The Teachers’ Pension Scheme (TPS) An Update John Brown DfE TPS Policy Manager LGA Conference York 29 September 2015

Agenda  The last 12 months (what we’ve been up to)  The reformed scheme (headlines)  Key issues and features of the reformed scheme (things to remember)  Current issues/activities (things we think you need to be aware of)  Final Points

The Last 12 Months  Laid amending regulations to:  make final tweaks for the reformed TPS;  replace the Premature Retirement Compensation (PRC) regulations; and  update and amend the Teachers’ Additional Voluntary Contributions (TAVC) regulations – in particular to incorporate further flexibilities from ‘Freedom and Choice in Pensions’.  Determined new contribution rates for members.  Provided targeted guidance and support (e.g. HR/payroll guides).  Delivered system and documentation changes - to support the new arrangements.  Completed recruitment to and finalised arrangements for the TPS pension board and the TPS scheme advisory board.

The Reformed Scheme  Career average scheme went live on 1 April  Benefits and arrangements remain amongst the best available:- Defined benefit Accrual rate of 1/57 Active indexation of Treasury Order +1.6% Normal Pensions Age (NPA) = State Pension Age but –Beneficial rate of actuarial adjustment for NPA over 65 –New flexibilities for active members Continuation of club scheme transfers Excellent family and insurance benefits

The Reformed Scheme Cont.  The TPS continues to be a flexible scheme - supporting members to retire early or save more, and employers to manage the teaching workforce.  E.g. ‘Retirement’ from age 55 (Normal Minimum Pension Age):- –Premature Retirement – employer driven –Actuarially Adjusted Benefits – employee driven (Lower rate (3%) actuarial adjustment for NPA over 65) –Phased Retirement – employer/employee agreed  Ill-Health retirement at any age if permanently incapable of teaching – with extension to two years to make an ‘in-service’ application.

The Reformed Scheme Cont. Flexibilities/Buying Extra Pension  New flexibilities available to those in the career average scheme.  Buy-out of actuarial reduction - election to purchase applies to all employments and has to be made within six months of entering career average.  Faster accrual (1/45, 1/50, 1/55) – election can be made each year.  Additional pension and TAVCs continue - can be purchased via lump sum or instalments.  Employers need to be able to account separately for contributions in respect of flexibilities – and record on monthly/annual return.

Key Issues and Features Identifying Member Type  Need to know which arrangements apply to the member, final salary or career average!  More straightforward for existing employees but for new starters you need to know their recent employment history.  If been in another public sector scheme may still have protection!  Members at 1 April 2012 within 10 years of NPA remain in the current scheme (Full Protection).  Members within 13.5 years of their NPA on 1 April 2012 join the Career Average Scheme after 1 April 2015 (Tapered Protection).  Other members moved over on 1 April 2015.

Key Issues and Features Transfers Club Transfers Must make an election within 12 months of joining new scheme and within 5 years of leaving old scheme. Final salary and career average benefits move separately. Receiving scheme pays indexation on transferred career average benefits at rate that applies to the original scheme. Possible to maintain protection (subject to 2 schemes test) and final salary link. Transfer In From Teachers’ Scheme in Scotland, Northern Ireland, Channel Isles, Isle of Man (CUKS/CBS) For those who join after 1/4/15 will be on club terms. Those who joined by 31/3/15 will have a grace period to 31/3/17 to join on existing terms (e.g. maintain NPA 60/65 etc.).

Key Issues and Features Separate Records Per Job (Contract)  Same as for auto enrolment.  Opt out etc. elections only apply to the employment involved (save for buy-out – see flexibilities).  Membership no longer restricted to one full-time equivalent job.  2 or more jobs = employee rates (tiers) separately assessed.  Separate cumulative pensionable pay and employee contributions per job – accuracy of pension build up dependent on correct cumulative pensionable pay.

Key Issues and Features Pensionable Pay  S ame definition as now except non-contractual overtime is pensionable in the career average arrangements.  Residential emoluments can continue to be included.  Based on pensionable pay received in the scheme year (and not due in the scheme year).  During sickness, child related leave etc. on at least half pay pension continues to accrue on the basis of ‘normal’ pensionable pay – through an amount for ‘notional pensionable earnings’ being added to the pay actually received.

