FACTSHEET What is early retirement? 2. Normal pension age. 3. Do benefits have to be collected immediately on leaving teaching?

Transcription

1 1. What is early retirement? Previously known as Actuarially Adjusted or Reduced Benefits, Early Retirement enables a member of the Teachers Pension Scheme (TPS) to collect their retirement benefits before reaching their Normal Pension Age (NPA) (see section 2). Benefits will be subject to reduction to account for the early collection. The reduction factor (see section 10) that will be applied will relate to the individual s age (years and complete months) at collection of benefits not the age when they left teaching. For example, a teacher who left teaching at age 55 chose not to collect benefits until age 58 years 4 months. The reduction factor applied would relate to age 58 years and 4 months. Early Retirement is entirely voluntary. Although it is not within the gift of the employer, please have regard to the employer s consent (section 5). Early Retirement must not to be confused with Premature Retirement under which the employer would formally grant early payment of benefits and, in so doing, would share the cost of those benefits. There are no costs incurred by the employer under Early Retirement. 2. Normal pension age (a) Final Salary Schemes (Pre-2007 TPS: 80 ths scheme) If you were in pensionable service prior to 1 January 2007 and contributing to TPS E&W, or if you joined NITPS prior to 1 April 2007, your NPA will be age 60. (Post-2007 TPS: 60 ths scheme) If you entered pensionable service under TPS E&W for the first time on or after 1 January 2007, or 1 April 2007 if a member of NITPS, but before 1 April 2015, your NPA is age 65. (b) Career Average Scheme: 2015 TPS If you first entered the 2015 career average TPS (England & Wales or Northern Ireland), on or after 1 April 2015 your NPA will equate to your State Pension Age. This could be age 65, 66, 67 or 68 (visit for confirmation of your State Pension Age). If you collected all your benefits under either or both of the final salary schemes and have re-entered pensionable teaching since 1 April 2015 all subsequent service will be under the 2015 TPS and benefits payable will relate to the NPA for the 2015 TPS. If you collected benefits and re-entered teaching after 1 April 2012 from 1 April 2015 your NPA for any benefits accrued since 2015 will relate to the NPA applicable to the 2015 TPS. Any service accrued between 1 April 2012 and 31 March 2015 will relate to your previous final salary scheme. A return to pensionable service after 1 April 2015 following a gap of more than 5 years is likely to result in you falling into more than one of the above categories. For clarification go online at or contact the Specialist Advice Team at NAHT. 3. Do benefits have to be collected immediately on leaving teaching? No. It is entirely the choice of the individual when benefits are collected. You can defer collection to any point but they will become payable at NPA if the individual is out of pensionable teaching employment. If you do defer collection until you attain your NPA there will be no reduction. Collection at NPA will be deemed to be Age Retirement see NAHT Pension Factsheet Age Retirement. It is important to note that you must have a break of at least one day for benefits to be paid. For further information on re-employment see Section 15 and NAHT factsheet Re-employment: following collection of teachers pension. (October) Page 1 of 7

