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Understanding Your Pension

Understanding Your Pension. Changes From January 2007. THE SCHEME The TPS is a final salary scheme which provides a guaranteed pension and a tax free lump sum. Benefits are index- linked to protect against inflation.

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Understanding Your Pension

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  1. Understanding Your Pension Changes From January 2007

  2. THE SCHEME • The TPS is a final salary scheme which provides a guaranteed pension and a tax free lump sum. Benefits are index- linked to protect against inflation. • The final salary used is the full time pay figure even if the member is working part- time. • Membership is reduced pro rata for periods when the member works part-time.

  3. Final Average Pay: £36645 (UPS3+TLR2a) Membership: 35 years 36645 x 35 years = 16032 80 36645 x 35 years = 48096 3/80 At age 60: Pension: £16032 per year Lump sum: £48096 tax free THE BENEFITS – NPA 60 (80ths)

  4. Final Average Pay: £36645 Membership: 35years 36645 x 35 years = 21376 60 At age 65 Pension : £21376 Lump sum: £1 commutation for £12 At age 60: Pension: £16096 Lump sum: £1 for £12 THE BENEFITS – NPA 65 (60ths)

  5. Survivor benefits are paid to spouses, children, registered civil partners and specific related financial dependants. Long term pensions are paid to adult survivors at rate of 1/160 of final average salary for each year of reckonable service. Children at the rate of 1/320 up to a maximum of 1/160 for 2 or more children. Death in service lump sum payment. Ill-health retirement pension. OTHER BENEFITS

  6. Pension can accessed from age 55 but is subject to actuarial reduction on a sliding scale up to NPA; At age 55, with NPA of 60, a teacher would receive 77.3% of the pension and lump sum accrued up to date; At age 59, it would be 94.8% of the pension and the lump sum; The reduction lasts for the lifetime of the pensioner. ACTUARIALLY REDUCED BENEFITS

  7. The new scheme introduces changes to: the rights of unmarried partners; the calculation of pensionable salary to help those that lose out in the transition from MAs to TLRs; death in service benefits; improved flexible and phased retirement options; commutation arrangements and contribution rates These changes are detailed later in the presentation. THE BASICS STAY THE SAME, BUT THERE ARE CHANGES…

  8. SO WHAT’S HAPPENING TO IT? • Operative date for new Scheme of 1st January 2007. • Existing TPS members will receive their current level of benefits payable in full at age 60 with no actuarial reduction • NPA of 65 for teachers joining after start date

  9. Existing members will be able to take more of their benefits as a tax free lump sum, by surrendering (commuting) £1 of annual pension for £12 of lump sum. New entrants to have their pension based on 1/60th of salary for each year of pensionable service with the option to take up to 25% of ‘fund value’ after commutation as a tax free lump sum. COMMUTATION

  10. Formula for calculating maximum amount of lump sum benefit that can be taken is: (Pension x 20 ) + (Lump sum x 20/12) 4.6667 (16032 x 20) + (48096 x 20/12) 4.6667 Minimum lump sum = £48096 Maximum lump sum = £85885 Commutation of pension = £3149 Residual pension = £12883 EXAMPLE: TEACHER WITH NPA OF 60:

  11. From 1st January 2007, teachers contribute 6.4% and employers 14.1% of salary. The examples below show the effect of an 0.4% increase in employee contribution rates: Teacher on salary of £30,000. After 22% tax relief the net additional weekly pension contribution would amount to £1.80; and Teacher on salary of £50,000. After 40% tax relief the net additional weekly pension contribution would amount to £2.31. CONTRIBUTION CHANGES

  12. The remainder of the improvements apply to both existing TPS members and new entrants: • dependants’ benefits payable to unmarried partners; • increase of death in service lump sum from 2 to 3 x salary; • spouses’ and nominated partners’ pensions paid for life for retirements from 1 January 2007;

  13. Survivors benefits paid to nominated partners for service from 1st January 2007 IF: Lived together for 2 years; Able to marry or enter a civil partnership; Financially interdependent; 2 years’ qualifying service; Pre 1st January service must be purchased within 6 months of nominating partner and counts towards qualifying service. NOMINATED PARTNERS

  14. PENSIONABLE SALARY • The current arrangement is to use the highest contributable salary over a 365 day period in the last three years prior to retirement. • From 1 January 2007, the better of the salary in the last year, or the average of the best three consecutive years (uplifted in line with the RPI) in the last ten years, will be used.

  15. FLEXIBLE/ PHASED RETIREMENT (1) • Changes will enable members to continue working as a teacher within the TPS while drawing down pension up to a maximum of 75% on two separate occasions. • Phased retirement will be available from the age of 55 if the teacher reduces their pensionable salary by 25% or more for at least 12 months. • Pension taken before NPA will be actuarially reduced.

  16. Subsequent service pensionable with no qualifying period; Benefits from residual service can be taken later as deferred payments or combined with future service; No abatement on pension when payment actuarially reduced; Can contribute to pension up to age 75 instead of previous age 70. FLEXIBLE/PHASED RETIREMENT (2)

  17. ADDITIONAL PENSION PROVISION • The Current and Past Added Years facilities has been replaced with a facility to purchase up to £5,000 of added annual pension. • This can be in units of £250 and purchased by lump sum or over a number of years.

  18. Female teacher aged 59 Buying £1000 additional pension Lump sum cost = £21280 Female teacher aged 49 Buying £1,000 additional pension Lump sum cost = £15,680 Monthly cost = £176 over 10 years Total cost over 10 years = £21,260 EXAMPLES (1)

  19. Female teacher aged 39 Buying £1,000 additional pension Lump sum cost £11,360 Monthly cost over 20 years £80 pm Total cost £19,390 Female teacher aged 29 Buying £1,000 additional pension Lump sum cost £8,080 Monthly cost over 20 years £56 pm Total cost £13536 EXAMPLES (2)

  20. How do I take out an AVC? The in-house provider is Prudential, but you can use other providers. There is no limit to the amount you can contribute to an AVC (within the annual allowance). For more information, contact the Prudential at Teachers’ AVC Department, Prudential, Craigforth, Stirling, FK9 4UE. Telephone: 0845 0700 007Website: http://www.pru.co.uk/teachers/ If you wish to make additional provision outside of the scheme, you may wish to consult your financial adviser. Additional Pension - AVCs

  21. Detailed information about the pension scheme can be found at: www.teacherspensions.co.uk This slide presentation can be viewed on the Bradford NUT website, along with other information at: www.bradfordnut.org TEACHERS’ PENSIONS

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