Changes to the Teachers Pension Scheme

1
Changes to the Teachers Pension Scheme

• First Class, Adaptable, Sustainable

2
TPS modernisation

• Drivers for Change
• Pensions Green Paper and Tax Reform
• Cost of increased life expectancy
• Increased MRA 55 and NPA 65
• Department for Work Pensions Extending
  Working Lives
• Flexibility and retaining experience
• Overdue scheme improvements

3
Agreed package of reforms - new entrants

• Provisions for NEW ENTRANTS from 1 January 2007
  will include

• Normal Pension Age (NPA) of 65
• Minimum Retirement Age of 55, except on grounds
  of ill health
• Pension based on 1/60th of salary for each year
  of pensionable service with the flexible option
  to take up to 25 of fund value after
  commutation as a tax-free lump sum by
  surrendering 1 of annual pension for 12 of lump
  sum

4
Agreed package of reforms - new entrants (contd)

• Automatic part-time membership
• Dependants benefits payable to unmarried
  partners
• Spouses and nominated partners pensions paid
  for life
• Revised ill-health retirement package tiered
  approach with a higher level of benefits for
  total incapacity, lower level for partial
  incapacity

5
Agreed package of reforms new entrants (contd)

• The better of the last years salary or the
  re-valued (in line with RPI) average of the best
  three consecutive years salary in the last ten
  years of service to be used for calculating
  benefits at retirement
• A facility to purchase up to 5,000 of added
  annual pension
• A death grant of three times salary

6
Agreed package of reforms new entrants (contd)

• Phased retirement arrangements. These would
  enable TPS members, under defined circumstances,
  to continue working as a teacher within the TPS
  while drawing down some of their accrued pension
  benefits
• Actuarial enhancement for those who continue in
  work beyond NPA 65 without accessing their
  pension benefits

7
Agreed package of reforms -existing members

• EXISTING MEMBERS will retain a NPA of 60 and the
  current arrangements will be modified and
  improved in the following ways

• Minimum Retirement Age of 55 by 2010, except on
  grounds of ill health
• Automatic part-time membership change in
  contract
• Dependants benefits payable to unmarried
  partners
• Spouses and nominated partners pensions paid
  for life

8
Agreed package of reforms -existing members
(contd)

• The better of the last years salary or the
  re-valued (in line with RPI) average of the best
  three consecutive years salary in the last ten
  years of service to be used for calculating
  benefits at retirement
• Revised ill-health retirement package tiered
  approach with a higher level of benefits for
  total incapacity, lower level for partial
  incapacity
• More scope to take a higher tax-free lump sum and
  a lower level of pension
• A facility to purchase up to 5,000 of added
  annual pension

9
Agreed package of reforms -existing members
(contd)

• An increase in the death grant to three times
  salary
• Phased retirement arrangements. These will enable
  TPS members, under defined circumstances, to
  continue working as a teacher within the TPS
  while drawing down some of their accrued pension
  benefits

10
New entrant?

• No pensionable service before 1 January 2007
• Retention of NPA 60 arrangements would be
  restricted to those who return after a break in
  pensionable employment of no more than five years
  
• Those who return after a longer break would be
  subject to a pension age of 65 in respect of
  their future service. Accrued benefits would
  still be payable in full from age 60

11
New entrant?(contd)

• Transitional protection for those currently out
  of service - protection for those who return to
  teaching by 31December 2007 regardless of the
  length of the break in their service. Thereafter
  the five year limit would apply to any subsequent
  break in service
• There will be a minimum period of scheme
  membership that must be undertaken after a break
  in pensionable service.

12
Normal pensionage protection
Extended 5 year protection triggered 1 Oct 2011
End of extended 5 year NPA protection 1 Oct
2016
End of initial 5 year NPA protection 1 Jan 2013
Last day of service 31 Dec 2007
NPA - 60
NPA - 65
NPA - 60
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Pensionable Employment
16
20
18
60
14
20
26
12
26
or
Reckonable Service
8
10
9
30
7
10
13
6
13
Extended NPA protection not triggered
13
Automatic part time

• Current situation is that part-time members need
  to elect to join the TPS.
• With effect from 1 January 2007, new appointees
  will automatically be in the TPS.
• Existing teachers who start on a new contract
  after 1 January 2007, will automatically be in
  the TPS.

14
Automatic part time(contd)

• Anyone in non pensionable part-time employment on
  1 January 2007, will remain in non pensionable
  employment unless they make a part-time election.
• Part-time members who do not wish to be in the
  TPS will need to opt out, signing a declaration
  confirming they understand the consequences.
• No retrospection after 1 January 2007 to achieve
  existing member status.

15
Average salary

• From 1 January 2007, the calculation of pension
  benefits will be based on the better of the
  salary in the last year, or the average of the
  best three consecutive years (re-valued in line
  with RPI) in the last ten years
• Stepping Down arrangements will become obsolete
  under this approach and will be discontinued from
  1 January 2007 (existing elections will be
  honoured)

16
Average salary(contd)

• The 10 cap on any increase in the last three
  years of service will remain if the last year is
  the best year
• No 10 cap if a three year average salary used
• Transitional arrangements will be put in place

17
Ill-health benefits

• From 1 January 2007, there will be a new two tier
  ill-health retirement provision applying to both
  existing and new members.
• Upper Tier Total incapacity benefit (TIB)
  with enhancement of one half of prospective
  service to a members NPA (60 or 65).
• Lower Tier Partial incapacity benefit (PIB)
  based on accrued benefits without any
  enhancement.
• As now, no actuarial reduction will be applied.

