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One Day Rule

Taking the pension “early” requires a break in employment…but how long a break?

Guide for Employers

TPS_Retirement_One_Day_Break_Employer_GuidanceDownload

The Regulations

https://www.legislation.gov.uk/uksi/2010/990/made/data.pdf

The Pension scheme lays down very clearly how long a break is needed in order to take the pension before you reach you Normal Pension Age:

The Schedule in the regulations that covers taking “Early” retirement starts on page 121 and is called “Case E”

Case E: early retirement with actuarial adjustment
10.—(1) A person (P) falls within this paragraph if—
(a) P was in pensionable or excluded employment at any time after 29th March 2000,
(b) P ceases to be in such employment,

Page 121, Case E (10), https://www.legislation.gov.uk/uksi/2010/990/made/data.pdf (The Teachers’ Pensions Regulations 2010)

There are other parts to this regulation but the key part above is that you have to “cease” to be in employment. This is then expanded on to explain what is meant be “ceasing” in regulation 14, shown below:

For the purpose of this Schedule—
14 (a) a person is not to be treated as ceasing to be in pensionable or excluded employment unless at least one day passes without the person being in such employment after the person ceases to be in such employment;

Page 122, Case E (14), https://www.legislation.gov.uk/uksi/2010/990/made/data.pdf (The Teachers’ Pensions Regulations 2010)

Simply put, you can take the pension early so long as you are not employed as a teacher ON the day you have asked for the pension to begin.

School Policies

Unfortunately many schools and LAs get confused over what is a break in employment, using what is needed to reset other employment rights and not what is needed for an employee to take their pension. There is no legal barrier to an employer ending, with the agreement of the employee, a contract of employment on one day and starting a new contract after a gap of 24 hours.

A number of schools HR departments are rather lazy in this regard and instead of just doing what is required to enable the employee to take their pension insist on a longer break because of their misunderstanding of what is needed to constitute a “break” in employment. This is often based on other employment rights, such as avoiding having to repay redundancy payments, or entitlement to sick pay etc.

Redundancy – The Main Misunderstanding

The most common misunderstanding over a break in service is that policies in schools and authorities have been written to avoid claims of wrongful dismissal or to prevent the invalidation of a redundancy payment. Where BOTH parties are in agreement over the nature and length of a break in employment neither of these concerns apply.

Unfortunately, if they do insist on a longer break there is very little the teacher can do in such circumstances since they are over a barrel as they do need the break in employment in order to start taking the pension before their normal pension age.

Over the Normal Pension Age

Whilst a break in employment would allow a teacher who is over the normal pension age for a scheme (60/65 etc) , it is not the ONLY way such a teacher can trigger the creation and payment of their pension.

They can start payment of their final salary pensions simply by opting out of the pension scheme without needing any break in employment.

Is it illegal to have a day between contracts?

This is the key question to ask HR advisors who are insisting that a longer break is required. The answer, of course, is “no”.

Is it illegal to appoint someone without advertising a post?

Another key question, to which the answer is also “no”

Staffing in Schools

There are guidance and Statutory Instruments (SI) on how staffing in schools should be undertaken, and both of these documents have NO requirement that a break in contracts be of any given minimum length, nor that a post has to be advertised and the member of staff made to reapply for their position.

Even for Headteacher appointments, which are subject to greater scrutiny than other teachers, it says “…headteacher vacancy, advertise the post as appropriate (unless it considers it has good reason not to)”

In my opinion then there are a number of “good reasons”

  • The vetting process for the current member of staff has already been satisfied
  • The selection process was followed before their original appointment
  • Cost
  • No disruption
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Early But Out Explained

How it works.

The question was, how long do you have to pay when you sign up for the Early Buy Out option.

Forever, or as long as you want, is the answer

Let me explain how it works.

Every month you add a bit to your pension (1/57 of that month’s salary).That bit will pay out when you claim your pension, being paid every year for the rest of your life, but will be reduced if you take it early.

The reduction is based on your age.This reduction is done in two parts because it is based on the State Pension Age (SPA) and people have different SPAs.

The earliest SPA is 65. If your SPA is later then 3% more reduction is applied for each year later your SPA is than 65. It is this latter 3% reduction that you can “buy out”. You can only buy out the number of years between 65 and your SPA.

If you take the pension at 55 then the reduction factor from 65 is 0.648.If your SPA is 67 then a further 0.94 factor is applied (2 lots of 3%).

Example. An unreduced pension of 10,000.

  • Taken at 55 without any buy out:£10,000 x 0.648 x 0.94 = £6091.20
  • Taken at 55 with buy out of 2 years:£10,000 x 0.648 = £6480.00

HOW LONG YOU PAY FOR

In just the same way that you add a bit every time you are paid to the pension if you elect to buy out you pay a bit more for the advantage of the buy out. Every month.

What happens is that the “bit” you add to your pension in that month will get the advantage if, at the same time, you paid extra for the buy out.

If you stop paying for the buy out then whatever you add to the pension in the next month won’t get the benefit. However, all the amounts you did pay for earlier will still get it.

Example. You pay for the buy out on the first £5,000 that is added to your CA pension. You then go on to add another £5,000 without paying for the buy out.

So you have £5k with and £5k without.

The calculations then for taking it at 55 are a mix of the two I put earlier, thus:

  • £5000 x 0.648 x 0.94 = £3045.60
  • £5000 x 0.648 = £3240.00

Total Pension: £6285.60

This image shows the factors and combined factor for different ages based on someone with an SPA of 67 buying out 2 years.

