Pensions advice. Premature retirement compensation. Pension factsheet 6 1

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1 Pensions advice Premature retirement compensation 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. If your employment is terminated on the grounds of redundancy or in the efficient discharge of the employer s function it is possible for your employer to grant you premature retirement. The Premature Retirement Compensation (PRC) scheme allows employers to award teachers/lecturers who have reached the minimum pension age (see below) immediate payment of their accrued pension benefits from the TPS. This is if their employment has been terminated: on the grounds of redundancy; or in the efficient discharge of the employer s functions. Please note that teachers/lecturers employed on fixed-term contracts are not eligible to receive PRC at the end of their contract. The PRC scheme also enables employers to pay teachers/lecturers additional pension benefits by enhancing service (i.e. crediting the person with extra years of service). The use of the scheme, and the level of the enhancement awarded (if any), is at the discretion of individual employers. It should be noted that you do NOT have an automatic right to retire under this scheme. Minimum pension age From 1 April 2010, the minimum pension age (the lowest age at which you can draw pension benefit) is 55 for everybody. Please note: all staff who have a normal pension age (NPA) of 65, the MPA is 55. However, some staff with a NPA of 60 (i.e. those who joined between 1 April and 31 December 2006) also currently have a MPA of 55. The MPA will become 55 for all staff on 1 April Accrued benefits and mandatory compensation For the vast majority of teachers/lecturers, the minimum qualifying period for receiving accrued pension benefits is two years. The pension benefits comprise an annual pension (which is taxed in the usual way) and a lump sum (which is tax-free). Staff who joined the scheme after Pension factsheet 6 1

2 1 January 2007 do not automatically receive a lump sum but may choose to do so by commuting part of their pension (see factsheet 12 for further information). Both full-time and part-time teachers/lecturers who are not contributing to the TPS but who have completed sufficient service to qualify for pension benefits are eligible to be awarded PRC. Accrued benefits are a pension and lump sum (see above) based on service to the date of retirement. In England, Scotland and Wales the employer has to bear part of the cost of paying the accrued pension benefits if you are awarded PRC under the age of 60. This is known as mandatory compensation. The balance is paid by Teachers Pensions. The proportion that will be paid by Teachers Pensions and your employer will depend upon your age: the younger you are the higher the proportion that will be paid by the employer. Mandatory compensation has to be paid in addition to any costs arising from your employer awarding you enhancement (see the section below, entitled Enhancement). The employer has to pay mandatory pension compensation for as long as the teacher lives. Example: A 50 year-old teacher with 25 years service and an average salary of 32,253 is awarded PRC. Her accrued pension is 10, and her accrued lump sum is 30, Teachers Pensions will only pay 61.7% of her pension and lump sum; the balance of 3, per annum and a lump sum of 11, will have to be paid by her employer. In view of the fact that employers now have to pay mandatory compensation, it is usual for employers to give preference to older teachers/lecturers when awarding PRC. The costs that employers have to pay are the same as the reductions in pension and lump sum that teachers/lecturers suffer if they take actuarially reduced pension benefits. For more information please refer to factsheet 16. Example: A 55 year-old teacher with 25 years service and an average salary of 32,253 is awarded PRC. His accrued pension is 10, and his accrued lump sum is 30, Teachers Pensions will only pay 77.3% of his pension and lump sum; the balance of 2, per annum and a lump sum of 6, will have to be paid by his employer. Enhancement Although you can be awarded PRC if you have completed only two years qualifying service, to be eligible for enhancement you must have completed five years qualifying service. For full details of the qualifying periods please refer to factsheet 12. If you are awarded enhancement you will receive an additional pension and lump sum from your employer, calculated in the usual way. The maximum enhancement an employer can award is the shortest of the following periods: 10 years a period equal to your total reckonable service a period which, when added to your reckonable service, gives you 40 years service a period equal to the service that you could have completed had you remained in teaching until the age of 65. Employers are under no obligation to award the maximum enhancement. Since they have had to pay mandatory compensation, offers of enhancement have generally been much lower than before; in many cases employers do not award any enhancement at all. It is usual for local authorities (LAs) to review their arrangements for premature retirement annually, so levels of enhancement may vary from year to year. Generally, levels of enhancement have been reducing in recent years. Your branch secretary will normally have details of your authority's current practice. Pension factsheet 6 2