18
Ill-health benefits(contd)

• Must be permanently unfit for teaching duties in
  both cases.
• The DfES will take advice from Medical Advisors
  on a members ability to work. Two tiers of
  pension may be paid
• Upper Tier, for those incapable of teaching and
  any other gainful employment.
• Lower Tier, for those permanently incapable of
  teaching, but capable of a range of other types
  of work.

19
Ill-health benefits(contd)

• Deferred members will qualify for lower tier
  benefits if they develop a condition preventing
  them from undertaking any gainful employment.
• For lower tier, pensioners would be free to
  undertake any work outside teaching and remain
  entitled to PIB.
• Only TIB cases will need to be reviewed if re
  employed
• Disputes will be handled as currently (appeals
  process).

20
Phased retirement

• Reduced capacity will require a minimum drop in
  pensionable income of 25 lasting for at least 12
  months
• You will be allowed to draw down on your pension
  on two separate occasions up to a maximum of 75
  of benefits before retirement
• Benefits taken before NPA would be subject to
  actuarial reduction
• No qualifying period will be needed in respect of
  further service

21
Phased retirement(contd)

• No abatement on pension drawdown where payments
  have been actuarially reduced
• Time periods for elections and finding new post
• Benefits from residual service can be taken later
  as a deferred payment or can be combined with
  future service

22
Added pension

• From 1 January 2007, it will not be possible to
  buy additional service in the TPS either by PAY
  or CAY. Existing contracts with start dates
  before 1 January will be honoured.
• Members will instead be able to elect to pay
  contributions, which will result in an additional
  pension in minimum 250 blocks up to a maximum of
  5,000 per annum. This additional pension will
  be subject to PI.

23
Survivor partnerbenefits

• Survivor partner benefits will be available for
  service from 1 January 2007, in respect of
  unmarried and unregistered partnerships.
• Various conditions. The member must
• have lived with the partner for two years
• be able to marry or enter a civil partnership
• be financial interdependent e.g. share household
  spending, have joint bank account etc.
• Pre 1 January 2007, service can be covered but
  this must be done within six months of nominating
  the partner.

24
Death benefits

• From 1 January 2007, the death in service lump
  sum is to increase to three times the new average
  salary.
• The accrual rate for survivors benefits will
  remain at 1/160th for each year of eligible
  service, but based on new average salary.

25
HMRC flexibilities

• The current 15 contribution limit to be lifted
• The 40 year limit on pensionable service to be
  lifted
• The age 70 limit on TPS membership to be raised
  to 75
• The retention or removal of the earnings cap

26
Contribution rates -members

• Members
• The member contribution rate will rise from 6 to
  6.4
• The effect of combining the scheme reforms and
  improvements with retention of NPA 60 for
  existing members, will require an increase of
  0.2 in the contribution rate for all members
• A further increase of 0.2 will be applied as the
  members share of the outcome of the 2004 TPS
  valuation

27
Contribution rates -employers

• Employers
• The employer contribution rate will rise from
  13.5 to 14.1

• Employer contribution rate increase by 0.6
  following the 2004 valuation
• There will be a ceiling of 14 on the employer
  contribution rate that would take effect from the
  2008 valuation onwards
• There will be an equal division between members
  and employers of any cost increases or savings
  that may result from future valuations

28
Rebranding of the TPS

• The design of all literature is to change in the
  lead up to 1 January 2007.

29
New memberfact sheets

• There will be a number of fact sheets on
• TPS Members guide
• Planning for retirement
• Leaving pensionable employment
• Returning to work after receiving pension
  benefits
• Additional Pension
• Increasing your pension benefits
• Ill-health benefits

30
New memberfact sheets (contd)

• Ill-health retirement benefits and re-employment
• Working part-time before retirement
• Average salary
• Partner benefits
• Death benefits from 1 January 2007
• Maternity/paternity
• Pensions on divorce
• Deferred members at 31 December 2006

31
Leaflets

• Leaflets are also being produced on
• Member Guide
• Survivors and Death Benefits
• Retirement Arrangements and Planning
• Ill-Health Retirement Benefits
• Pensions on divorce and dissolution

32
The new lookfact sheet

• Blue for members

33
The new look foremployer information

• Orange for employers

34
New look TP website

• Current website available since 1996
• Originally functionality focused
• Re-branding provides redesign opportunity
• Revised Scheme and Old Scheme creates
  challenging information and navigation
  requirements
• Collaborating with DfES approved web design
  company

35
New look TP website (contd)

• Site redesign and rebuild incorporating branding,
  revised navigation and updated content
• Improve site traffic by design
• Improve site navigation (content by group/
  scheme member type/information tailored by user
  profile/everything within three clicks)
• Improve ready reckoners/what if calculators
• Implement site branding within the ADDvantage
  product and
• Launch new website on 1 January 2007

36
Employers toolkit

• All you need to know about the TPS in one easily
  accessible package

• Employers guides
• Information for you, for existing members
• Information for you, for new members
• Fact sheets on all aspects of the scheme and
  scheme changes

37
Employers toolkit(contd)

• Case studies
• Communication tools
• Presentation materials
• Available hard copy and CD-ROM

38
DVD

• Produced by Prudential - supported by DfES
• Issued direct to all schools, FE and HE
  establishments
• Aimed at ALL teachers
• Brings to life some of the key changes to scheme
  arrangements
• Includes additional supporting material