The McCloud judgement declared that the transition of public sector pensions introduced in 2015 was illegal. This explains the relevance to the Teachers’ Pension schemes.
Pensions are a fraction of your salary. (80th, 60th, 57th etc) so does taking a pension mean having to watch every penny…it’s not as big a cut as you may think.
One of the biggest myths, or misunderstandings, is that taking the pension ‘early’, as early as 55, LOSES 20% of your pension.
There is some truth to this figure but it is NOT as significant as it first sounds…I explain more here
After hearing again, for the umpteenth time, that you MUST have a break in employment to take the final salary pension I decided to put the answer here.
UNDER 60 (Final Salary scheme started before 2007)
Yes, to take this pension “early” you MUST have a break in employment.
60 or OVER
NO! For the NPA60 scheme you do NOT need a break in employment, what you need is a break in “pensionable employment” and these are not the same thing. You can create such a break without leaving employment simply by opting out of the pension.
Schedule 7 – Retirement Benefits
2.—(1) Where a person (P) satisfies the condition for retirement, the entitlement day for Case A is—
(a) if P is not in pensionable employment on the day on which P reaches the normal pension age in relation to the reckonable service, the day on which P reaches that age, and
(b) if P is in pensionable employment on the day on which P reaches the normal pension age in relation to the reckonable service, the day after P ceases to be in pensionable employment.
Part 2 – Pensionable employment
Regulation 7 paragraph 3
(3) A person who makes an election under regulation 9 (election for employment not to be pensionable) is not in pensionable employment while the election has effect.
With the “rollback” taking effect every, eligible, teacher has had their 2015-2022 service returned to the final salary scheme and as a result “overtime” causes an issue for the administrators.
Overtime is NOT pensionable under the final salary scheme but IS pensionable under the career average scheme.
This means that if you had overtime in the remedy period you paid the pension scheme around 10% of that in return for some pension, just the same as you do for your normal wages. However, that should only happen if you are in the career average scheme and not if you are in the final salary scheme. The “solution” is for the scheme to refund you what you paid, but they really do not explain what you may be giving up if you take this refund.
This video goes into your real options and consequences.
The Government has concluded the consultation and their response can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1173440/Teachers_Pension_Scheme_transitional_protection_regulations_consultation_response_.pdf
Points I have picked up on so far:
51. For tapered members (born between April 1962 and September 1965) there is a small chance that both options will be worse than what they currently get. Whilst there is no option for them to retain their better, current, position because it was at the root of the illegal age discrimination case, the Government have indicated that no repayment of the amounts already paid should be required.
56. Hypothetical calculations should, from October, be in included in the benefit statement – re-titled to be an RSS (Remediable Service Statement). This has been one of my particular irritations with the current statement so I am glad to see it is being addressed as not having the correct figures on the statement doesn’t help members make informed choices.
70. Opting in and out for different periods is to be permitted but there appears to be a greater emphasis placed on the member being able to demonstrate why they would have made these choice compared to those who wish to re-instate the whole period.
71. Applying for service re-instatement is going to be subject to a 12-month clock starting on 1 October 2023. This I still believe to be contrary to the primary legislation as I detailed in my response to the consultation. If you did opt out of the pension scheme because of the changes then you will need to submit your application before 1 October 2024 but it does then appear that they will give you a further 12 months to confirm your choice.
80. Retrospective option to buy additional pension in the final salary scheme.
83. Early Buy Out window re-opened. Normally you have to make this choice in the first 6 months of joining the scheme but this will be opened again, for affected members, from 1 October 2023.
134. Lump sum (the optional additional lump sum). On taking the pension members were able to “sell” some of their annual pension for an extra lump sum. If they decide to put 2015-2022 back into the final salary scheme they will be able to re-visit that choice. My personal opinion is that selling part of the pension to get the larger lump sum is poor value for money and this option gives those who made that choice the opportunity to reconsider. Given that many will have been in receipt of the pension for a number of years they may now see the value of the index-linked part of the pension they gave up in a clearer fashion.
One of the details hidden away as a reference to another document and then a reference from that document is the amount of “interest” that will be added to amounts owed to members for underpaid lump sums and pension payments.
Under Part 8, “Liabilities and payment”, in Chapter 2. (Page 35 of the draft regulations)
66.—(1) The scheme manager must calculate interest on a relevant amount described in direction 15 of the PSP Directions 2022 in accordance with the provisions of directions 14 and 15 which apply to that description of relevant amount.
On page 40 of this document is the table that lays out what the “interest” amounts will be…and they fall a long way short of inflation!
For comparison I have added a column to this table showing the inflation factors that were in effect on the dates shown:
The consultation process on the new regulations for the changes relating to the McCloud case has opened
As well as increasing pensions that are already in payment this figure is used to uprate the historical salaries used in the calculation of the final salary figure.
The Salary of Reference is often mixed up with the “final salary” and whilst it CAN be the same figure it more often is NOT.
I explain how to find your salary of reference and check how much you can earn before your pension gets stopped
The Teaching pension schemes are no strangers to changes in the pension age at which they are designed to be taken.
Before 2007 it was 60, then 65 and more recently has been brought into line with the state pension age. What is also changing is the MINIMUM pension age – the age at which you can, with a reduction, take the pension.
The GOOD news is that as the legislation stands the final salary schemes, those that teachers were in before 1 April 2015, retain the pension ages as they were – no real surprise there as that was the contractual obligation, teachers will get what they signed up and paid for.
The BAD news is that the newer, career average, scheme was written differently and so IS subject to the change. If you are not 55 before 6 April 2028 then you won’t be able to access this part of the pension until you reach 57. Also, the plan is to raise this further in the future to 58 and for it to then track 10 years behind the state pension age. Remember though that taking it 10 years early does mean you will be paid less to make up for the fact you will be paid it for longer.
A 5% pay rise versus double-digit inflation…what is best for your pension?
Less than 2 years in the TPS?
With less than 2 years you CAN get a refund of your contributions…this video looks at why that may not be your BEST option