Reform of the Teachers’ Pension Scheme (TPS ) Proposed Final Agreement

Key Developments During Negotiations December 2011 – DfE proposes final Heads of Agreement (HoA)– Proposed design for the TPS March 2012 – HoA becomes Proposed Final Agreement– (PFA) - sets out the detailed design for the TPS July 2012 – Chief Secretary to the Treasury confirms that reforms are to go ahead– On the basis there is sufficient support from public service unions to proceed with implementation of the Proposed Final Agreements across the public service schemes

Transitional Protection 10 Year Protection All members in the current NPA 60 scheme who are aged 50 and over on 1st April 2012, and all members of the current NPA 65 scheme who are aged 55 or over on 1st April 2012 remain in their current existing scheme and retain their existing pension entitlements until they draw their benefits or become entitled to do so

Transitional Protection (cont’d) Tapered Protection –more than 10 years but less than 13.5 years of NPA - Members (NPA 60 ) aged between 46 ½ and 50 on 1st April 2012, and Members (NPA 65) aged between 51 ½ and 55 on 1st April Remain in their current schemes on tapered basis and have limited protection with linear tapering so that for every month of age that they are beyond 10 years of their normal pension age, they lose 2 months of protection. At the end of the protected period, they will be transferred into the new pension arrangements.

Transitional Protection (cont’d) Link to Final Salary M embers who leave the scheme and return within 5 years will have their accrued service in the current (NPA 60/65) scheme linked to their final salary at retirement (final salary or best 3 consecutive years in last 10 years)

25 Year Guarantee No changes to scheme design, benefits or contribution rates outside of the processes agreed for the cost cap Commitment will be reflected in Primary legislation.

Provide protection to the taxpayer against unforseen costs and risks which increase scheme costs Cap set following a full actuarial valuation - before scheme reforms are introduced in 2015 Cap set at 2% above, and the floor 2% below, the employer contribution rates calculated ahead of the introduction of the new scheme in 2015 Significant changes to scheme costs due to ‘member costs’ would ‘trigger’ the cap Government believes cap is highly unlikely to bite in the next 25 years Employer cost cap

Key Features of the Proposed Final Agreement Contribution rates Accrual Rates – New rate based on 1/57th of pensionable earnings Career Average based pension scheme Index Linking Normal Pension Age (NPA) = state pension age Retention of certain current scheme provisions with some improvements

Contribution Rates Savings of £2.8bn per year – delivered by : 40% in , 40% in ; and 20% in Average 3.2% percentage point increase over the next three years Average member contributions of 9.6% - Consultation on Key Issues: Protection for lower paid Minimise opt-outs from scheme FTE rather than actual salary - impact on part-time workers

Contribution Rates Contributions Increase implemented 1 April 2012 Salary Range Contribution rate Increase £0£14,9996.4%0% £15,000£25,9997.0%0.6% £26,000£31,9997.3%0.9% £32,000£39,9997.6%1.2% £40,000£74,9998.0%1.6% £75,000£111,9998.4%2.0% £112,0008.8%2.4% Employers Contribution: 14.1%

Contribution Rates Contributions Increase implemented 1 April 2013 Salary Range Contribution rate Increase £0£14,9996.4%0% £15,000£25,9997.0%0% £26,000£31,9997.9%0.6% £32,000£39,9998.8%1.2% £40,000£44,9999.2%1.2% £45,000 £74, % 2.1% £75,000£99, %2.2% £100, %2.4% 2014/2015 will be subject to further discussions with unions. Employers Contribution: 14.1%

Accrual Rate Entrants before 1 January 2007: Normal Pension Age = 60 Pension = 1/80th for each Year of Service Lump Sum = 3/80th for each Year of Service based on final salary (final salary or best 3 consecutive years in last 10 years) Option to give up pension to create larger lump sum - £12 for every £1 of pension given up

Accrual Rate (cont’d) – Example : Salary £36,000, Service 20 Years Pension 20 x 1/80 x £36,000 = £9,000 Lump Sum 20 x 3/80 x £36,000 = £27,000 – Option to give up pension to create larger lump sum - £12 for every £1 of pension given up

Accrual Rate (cont’d) Entrants after 1 January 2007: Normal Pension Age = 65 Pension = 1/60th for each Year of Service Lump Sum = Nil based on final salary (final salary or best 3 consecutive years in last 10 years) Option to give up pension to create a lump sum - £12 for every £1 of pension given up

