to work until age 65, but if they choose to retire before that date, other than on grounds of ill-health (see factsheet 4) or premature retirement compensation terms (see factsheet 6), then their pension will be actuarially reduced (see factsheet 16) pension will accrue at 1/60th of salary, rather than 1/80th, with no automatic lump sum (see below). Who counts as a new entrant? Anyone who takes up their first pensionable employment in the TPS on or after 1 January 2007 will count as a new entrant. Anyone who has previously worked as a teacher/lecturer but who does not have a preserved pension in the TPS (e.g. because they worked part-time and did not choose to pay contributions, or because they have transferred the service out into another scheme) and takes up new pensionable employment within the TPS on or after 1 January Anyone who returns to teaching/lecturing on or after 1 January 2008, after a break in service of more than five years (however, the previous period of service would retain a NPA of 60). Members who were in post as at 31 December 2006 CANNOT opt to be treated as new entrants. Transitional arrangements: leavers before 1 January 2007 Transitional arrangements will apply to members who left service before 1 January 2007 with a preserved pension in the TPS and return to service after that date: anyone who returns to service before 1 January 2008 will not count as a new entrant, they will retain a NPA of 60 regardless of the length of their break in service anyone who returns on or after 1 January 2008 after a break of less than five years must work for a minimum period in order to retain the right to a NPA of 60 after any further break in service (see below). Please note, anyone who rejoins on or after 1 January 2007 who does not have a preserved pension in the scheme will count as a new joiner and these transitional arrangements will not apply. Retaining the right to a NPA of 60 The minimum period of further service referred to above is 30 days reckonable service or 60 days pensionable employment within any rolling period of 365 days (i.e. the equivalent of being employed part-time for 60 days at 50%). Anyone who returns to service after a break of less than five years and works this period will retain a NPA of 60 in respect of their future service. For those members who do not attain a minimum period of 60 days pensionable employment or 30 days reckonable service in a rolling period of 365 days during the five-year period, a relevant break of service (disqualifying break) will occur and service accruing after the break will have a NPA of 65 (see below on mixed service ). For example, if a teacher with service prior to 1 January 2007 leaves pensionable employment on 31 March 2009, and subsequently was in pensionable employment for less than 60 days or accrued less than 30 days reckonable service in any 365-day rolling period, then from 2 April 2014 all future service 2 April 2014 would have a NPA of 60. A further five-year limit will begin at the end of each period of employment where there has been no relevant break of service (disqualifying break) and consequently the teacher/lecturer could return to pensionable employment again and retain a NPA of 60, provided they meet the conditions above. Pension factsheet 12 4

5 Members with periods of service before and after 1 January 2007 ( mixed service ) Anyone who returns to service after 1 January 2007 after a break of more than five years (i.e. those who are not covered by the transitional terms above) will have a NPA of 65 for their new period of service, but retain a NPA of 60 for their previous service. Their pension will therefore be calculated in two tranches: their future service will have a NPA of 65 (and accrual of pension at a rate of 1/60ths for each year of service with no automatic lump sum), but their previous service will retain a NPA of 60 (with 1/80ths accrual for each year of service and an automatic lump sum of three times the member s pension). Average salary Average salary is the salary used to calculate your pension. For those who retire or leave service after 31 December 2008 average salary will be the better of: pensionable salary in the 12 months before leaving; or the average pensionable salary of the best three consecutive years in the last 10 years before leaving, revalued in line with the Consumer Price Index (CPI). For those who were in service as at 31 December 2006 and retire or leave service on or before 31 December 2008 it will be the better of: pensionable salary in the 12 months before leaving; or the average pensionable salary of the best three consecutive years in the last 10 years before leaving, revalued in line with the CPI; or your pensionable salary over the best consecutive 365 days of pensionable service in the final three years before you leave teaching/lecturing. For those who left service before 