2 4. Application criteria To be eligible you must be aged 55 or over, but under your NPA at the time benefits are drawn. Furthermore, you must not be in receipt of either ill health or premature retirement benefits. (a) Final Salary Schemes (pre-2007 TPS: 80 ths scheme and post-2007 TPS: 60 ths scheme) Members of the pre-2007 TPS who entered the Scheme on or before 31 December 2006 must be aged 55 or over but under age 60; must have been in pensionable teaching employment on or after 30 March Members who joined the 2007 TPS on or after 1 January 2007 (TPS for England and Wales) or 1 April 2007 (Northern Ireland TPS) must be aged 55 or over but under age 65; must have been in pensionable teaching employment on or after 1 January (b) Career average scheme (2015 TPS) Members who are contributing to 2015 TPS (England and Wales or Northern Ireland) must be aged 55 or over but under their NPA. The NPA under the 2015 TPS will be between ages 65 and 68 and will mirror exactly the day on which your state retirement pension becomes due. Where a member has credit in one or both of the final salary schemes as well as benefits accrued under the 2015 TPS all benefits must be collected at the same time. Example 1 A member accrued benefits under the pre-2007 TPS as well as benefits under the 2015 TPS. The member must collect both pots if they choose to leave before age 60: their NPA under the 2007 TPS. If, however, they chose to defer collection of pre-2007 benefits until age 60 (Age Retirement) they can opt to defer collection of their 2015 TPS benefits. Such deferral can be to any point prior to, or at, their NPA applicable for that scheme. Example 2 A member accrued benefits under both the pre-2007 TPS and the 2015 TPS. The respective NPAs for the two schemes were 60 and 67. The member decided to leave at age 60 and collect benefits accrued under the pre-2007 TPS as there was no reduction, but opted not to collect benefits under the 2015 TPS because had they done so it would have meant a reduction of around 29%. 5. Employer consent In service If you are still in pensionable service when you apply for benefits the employer s consent should be gained before that application is submitted. Although your contractual resignation dates must be taken in to account, you are required to inform employer of your intention to take Early Retirement. That notification must be given at least 6 months before your intended date of leaving. Your employer cannot, however, withhold their consent for longer than 6 months from the date on which you gave notification. Thus, it is wise to plan and act well ahead to avoid any inconvenience should your employer exceptionally withhold consent. Out of service You do not have to gain any consent from your previous employer. That said it is advisable to have regard to the payment provisions (Section 12). 6. Resignation dates If you are still in employment, you must submit your resignation to your employer in accordance with your contract of employment, but have regard to the conditions relating to employer consent (see section 5). (October) Page 2 of 7

3 7. Benefits (a) Members of the pre-2007 TPS (80 ths scheme) will be entitled to: a retirement lump sum, and an annual pension, which will be index-linked, but subject to income tax. (b) Members of the post 2007 TPS (60 ths scheme) will be entitled to: an annual pension, which will be index-linked, but subject to income tax. There is no provision for an automatic retirement lump sum, but an individual can opt to convert some of the annual pension to a lump sum. Benefits under the above final salary schemes will be based on the average salary (Section 8) and accrued, transferred-in or bought-in service. (c) Members of the 2015 TPS (career average scheme) will be entitled to: an annual pension, which will be index-linked, but subject to income tax. There is no provision for an automatic retirement lump sum, but an individual can opt to convert some of the annual pension to a lump sum At the end of each scheme year (31 March), an individual will accrue a pension based on the gross pensionable earnings that they were paid from the previous 1 April. Benefits deposited in the pension account will be subject to annual revaluation based on the Consumer Price Index at the previous September plus 1.6%. Service is not taken in to account. The 2015 TPS is based solely on earnings as per the calculation below: Gross earnings 1 April to 31 March = accrued pension Average salary (a) Final Salary Schemes The average salary is the salary on which benefits will be assessed. Final benefits under the final salary schemes will be calculated and paid on the greater of: the full-time equivalent salary paid over the last 365 days of average salary service ( Average salary service is service on which pension contributions have been paid. It is more often referred to as pensionable service), or the average of the best 1095 (3 years) consecutive days re-valued (in line with Consumer Price Index (CPI)) salaries, again fulltime equivalent salaries, within the last the 10 years of average salary service. The 10 year period ending on the last day of average salary service. Where benefits are assessed on the last 365 days the salary used to calculate those benefits may be restricted if you have received an increase of more than 10% or 5,800 (as at April 2016) (up-rated each April), whichever is the greater, in any of the last three years of average salary service. Where the limit has been exceeded the salary used in the calculation of benefits may be subject to restriction. For further advice please contact the Specialist Advice Team at NAHT providing the adviser with details of your salaries over the four years prior to collection of benefits. (b) Career Average Schemes The average salary does not apply to the career average schemes. 9. Conversion of annual pension for lump sum If you have undertaken pensionable teaching employment since 1 January 2007 you can convert some of your Annual Pension to provide for an additional Lump Sum. The conversion ratio is 1:12: for every 1 of Annual Pension that an individual converts there will be an additional Lump Sum of 12. However, there is a maximum that may be converted details of which can be found on the TP website. Any such conversion will be a permanent reduction in the Annual Pension (the lifetime income). The decision to convert, or not, is an individual decision that you must make prior to submitting an application for benefits. Once the application form has been submitted only in very exceptional circumstances can a decision be revised or reversed. Thus, although the final decision rests with you, if you are in any doubt about whether or not to convert, or how much to convert, you are strongly advised to seek proper financial advice. (see section 18). (October) Page 3 of 7

