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. • 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.

Final Pay: £32,000 Membership: 36 years 32000 x 36 years = 14400 80 Pension: £14,400 per year Lump sum: £43,200 tax free THE BENEFITS (1)

Survivor benefits are paid to spouses, children, registered civil partners and specific related financial dependants. (see nominated partners later in the presentation) Long term pensions are paid to adult survivors at rate of 1/160 of final average salary for each year of service. Children at the rate of 1/320 up to a maximum of 1/160 for 2 or more children. THE BENEFITS (2)

Pension can accessed from age 55 but will be subject to actuarial reduction on a sliding scale up to NPA of 60; At age 55, a teacher would receive 74.2% of the pension and 84.3% of the lump sum accrued up to date; At age 59, it would be 94% of the pension and 96.6% of the lump sum; The reduction lasts for the lifetime of the pensioner. ACTUARIALLY REDUCED BENEFITS

The new scheme introduces significant 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; and commutation arrangements. These changes are detailed later in the presentation. THE BASICS STAY THE SAME, BUT THERE ARE CHANGES…

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

Existing members will also be able to take more of their benefits as a tax free lump sum, by surrendering £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

Formula for calculating maximum amount of lump sum benefit that can be taken is: (Pension x 20 ) + (Lump sum x 20/12) 4.6667 (14400 x 20) + (43200 x20/12) 4.6667 Maximum lump sum = £77,142 EXAMPLE: TEACHER WITH NPA OF 60:

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

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;

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

PENSIONABLE SALARY (1) • 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.

PENSIONABLE SALARY (2) • There will be an initial transitional period up to 31 December 2008 so that pension based on higher of current or new arrangements and no-one is disadvantaged by change. • The current stepping down provisions will be discontinued.

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.

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)

FLEXIBLE / PHASED RETIREMENT (3) • 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.

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

Understanding Your Pension