31 December 2006 it will be: your pensionable salary over the best consecutive 365 days of pensionable service in the final three years before you left teaching/lecturing. Please note, average salary is calculated on a daily, not monthly, basis as shown in the following example of a full-time teacher who retired on 31 December 2006 on a salary of 33, January 2006 to 31 August 2006 = 243 days at 32,628 1 September 2006 to 31 December 2006 = 122 days at 33,444 Average salary = 32, Regular part-time or supply contracts If you are in regular part-time employment your average salary is calculated not on the salary that you are actually earning, but on the salary that you would have received had you been employed on a full-time basis. Irregular part-time or supply contracts If you are employed on an irregular, part-time or supply basis, your average salary will be calculated differently. It will still be based on your full-time equivalent salary but you will be regarded as having had days without pay. Therefore, it is necessary to refer back to a period longer than one year in order to obtain your average salary over 365 days of pensionable service. Consequently, it would be to your advantage to work as many hours as possible in the period preceding your retirement. Example: The following example is of a supply teacher who retired on 31 August From To Service Full-time credit salary 1 Apr Aug ,628 1 Apr Mar ,391 1 Apr Mar ,602 1 Dec Mar ,831 1 Apr Nov ,831 Average salary = 31, Excessive salary increases From the 2 September 2010, the new TPS Regulations classify an excessive increase as Pension factsheet 12 5

6 one that is more than 10% or 5,000 year on year, regardless of the reason. This is a change from provisions that excluded a standard increase or posts that were advertised nationally from this calculation. These restricted salary provisions will apply if an excessive increase in salary took place in the final three years of service and if that increase resulted in a person s final year being the average salary used to calculate the pension. Example: A teacher receives a 13% increase in salary in his penultimate year and the final year s salary is the most advantageous average salary calculation. His increase in the penultimate year is restricted to the higher of 10% and 5,000 (the 5,000 will be index-linked each year). The facility for an employer to pay an additional contribution to effectively allow a restricted salary to be used in the calculation of pension benefits has been removed. An employer has the facility, should they wish to do so, to purchase additional pension by lump sum within six months of the member leaving pensionable employment. The only circumstances in which these provisions do not apply are when a teacher/ lecturer dies or retires on the grounds of ill-health. The excessive salary provisions do not apply in Northern Ireland but they do apply in Scotland. Calculation of pension: staff in post at 31 December 2006 (NPA of 60) Each year of your pensionable service provides you with a pension equivalent to 1/80th of your average salary. Your pension (which is taxable) is calculated as follows: Pensionable service x average salary 80 Calculation of lump sum Upon retirement, you will receive a tax-free lump sum of 3/80ths of your average salary. Therefore, your lump sum will be three times your annual pension. Your lump sum is calculated as follows: Pensionable service x 3 x average salary 80 Example: (All figures rounded to the nearest ) A teacher retired on 31 August 2007 having taught continuously since 1 September His pensionable service and pension benefits are calculated as follows: years days 1 Sept Aug Additional credit* His pension is: x 29,408 = 12, His lump sum is: x 3 x 29,408 = 37, *See above section, Pensionable service: additional credit. Additional lump sum A bigger lump sum can be taken by commuting (i.e. giving up) part of your pension. The commutation rate is 12, i.e. for each 1 of pension given up you will receive 12 of lump sum. The biggest lump sum that can be taken is 25% of the total value of your pension benefit in the TPS, which is calculated as follows: (Pension x 20) + (lump sum x 20/12) For example, using the figures above: Maximum lump sum = (12,506 x 20) + (37,517 x 20/12) = 66, To obtain the additional lump sum (66,996-37,517 = 29,479), using the commutation rate of 12, 2,457 of pension must be given up. So the teacher s options are: a lump sum of 37,517 plus an annual pension of 12,506; or a lump sum of 66,996 plus an annual pension of 10,049; or Pension factsheet 12 6