4 10. Reduction factors The reduction factor to be applied to both the Annual Pension and any Lump Sum relate to an individual s normal pension age and their age in years and complete months at the time they draw their benefits. The reduction factors that have applied since 2015 are set out below. Final Salary Schemes Normal pension age of 60 (pre-2007 TPS) Completed Months % % % % % % % % % % % % Normal Pension Age of 65 (post-2007 TPS) Age Completed Months % % % % % % % % % % % % Career average Scheme Normal Pension Age of 65, 66, 67 or 68 (2015 TPS) The 2015 TPS incorporates normal pension ages from 65 to 68. Those members of the 2015 TPS whose normal pension age falls within this range will suffer additional loss of 3% per annum for each year post age 65. For example, a 2015 TPS member whose normal pension age is 67 chooses to collect their benefits early at age 62 will suffer a loss of 14.7% + (2 x 3%): 20.7% Note: your pension will NOT revert to its full level when you attain Normal Pension Age. The reduction in pension is permanent. 11. Application for benefits Having gained the employer s consent your application for benefits should be submitted: England and Wales apply online at via My Pension Online Northern Ireland download and complete form TP4 (Application for retirement benefits) from the Department s website: (October) Page 4 of 7

5 12. Payment of benefits In-service applications: Your benefits will be paid in to your bank or building society account as per the instructions you provided via your application form. The lump sum is due on the date immediately following your last day of service i.e. your first day of retirement. The annual pension is paid monthly in arrears on the day before the monthly anniversary of your birthday, but the first month s payment will be a part month payment. For example, a member who left on 31 August and who was born on the 15th will receive their pension on the 14th of each month. The first month will be for 14 days worth of pension: 1 to 14 September. The full monthly payments will commence on 14 October. Out-of-service applications: Out-of-service applications are processed and paid similar to an in-service application except when submitting an application the member must select a date from which benefits are paid. That date cannot be earlier than 6 weeks after the date of the application is certified. For example, if your application was dated 26 April payment will not commence until 6 weeks has elapsed: 7 June. There will be no backdating; benefits will be paid from 7 June. For further guidance please refer to the notes attached to the relevant application form. 13. Pension increases Teachers pensions are increased annually each April based on the Consumer Prices Index as at the end of the previous September. For example, the CPI rate at end September 2014 was 1.2% which was the rate applied to teachers pension in April During the first year that your pension is in payment, the increase will be proportionate to the number of months that you have been receiving your pension, e.g. if you retired on 31 August would receive only 7/12 ths of the full increase the following April. In successive years the full increase will be applied subject, of course, to any Government intervention. 14. Family benefits The reduction applied under Early Retirement will have no effect on the level of benefits payable to your spouse/dependants. Only your benefits will be subject to reduction. Similarly, there will be no effect on dependants benefits if you convert some of your pension for a lump sum or additional lump sum (Section 9). 15. Re-employment If you are contemplating returning to teaching after collecting your benefits you must understand that you must have a minimum break in employment of at least one day. Without such break your benefits cannot be paid. Furthermore, any return to teaching should be on a completely different contract and must have been preceded by a cessation in your previous employment. If you are re-employed having previously collected your retirement benefits you MUST inform the scheme administrator of any re-employment. It is not the responsibility of your new, existing or former employer the responsibility lies solely with you. Generally, employment outside the scope of the Teachers Pension Schemes will have no effect on the continuance of your teacher s pension. However, you are strongly advised to inform your scheme administrator before, or as soon as you commence any re-employment, of details of your new employment. This should reduce the risk of an overpayment of pension occurring. For more in depth information on re-employment please refer to NAHT Factsheet: Re-employment following collection of teachers pension. 16. Annual earning limit Returning to teaching after collecting Early Retirement benefits will have no effect on the teachers pension that you are receiving. Unlike Age Retirement, you will not be subject to the Annual Earnings Limit. This is irrespective of whether or not you choose to re-join the Teachers Pension Scheme. (October) Page 5 of 7