3 If you receive (or will be receiving) an occupational pension from a scheme other than the TPS, you should contact ATL for advice, as this may affect the level of enhancement that can be awarded. The efficient discharge of the employer s functions If a teacher s/lecturer s employment is terminated in the efficient discharge of the employer s functions, this is not intended as a reflection on the quality of the individual teacher s/lecturer s work. This action is taken by employers in a wide variety of circumstances when a teacher s/lecturer s early retirement would be helpful, for example, to help the school or college cope with changing curriculum needs. In the past, employers would occasionally have been prepared to use the scheme to assist a teacher/lecturer suffering from ill-health which was not severe enough to warrant the award of ill-health retirement. They may even have used it to help a teacher/lecturer with difficult personal or domestic circumstances. This is becoming increasingly uncommon. In the case of the former, it is now usually necessary for a teacher/lecturer to have applied unsuccessfully for ill-health retirement for this course of action to be considered. Frequently, employers offer lower levels of enhancement (or no enhancement) when the scheme is used in the efficient discharge of the employer s functions. Redundancy Teachers/lecturers who are made redundant over the age of 50 are not automatically entitled to immediate payment of their pension benefits in addition to a redundancy payment. Employers normally seek volunteers for redundancy in the first instance. If you are considering volunteering for redundancy, you should find out if you will be offered PRC before taking any irrevocable action. Any member who is threatened with redundancy should contact ATL s London office for advice. For further information on redundancy please refer to the appropriate ATL publication, Redundancy. Enhancement awards for redundancy tend to be more generous than those awarded in relation to the efficient discharge of the employer s functions. However, if you receive enhancement of service in excess of six and two-thirds years, in addition to a redundancy payment, the PRC regulations stipulate that the enhancement lump sum must be reduced by 30% of the redundancy payment for each added year in excess of six and two-thirds. If this abatement (reduction) is more than the enhancement lump sum, the enhancement pension is reduced (in accordance with tables produced by the government Actuary s Department), for as long as it remains in payment. These abatement provisions are in line with government policy on the maximum compensation that public servants may receive for loss of office. In view of the abatement provisions, employers may offer teachers/lecturers the option of receiving either maximum enhancement with the subsequent abatement, or enhancement restricted to six and two-thirds years with no abatement. The decision is entirely up to the individual concerned. The former option provides a larger continuing pension, whereas the latter gives a greater lump sum. It should be borne in mind that the larger continuing pension is inflation-proofed and provides a more generous contingent survivor s pension. Please note: teachers/lecturers who have accepted premature retirement in the efficient discharge of the employer s functions, and who are not replaced, cannot subsequently claim a redundancy payment. Applications for premature retirement If you are considering premature retirement you should, in the first instance, discuss the position with your headteacher/principal as her/his view will invariably be sought by your employer when the application is considered. The headteacher/principal may also be able to identify ways in which the school/college could Pension factsheet 6 3