7 a lump sum of any amount between 37,517 and 66,996, plus an annual pension of between 12,506 and 10,049. Please note, it is not possible to exchange the standard 3/80 lump sum for additional pension. The following website enables you to work through a tax-free lump sum model: Calculation of pension: new entrants from 1 January 2007 (NPA of 65) Each year of your pensionable service provides you with a pension equivalent to 1/60th of your average salary. Your pension (which is taxable) is calculated as follows: Pensionable service x average salary 60 There is no separate lump sum but you may take a lump sum of up to 25% of the total value of your pension benefit in the TPS by commuting (giving up) part of your pension. The commutation rate is 12, i.e. for each 1 of pension given up you get 12 of lump sum. The formula for calculating the maximum lump sum is: Pension x Using the same salary and service figures as in the example above: Pension = x 29,408 = 16, Maximum lump sum = 71,460; to get the maximum lump sum the member must commute 5,955 of pension. So the teacher s options are: no lump sum and an annual pension of 16,674; or a lump sum of 71,460 and an annual pension of 10,719; a lump sum of any amount up to 71,460 plus an annual pension of between 10,719 and 16,674. The following website enables you to work through a tax-free lump sum model: Additional pension If you have been buying additional pension (see factsheet 1) then any such pension that you have paid for at the time of your retirement will be added to your pension and treated as part of your pension for the purpose of calculating the maximum lump sum. For example, using the same figures above, if the teacher had bought 500 of additional pension, his standard pension would be 13,006 and the lump sum 37,517. The maximum lump sum he could take would be: (13,006 x 20) + (37,517 x 20/12) = 69, In order to take the maximum lump sum he would have to commute 2,635 of pension, giving an annual pension of 10,371. Investment of lump sums ATL is unable to provide advice about the investment of retirement lump sums. Claiming benefits Pension benefits are not paid automatically. If you teach in England and Wales, ensure that your benefits are paid as soon as you retire by completing Form AGE APP (available from your employer) and returning it four months before your anticipated date of retirement. This is particularly important if you are retiring at the end of the summer term as the majority of applications are processed at this time. If you teach in Northern Ireland, complete Form TP4, available from your employer or the Department of Education in Northern Ireland. If you teach in Scotland, complete form RET1, available from the Scottish Public Pensions Agency. Please note, if you have any break in service following your reaching NPA, your pension benefits become payable automatically. If you do not claim them, arrears of your benefits at NPA, plus interest, will be paid when you do, and your new employment will be treated separately. Pension factsheet 12 7

8 The complete range of pension factsheets in this series: 1. Improving your pension prospects 2. Survivors benefits 3. Leaving teaching or lecturing but not retiring? 4. Ill-health retirement 5. Early retirement and the state pension 6. Premature retirement compensation 7. Re-employment after retirement 8. National insurance modification 9. Part-time and supply teaching and part-time lecturing 10. Guaranteed minimum pensions 11. Don t gamble with your pension 12. Calculation of pension benefits 13. Pensions increases 14. Repayment of withdrawn pension contributions 15. Taking a drop in salary 16. Actuarially reduced benefits and phased retirement 17. Approaching retirement Need advice? ATL s pensions team is available on , info@atl.org.uk or write to 7 Northumberland Street, London WC2N 5RD. Don t forget you can also get lots of help and advice, as well as download copies of other ATL advice sheets, from our website at To contact Teachers Pensions Teachers Pensions, Capita Hartshead, Mowden Hall, Darlington, DL3 9EE Website: tpmail@capita.co.uk Telephone: (BT local call rate number) or (standard national rate number) Minicom: Fax: To contact Teachers Pensions in Northern Ireland Department of Education, Teachers Pensions Branch, Waterside House, 75 Duke Street, Londonderry, BT47 6FP Website: teachers.pensions@deni.gov.uk Telephone: Fax: To contact Teachers Pensions in Scotland Scottish Public Pensions Agency, 7 Tweedside Park, Tweedbank, Galashiels, TD1 3TE Website: Telephone: Fax: The information in this factsheet does not override the statutory provisions of the TPS in England and Wales, or the teachers pension scheme in Northern Ireland or the Scottish Teachers Superannuation Scheme. Although this factsheet is intended to be accurate, ATL cannot be held liable for any loss or damage arising from errors or omissions. Members should always refer to the official scheme documentation. Association of Teachers and Lecturers All rights reserved. Information in this factsheet may be reproduced or quoted with proper acknowledgement to the Association. Product code PEP12 Pension factsheet 12 8