6 17. Example calculations Final salary schemes Assumptions (for both examples) Collection of benefits at Age 56y 8m at Average Salary: Service at : 32 years 211 days (a) Benefits payable (80 ths scheme: pre-2007 TPS NPA 60) Lump Sum /365 (service) x 3/80 x (average salary) = 71,249.74* less 14.2% (actuarial reduction) = 61, Annual Pension /365 (service) x 1/80 x (average salary) = 23,749.92* less 14.2% (actuarial reduction) = 20, * These are the benefits accrued as at They would be payable, unreduced, at age 60 if the member left teaching on ; did no further teaching and opted to collect benefits on attaining age 60. However, in this example, the member chose to collect benefits at age 58y 8m prior to the member s NPA - therefore, benefits have been reduced to account for the early collection. Although there is an automatic lump sum, in this example the member chose to convert some of the annual pension to provide extra cash on the ratio of 1 (pension given up) for 12 (extra cash) (see section 9). Using the above estimates an illustration of how the maximum conversion would be calculated is detailed below. 20, (annual pension) x 33 = 48, (Additional maximum Lump Sum) 14 48, (Additional lump sum) = 4, (Reduction in Annual Pension) 12 Following maximum conversion the revised benefits payable are estimated at: Total of Lump Sums 61, (automatic) + 48, (additional) = 109, Annual Pension 20, , = 16, Alternatively, the member could have chosen not to convert any pension or, opted for any amount from zero to the maximum. (b) Benefits payable (60 ths scheme: post-2007 TPS - NPA 65) Annual Pension /365 (service) x 1/60 x (average salary) = 31, less 34.6% (actuarial reduction) = 20, There is no automatic lump sum under post-2007 TPS but there is an option to convert some of the pension to cash on a ratio of 1 (pension given up) to 12 (extra cash) (see section 9) If the member opted for the maximum possible conversion benefits would be revised as below: Lump Sum 20, (Annual Pension) x 30 = 88, Annual Pension 88, (Additional Lump Sum) = 7, (reduction in pension) 12 20, minus 7, = 13, (reduced annual pension) (October) Page 6 of 7

7 18. Useful contacts and websites Specialist Advice at NAHT Specialist Advice Team 1 Heath Square Boltro Road Haywards Heath West Sussex RH16 1BL Tel: (option 1) specialistadvice@naht.org.uk Website: Financial advice provided by Skipton Building Society NAHT Personal Financial Services PO BOX 101 The Bailey Skipton North Yorkshire BD23 1XT Tel: , quoting factsheet naht@skipton.co.uk Website: Teachers Pension Scheme (England & Wales) Teachers Pensions 11b Lingfi eld Point Darlington Co Durham DL1 9AX Website: Teachers Pension Scheme (Northern Ireland) Department of Education Teachers Pensions Branch Waterside House, 75 Duke Street Londonderry BT47 6FP Tel: Tel: Website: (search for Teaching staff ) Income Tax HMRC Taxpayers Helpline Tel: Prudential Teachers AVC arrangement Tel: Website: Enables you to assess your probably income salary and / or pension Guidance on national insurance and state pensions, including the new state pension Disclaimer Produced by National Association of Head Teachers (NAHT) (May 2016). Information and Guidance given in this factsheet has been produced by the NAHT and is designed to inform and assist members. Any difference between the legislation governing the Teachers Pension Scheme and the information in this factsheet, the legislation will apply. Skipton Building Society has not reviewed this document and is not responsible for the content. (October) Page 7 of 7