4 be assisted by your retirement; an application has a greater chance of success if financial savings can be clearly identified, or if there is an apparent need for change in the school s/college s staffing structure. Having done this, you can then make a preliminary enquiry to your employer, i.e: the governing body of a maintained school with a fully delegated budget the governing body of an independent school the governing body of a foundation school the governing body of a voluntary aided school the corporation of an FE college the LA in the case of a maintained school with out a fully delegated budget. This enquiry should not commit you in any way. When a LA replies to a preliminary enquiry, it will normally suggest that you consult your professional association. This is a precaution to ensure that the PRC regulations are not being used to put pressure on teachers to retire early against their will. If you are happy to accept premature retirement there is no need to contact ATL s London office unless you require further advice, or believe that the estimate of your pension benefits (provided by your employer) is incorrect. If your application is granted, you will have to apply for payment of your accrued pension benefits by completing Form PREM APP, which is available from your employer or from the Teachers Pensions website. For Northern Ireland, you will need to complete form TP4 and for Scotland, you will need to complete form RET1. Termination of contract If you are made redundant, in order to establish your right to a redundancy payment you must be given formal notice on the grounds of redundancy by your employer. When the PRC scheme is used in the efficient discharge of the employer s functions, you will be required to accept the offer of premature retirement in writing and you may also be requested to tender a formal resignation. Local management of schools Under the local management of schools the responsibility for awarding premature retirement and determining the level of enhancement belongs to the governing body, and not to the LA. The cost of the mandatory compensation and any enhancement will only be met by the LA if it specifically agrees. Since it is highly unlikely that the governing body will want the school to bear the costs, governors will invariably want to consult the LA and obtain its agreement before making a decision to award PRC. Former grant maintained schools are now subject to the same PRC arrangements as the other schools in their LAs. Colleges The PRC arrangements also apply to colleges in the FE sector. Since the college bears the cost of paying the mandatory compensation for as long as the lecturer lives, colleges rarely award PRC. Independent schools Since the employer bears the cost of paying the mandatory compensation for as long as the teacher lives, independent schools rarely take on such an open-ended commitment. In some instances, however, the school can be persuaded to compensate the teacher by way of a lump sum. Northern Ireland The scheme for PRC in Northern Ireland differs from that in England, Scotland and Wales in that employers do not have to pay mandatory compensation. The accrued benefits are paid in full by the Department of Education in Northern Ireland. The employer does not have to pay part of the pension and lump sum. However, other aspects of the scheme are similar but references to LAs should be read as referring to the appropriate employer. In Northern Ireland, enhancement is determined in accordance with a set formula, details of which can be obtained from the Department of Education in Northern Ireland. These are the Pension factsheet 6 4

5 maximum levels and employers may offer less than the maximum. Teachers/lecturers in Northern Ireland can be subject to compulsory redundancy. If you need information on this issue, or further details about the Northern Ireland PRC scheme, contact ATL s office in Belfast (Unit C2, 16 West Bank Drive, Belfast BT3 9LA; tel ). Pensions increases Teachers/lecturers do not receive pension increases until they reach age 55. If you receive premature retirement before this age, you must therefore manage on a fixed income until you do become aged 55. Once you have become aged 55, both the accrued and enhancement pensions are increased to take account of any rise in the cost of living from the date on which you retired. This means that the purchasing power of your pension is eventually restored. From then on, your pension is increased annually in April in accordance with the rise in the Consumer Price Index. For more information about pensions increases please refer to factsheet 13. Re-employment Teachers/lecturers who have been made redundant should not take up any kind of employment with a maintained school, city technology college or college of further or higher education after retirement without having a break of at least 29 days, as doing so could affect their redundancy payment. For more information, please refer to ATL s redundancy publication. Severance payments (England and Wales only) Employers can pay severance payments of up to 104 weeks salary as an alternative to PRC. Severance payments cannot be made to any teacher/lecturer who is eligible to receive her/his pension, i.e. if a teacher/lecturer has reached their NPA or is re-employed after taking premature retirement. They also cannot be awarded to anyone who has been awarded ill-health benefits or is claiming actuarially reduced benefits at the time of leaving. If you are paid severance, you cannot also have immediate payment of pension benefits. Actuarially reduced benefits may, however, be claimed at a later date. Severance payments can be paid to teachers leaving service either on grounds of redundancy or on grounds of the efficient discharge of the employer s function. They may be paid in addition to a redundancy payment or they may replace a redundancy payment (e.g. where the employer offers the teacher the choice of taking either redundancy or voluntary severance). However, if the employer pays both, the amount of the redundancy payment reduces the maximum sum payable as a severance payment. There is, therefore, no need for a redundancy situation to exist for a severance payment to be made; a severance payment can be a golden handshake. In any event, the award of a severance payment is discretionary; it is not a matter of entitlement.the maximum severance payment is 104 weeks pay in England and Wales and 66 weeks pay in Scotland. For further information about severance payments, please refer to ATL s redundancy publication. If teachers/lecturers become re-employed after retirement, their pension may be abated (reduced) or suspended according to their level of earnings. For more information on this (including advice on re-employment which does not affect pensions), please refer to factsheet 7. Pension factsheet 6 5

6 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 PEP06 Pension factsheet 6 6