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Proof of TPS Membership

So you found a dodgy break in your history?

Over 90% of problems with the pension can be traced back to incorrect records being sent in to the administrators by employers.

The responsibility for putting errors right lies with the employer, the administrators (TPS) of the scheme have very limited powers to alter the records they have been sent, mainly only in cases where the employer no longer exists.

How to correct the problem?

Contact your employer and explain the problem and ask them to correct it.

They may be willing to do that immediately but with many employers no longer keeping records for more than 7 years you may find that they want YOU to prove that they employed you and that you were in the pension scheme.

Evidence?

PAYSLIPS: The very best evidence is your pay slips that show that the school employed you AND that you were paying into the pension scheme. The problems if often that we no longer have our pay slips and it can be many years, decades even, in the past that the problem exists.

NATIONAL INSURANCE RECORDS (Pre-2016): HMRC keep records going back to the day you were issued with a number! As such you can ask them for this data and it is, for employment before 2016, very useful proof.

Before 2016 teachers who were paying into the TPS paid a special rate of National Insurance and so this is recorded by HMRC. It is called the “contracted out” rate. Ask TPS for your records of employment and the NI rate and it will show you, for periods up to 2016, both who employed you and whether you were in the TPS or not.

Look for the employer and the “Category Letter” for the employment as proof you were in the TPS

Getting your records

Make a “Subject Access Request”: https://www.gov.uk/guidance/hmrc-subject-access-request

Ask HMRC for the following:

CA39456s, Table 5 – Employment History

  • Name of employer and dates of employment
  • Were they “contracted out” of the additional state pension
  • The name of the pension scheme the employer reported as justification for being contracted out
  • The ECON and SCON identifiers for that pension scheme

You can request this information via:

  • Your Personal Tax Account (for the last five years)
  • HMRC online/webchat
  • Telephone: 0300 200 3500
  • Post: SARS/DPU, HM Revenue and Customs, National Insurance Contributions Office BX9 1AN

They will need to know:

  • Your full name and previous names
  • Date of birth
  • National Insurance number
  • Current and previous addresses

Getting Action

If you are in a Union see if they can get you legal help to draft a proper letter advising the employers of their legal responsibilities and potential liabilities if they fail to address this issue in a timely fashion. If you are not in a Union then check to see if you have legal protection included on your home insurance.

You also have the option to refer the matter to the Pensions Ombudsman for “maladministration”.

The kind of thing that we have heard can get results is to “remind” the employer of the potential costs to them if they do not get it sorted, nagging them repeatedly and making it “easier” for them to resolve the situation – keep squeaking.

Run this by a lawyer but something along the lines of…”The records of my employment history for the purposes of calculating my pension as held by the Teachers Pension Scheme administrators (TPS) for my time in your employment from dd/mm/yyyy to dd/mm/yyyy are wrong. I am informed by the TPS that only you as the employer may make corrective updates via the monthly data collection that they require you submit to them. I have also been advised that should <name of employer> fail to make the necessary corrections in a timely manner and that as a result I were to suffer any unavoidable financial losses then <name of employer> may become liable to cover such losses. The Pensions Ombudsman may in addition, upon finding a case of maladministration, direct the employer to make financial compensation for distress and inconvenience. The scale of such compensation rising when the employer has not demonstrated that they have taken action to address the complaint. As I have not heard from you since I last communicated on this matter since dd/mm/yyyy then I must start to consider taking such actions.

My preference is, of course, to have the records held by the TPS in respect of my employment with <name of employer> updated to correctly reflect my service with <name of employer>. Specifically ((((now insert what you want the data to show)))).To avoid increasing the anxiety this matter is causing me and to alleviate the distress please can you communicate to me within 15 working days what steps you have taken to provide the TPS with the necessary corrective update to the employment records held by them on your behalf.”

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Retrospective AP – Complaint 13 Dec

In response to my complaint that no method for applying for retrospective was available I have received the following response.

There were 3 points I made that I felt needed to be addressed

  1. A proper form to be provided to apply for retrospective additional pension
  2. A calculator to be provided to allow members to see the costs for purchasing retrospective AP in the years 2015 to 2022.
  3. A range of options for taking payment for the purchase of AP

The first of these has now been addressed, with a form for applying for retrospective additional pension now available: https://www.teacherspensions.co.uk/-/media/documents/member/applications/miscellaneous/apb-december-2023-v18-fs.ashx

The second and third have been ignored, though the response I have received does give the costs for two ages.

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Entitlement Day

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

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. You can, of course, create a break by leaving employment but you don’t have to.

THE REGULATIONS

https://www.legislation.gov.uk/uksi/2010/990/made/data.pdf

Schedule 7 – Retirement Benefits

Regulation 2:

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.

Images of the Application Form

These images taken from the application form, for “normal age” retirement also make it clear that it is sufficient to opt out, without leaving your employment, if you will reach the normal pension age and wish to take the pension.

https://www.teacherspensions.co.uk/-/media/documents/member/applications/applying-for-retirement/age-retirement-form.ashx
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Overtime – Refund, but NOW or LATER?

https://youtu.be/pXWVro3ZAnU

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.

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New Regulations

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.

60.

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.

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Consultation – Interest on Back Pay

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)

Interest
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:

https://docs.google.com/spreadsheets/d/1D_wdYsWUPTWMR_Cb6KEq3QNDIlld6AV4dc8_pTGX51g/edit?usp=sharing

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