Member contributions From 1 April Actual Pensionable Pay Gross RateFull Time Equivalent Pensionable Pay Gross Rate Up to £14,9996.4% Up to £25,9997.4%£15,000 to £25,9997.2% £26,000 to £34,9998.6%£26,000 to £31,9998.3% £35,000 to £41,4999.6%£32,000 to £39,9999.5% £41,500 to £54, %£40,000 to £44,9999.9% £55,000 to £74, %£45,000 to £74,99911% £75,000 and above11.7%£75,000 to £99, % £100,000 and above12.4%

Key Issues and Features Member rates/tiers  New bands with some increases/reductions – per previous table.  Band determined on the basis of actual pay received in the month in question for that employment (i.e. monthly pay x 12).  When on sick pay etc. employee pays contributions based on the pay received (though in line with the contribution rate that applies to the full amount of their ‘normal’ pay).  Employer pays contributions on the amount paid to the employee.  Commitment to review tiers at future valuations.

Key Issues and Features Employer contributions/valuation New rate following scheme valuation is 16.4%, administration fee takes the rate payable to 16.48%. Implementation delayed till September 2015 to give employers more time to plan. Employer cost cap following scheme valuation is 10.9%. Next valuation based on 2016 data – so activity on that begins soon. In the event of a breach of the employer cost cap, the Scheme Advisory Board would be involved in providing advice to the Secretary of State on what scheme changes to make. Default option is to change the accrual rate.

Key Issues and Features Scheme Governance  Lord Hutton recommended the establishment of Pension Boards for all Public Sector Pension Schemes to give scheme members, taxpayers and others confidence that the schemes are being efficiently and effectively administered.  He also recommended the establishment of Pension Policy Groups to provide advice on major changes to schemes.  These recommendations were catered for in the Public Service Pension Act 2013 and the TPS regulations.  The TPS Pension Board and the TPS Scheme Advisory Board have now been established.

Key Issues and Features Scheme Governance  The TPS Pensions Board came into effect on 1 April 2015 and two meetings have been held to date.  It is chaired by Michael Richardson and includes 4 employer and 4 teacher representatives, 2 DfE representatives and a pensions specialist.  The Board is quickly getting to grips with its role – more details can be found at:  The TPS Scheme Advisory Board meets for the first time on 30 September, it covers a wide range of employer and member organisations.  The Teachers’ Pensions led groups for employers and members on day- to-day administration and policy matters (TPAF and TPARG) will continue.

Current issues/activities  Working Longer Review –Union/Employer/DfE review. –Looking at impacts of and ways to help working longer. –Evidence gathering phase (research). –Interim and final reports.  Move to Single Tier State Pension –End of contracting out - remember employers and members pay full national insurance from April –Guaranteed Minimum Pensions – reconciliation exercise, equalisation and indexation. Continuing dialogue with HM Treasury and other schemes.

Current issues/activities  Pensions Tax –Reduction in Lifetime and Annual Allowance, including Tapering Arrangement for high earners. –“Strengthening the incentive to save: a consultation on pensions tax relief”. –TP providing information for those potentially affected.  Capping Public Sector Exit Payments –Manifesto commitment to stop six figure payments. –HM Treasury response awaited to consultation on capping at £95,000. –Proposal to include premature retirement compensation.

Current issues/activities  Review of the discount rate − HM Treasury reviewed arrangements and rate in 2011 – linked to GDP and set at CPI + 3%. − Review of rate due 2016 in advance of next scheme valuation. − Department will be liaising with HM Treasury.  Review of State Pension Age and Link Between That and Normal Pension Age − DWP review due in − Outcomes from Working Longer Review can be used to feed into this. − Department will liaise with DWP and the other public service schemes.

Final Points For Employers  Employer roles and responsibilities remain largely unchanged.  Be aware of changes and use the information provided by Teachers’ Pensions to: –guide and help staff; and –help you manage the workforce.  Be aware of data retention and payroll issues.

Sources Of Information/Contact  The Teachers’ Pensions Website:  DfE Website: education  Teachers Working Longer Review: review-group