Accrual Rate (cont’d) Example: Salary £36,000, Service 20 Years Pension 20 x 1/60 x £36,000 = £12,000 Lump Sum = Nil Option to give up pension to create a lump sum - £12 for every £1 of pension given up e.g. give up £3,000 pension Revised pension £9,000 + Lump Sum £36,000

Accrual Rate (cont’d) Entrants after 1 April 2015: Normal Pension Age = State Pension Age Pension = 1/57th for each Year of Service Lump Sum = Nil (Option to give up pension to create a lump sum - £12 for every £1 of pension given up) Pension benefits will be based on an average of pensionable earnings

Accrual Rate (cont’d) For those who fall outside Transitional Protection period pension will be in 2 parts: Benefits earned before 2015, 1/80 th or 1/60 th for each Year of Service based on final salary (final salary or best 3 consecutive years in last 10 years); plus Benefits earned since 2015, 1/57th based on an average of pensionable earnings

Career Average based pension A move from a final salary pension to a new Career Average Revalued Earnings (CARE) scheme with effect from April 2015 Pension benefits will be based on an average of pensionable earnings between April 2015 and retirement, not on final salary at retirement

Career Average based pension (cont’d) For those who move to the new scheme pension will be in 2 parts: Benefits earned before 2015, based on final salary at retirement (final salary or best 3 consecutive years in last 10 years); plus Benefits earned since 2015, based on average earnings

Index Linking Indexation of the scheme linked to the Consumer Price Index (CPI) and not the Retail Price Index (RPI). CPI % in service Pensions in payment to increase in line with CPI Deferred pension benefits to increase in line with CPI

Normal Pension Age (NPA) - Retirement Age phased increase in line with changes to your State Pension Age 66 – born between 06/04/1954 – 05/04/ – 67 born between 06/04/1960 – 05/04/ – 68 born between 06/04/1961 – 05/04/ – born after 06/04/1969

Retention of certain current scheme provisions with some improvements Actuarially Adjusted Retirement Scheme - early retirement arrangements from 55 years of age the same as those in the current scheme Phased Retirement arrangements which reflect those in the current scheme. i.e. Pensionable salary must reduce by at least 20% and lecturer can apply for up to a maximum of 75% of their total benefits. Maximum of two phased retirements. Principal will need to agree these arrangement with the lecturer

Retention of certain current scheme provisions with some improvements (cont’d) Phased Retirement - Additional option of a third drawdown of benefits after a member’s 60th birthday Additional flexibilities to encourage additional pension saving/assist those who wish to retire before Normal Pension Age under new scheme. optional lump sum commutation at a rate of 12:1, the same as those in the current scheme

Retention of certain current scheme provisions with some improvements (cont’d) ill‐health benefits the same as those in the current scheme - Upper Tier or Lower Tier –Upper Tier – “Total incapacity benefit” (TIB): with enhancement of one half of prospective service to a member’s NPA (60 or 65) –Lower Tier – “Partial incapacity benefit” (PIB): based on accrued benefits without any enhancement

Retention of certain current scheme provisions with some improvements (cont’d) DEATH AND SURVIVOR BENEFITS - the same as those in the current scheme Types of benefit available: Death Grant Payable when any lecturer dies in reckonable service or within 12 months of leaving pensionable employment, no qualifying period lump‐sum on death in service calculated at three times the FTE salary

Retention of certain current scheme provisions with some improvements (cont’d) WHO WILL RECEIVE THE DEATH GRANT The person or persons nominated by you to receive this payment If there is no nomination, your legal spouse or civil partner will receive it If none of these, paid to estate

Retention of certain current scheme provisions with some improvements (cont’d) Survivors Benefits: Short Term Pension Long term Pension

Retention of certain current scheme provisions with some improvements (cont’d) WHO CAN RECEIVE SURVIVOR'S PENSION Your spouse Your registered civil partner Your nominated partner provided interdependency at the time of your death is proved Your children if they are under 23 and in education

Retention of certain current scheme provisions with some improvements (cont’d) Options to top up retirement benefits - same as those in the current scheme i.e. purchase addition pension in blocks of £250 etc. Other Options Prudential AVC scheme - still group AVC with Teachers’ Pension Scheme. Stakeholder Pension Free-standing AVC

Any questions?

Useful ContactsUseful Contacts John Draper - Worcestershire County Council: Lesley Houghton - Worcestershire County Council: Teachers’ Pensions : Financial Advice Centre Ltd - 7 Sansome Place, Worcester, WR1 1UG FACE Worcester Office: Adam Smith (Teachers’ Pension specialist): Piers Mepsted (Independent Financial Adviser): Lee Jeniec (Teachers’ Pension specialist): Stephen Allard (FACE Will Services):