TeachersвЂ™ Pension Scheme вЂ“ A Brief Guide October 2009 Key points вЂў TeachersвЂ™ Pension Scheme is a final salary scheme вЂ“ historically the most generous form of pension scheme in the UK. вЂў From 1 January 2007 the normal pension age for new members increased to 65. In return, annual pension build up improved. вЂў Members of the scheme prior to 1 January 2007 kept a normal pension age of 60. вЂў Improvements made to scheme in 2007 вЂ“ for example protection of pension from salary reductions, phased retirement option and improvements in death grants. Normal Pension Ages Pre 1 Jan 07 members Post 1 Jan 07 members вЂў Normal pension age 60. вЂў Minimum pension age currently 50, increases to 55 by April 2010. вЂў Ill Health pensions not subject to minimum age requirements. вЂў Normal pension age 65. вЂў Minimum pension age 55. вЂў Ill Health pensions not subject to minimum age requirements. Pension build up вЂ“ pre 1 January 07 members вЂў Pension is 1/80 of final pensionable salary for each year of scheme membership. вЂў If final salary = ВЈ30,000 and 20 yearsвЂ™ membership then the pension will be: ВЈ30,000 x 20/80 = ВЈ7,500 a year. вЂў 3/80 of final salary automatically paid as tax free cash for each year of service (i.e. 3x pension). Tax free cash example вЂ“ pre 1 January 2007 members вЂў If final salary = ВЈ30,000 and 20 yearsвЂ™ membership then the cash sum will be: ВЈ30,000 x 60/80 = ВЈ22,500 вЂў 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. вЂў Pension converted into cash at ВЈ12 of cash for each ВЈ1 of pension given up. вЂў In this case, maximum tax free cash available = ВЈ40,178. Pension if maximum tax free cash taken = ВЈ6,027 вЂў Calculator on Teachers Pensions Website Pension build up вЂ“ post 1 January 2007 members вЂў Pension is 1/60 of final pensionable salary for each year of scheme membership. вЂў If final salary = ВЈ30,000 and 20 yearsвЂ™ membership then the pension will be: ВЈ30,000 x 20/60 = ВЈ9,000 a year. вЂў No automatic tax free cash included. вЂў Members currently in teaching can take up to 25 per cent of pension rights as cash. вЂў Pension converted into cash at ВЈ12 of cash for each ВЈ1 of pension given up. Contribution rates вЂў Employee contributions 6.4 per cent for pre and post 1 January 2007 members. вЂў Employer contributions 14.1 per cent of salary. вЂў Employee contribution rate comparable to equivalent private sector schemes. Final salary вЂў a) b) 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. вЂў 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 were worked out on the higher of the old and new measures. вЂў 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 вЂў All pension benefits on service up to 31 December 2006 available in full at age 60. вЂў 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 1 January 2007 rules. Additional Pension вЂў Not possible to buy added years from 1 January 2007 (existing contracts honoured). вЂў Can buy up to ВЈ5,200 a year in additional pension in multiples of ВЈ250 (limit was ВЈ5,000 when introduced in 2007). вЂў Pay by lump sum or by monthly deductions from salary. вЂў Cost is not a percentage of salary, but depends on your age and the amount of pension you want to buy. Actuarially Reduced Early Retirement вЂў Need to be 55 or over, under normal scheme pension age and have been employed on or after 30 March 2000. вЂў вЂ�Actuarial ReductionвЂ™ means that the pension is reduced because itвЂ™s expected to be paid out for a longer period. вЂў Employers can withhold consent for maximum of six months from date you ask to leave. вЂў Amount of reduction depends on years and months pension is taken before normal pension age. Figures from tables supplied by Government ActuaryвЂ™ Department. Separate tables for normal pension ages of 60 and 65. вЂў Example: if normal pension age = 60, but the person retires at 55, the pension and lump sum paid is 77.3 per cent of unreduced amount. вЂў вЂ�Actuarial enhancementвЂ™ available for post 1 January 2007 members who work beyond 65. Phased retirement вЂў Allows a teacher to keep working but draw part of their pension benefits. вЂў To claim, must be 55 or over, and have service in scheme after 1 January 2007. вЂў To exercise flexible retirement, must reduce salary by at least 25 per cent for at least 12 months вЂ“ can be as a result of going part time, or moving to a post with lower responsibility. вЂў Can take up to 75 per cent of pension and keep working. Phased retirement can be exercised twice before final retirement. вЂў Teachers taking phased retirement continue to build up service in the TeachersвЂ™ Pension Scheme (unless they opt out). вЂў Previous вЂ�stepping downвЂ™ arrangements discontinued (but existing contracts honoured) вЂ“ effectively superseded by average of best 3 consecutive in 10 final salary rule. Ill-Health Early Retirement (1) вЂў 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. вЂў Two levels of benefit available вЂ“ вЂ�Total Incapacity Benefit (TIB)вЂ™ and вЂ�Partial Incapacity Benefit (PIB)вЂ™. вЂў Criterion for award of TIB is based on whether the teacher could perform a job of comparable job weight to teaching вЂ“ 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. вЂў PIB awarded if you are permanently unable to teach, but able to do other comparable work. Ill-Health Early Retirement (2) вЂў TIB gives an uplift to benefits of half prospective service to a personвЂ™s normal pension age. So, a 40-year-old with 10 yearsвЂ™ service and a pension age of 60 would be able to retire with 20 yearsвЂ™ service (10 + (20/2)) = 20. вЂў PIB gives no uplift in benefits вЂ“ but accrued pension is received with no actuarial reduction. Premature retirement вЂў Premature retirement is where your employer makes you redundant or you leave in the вЂ�efficient discharge of the employerвЂ™s functionвЂ™. 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. вЂў вЂў Premature retirement is at the discretion of the employer as the cost must be paid to the TeachersвЂ™ Pension Scheme. Where the employer agrees to premature retirement - pension not reduced for early payment. Death Grant вЂў Death grant for all members of the TeachersвЂ™ Pension Scheme who die in service = three times pensionable salary. вЂў Death grant also paid to teachers who die within a year of leaving pensionable employment who have not had ill health retirement. вЂў Death grant goes to person or persons nominated. Important to fill out nomination form and keep it up to date. вЂў For deaths shortly after retirement, supplementary death grant payable of difference between the pension paid up to the date of death and five times the annual rate of pension. DependentsвЂ™ Pensions вЂў Long-term pensions payable at 1/160 of final pensionable salary for each year of survivor benefit service. вЂў 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. вЂў Unmarried partners must have been in relationship for two years and be вЂ�financially interdependentвЂ™ at time of death. вЂў May be able to buy back additional service before these dates вЂ“ check with TeachersвЂ™ Pensions. вЂў Spouse, civil partner and nominated partnersвЂ™ pensions paid for life for retirements from 1 January 2007 (for people with service after this date) вЂ“ rather than ceasing on remarriage or cohabitation. вЂў ChildrenвЂ™s pensions also available if: child under 17; between 17 and 23 and in fulltime 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. TeachersвЂ™ Pension Scheme ThatвЂ™s it!