What’s happening to Teachers’Pensions from 1 st April 2015? Well a lot depends on your age at 1 st April 2012! If you were at least 50 in the NPA 60 scheme or 55 in the NPA 65 scheme then you are a protected member and will remain in the final salary scheme unless you have a break of more than 5 years.

What you will get on retirement…? Your pension with a NPA 60 will be based on your final average salary with each year service giving you 1/80 of that salary in annual pension and 3/80 tax free lump sum (the lump sum can be increased by giving up some of your pension) Your pension with a NPA of 65 will give you 1/60 of your final average salary for each year of service in annual pension with the option of converting up to 25% of your pension pot into a tax free lump sum

Examples for protected members NPA 60 Final Average Salary £40,000 with 30 years’ service: 40,000 x1/80 x30 = £15,000 annual pension 40,000 x 3/80 x 30 = £45,000 tax free lump sum NPA 65 Final Average Salary £40,000 with 30 years’ service 40,000 x 1/60 x 30 = £20,000 annual pension with option to take tax free lump sum by reducing pension. Both the above allow members to give up £1 of pension to get £12 tax free lump sum up to a maximum of 25% of their pension pot.

But what if I wasn’t within 10 years of NPA at 1 st April 2012? If you were more than 10 years away but less than 13.5 years away you are a tapered member. You will remain in the final average salary scheme until a transition date and then move to a career average pension for the remainder of your service. The date for transition is on a sliding scale up to 2022 and can be found at the back of the presentation notes

What does it mean for me if I am a tapered member? Example : Dianne is in the NPA 60 scheme and her 48 th birthday was 1 st April 2012 Her transition date to career average will be 1 st April 2018 By that date she will have 25 years service in the NPA 60 scheme She plans to retire at age 60 in 2024 having done 6 years in the career average scheme She can take her final salary benefits based on the 25 years’ service up to 2018

What about the service after 2018? Dianne could also take the 6 years’ career average benefits at age 60 But her NPA in the career average scheme is 67 (the same as her State Pension Age) So if she did take them they’d be subject to 7 years of actuarial reduction (roughly a 30% reduction) She can leave the career average benefits until age 67 and claim them unreduced then. But if she completely retires before age 60 on actuarial reduction she must take ALL her benefits at the same time.

How will Dianne’s pension be calculated? One calculation will be done for Dianne’s 25 years in the NPA 60 scheme using the final salary link This uses the salaries she was earning in career average to calculate her final salary benefits (rather than the salary she was on when she left final salary) This means she will still benefit from any growth in her salary before retirement Another calculates the benefits she built up in career average The two are added together for the final pension benefits

What if I was more than 13.5 years away from NPA on 1 st April 2012? You are a transition member and will join the career average scheme on 1 st April 2015 The remainder of your service will be in that scheme but you will retain the final salary benefits as described above for Dianne and your final pension will be calculated in the same way Your NPA age could be higher because of your state retirement age Anyone born on or after 6 th April 1978 will have a state retirement age of 68 and this will be the same for the career average part of your pension.

How do career average benefits work? For each year you work after your transition date you will accumulate a pension based on 1/57 of your earnings Your total benefits will consist of the pension you have earned each year plus indexation You will be able to see year on year what you’ve accumulated in your pension The example on the next slide assumes an indexation increase of 2.5% but the figure is determined by the Treasury.

An example of what it means for Zuffar Zuffar is aged 27, works full-time, is on M5 and will move to the career average scheme at 1 st April 2015 His earnings for the year to 31 st March 2016 are £30,000. He will earn a pension for that year of £30,000 x 1/57 th = £ On 1 st April 2016 his pension “banked” in Year 1 will be increased by an indexation figure (say 2.5%) plus 1.6% Index linking addition: £ x 4.1% = £21.58 Zuffar’s total pension for the year is £ £21.58 = £547.90

What happens in subsequent years? The total pension is then made up of the amounts banked each year, with index linking applied. For an active member this will be indexation + 1.6% and for a deferred member it will be indexation only. In Year 2, Zuffar had moved to M6 and earns £32,000 His “banked” pension will be £32,000 x 1/57 = £561 increased by indexation plus 1.6% to £584 So his Year 1 pension “pot” is £ – his Year 2 “pot” is £584 and so on for the rest of his service. On retirement, the value of all the pots is totalled to give the final pension. See the illustration at the end of the notes

What are the main problems about career average compared to the present scheme? Every teacher’s pension is bound to be lower because the pension will be based on lower salaries at the start and through our careers rather than our final salary Even if we have reached the “top” the pension will be affected by having a higher NPA to receive it in full If we do not receive normal career progression as a result of performance appraisal teachers will be stuck on lower earnings and therefore lower pensions

Is there anything that can be done to offset a lower pension? In career average, the standard accrual rate is 1/57th of pensionable earnings. However, a member can elect to purchase a faster accrual rate by paying higher contributions, which will build up a higher pension for a particular scheme year as follows: 1/57th (standard) £ for £30,000 earnings 1/55th £ – extra pension from higher accrual £ /50th £ extra pension £ /45th £ extra pension £ Elections are required for each scheme year which runs from 1 April to 31 March and the election must be received by Teachers’ Pensions in the year prior to the year for which the election is to take effect.

I can’t get to 65 never mind 68 what can I do to protect my pension? From 1 April 2015, members in career average will have the chance to buy out the actuarial adjustment for one, two or three years, depending on the number of years between 65 and their career average NPA. If a member’s new NPA is 66 they will be able to buy out 1 year’s actuarial adjustment, whereas if their new NPA is 67 they will be able to buy out two years and if their NPA is 68 they will be able to buy out three years actuarial adjustment. Members only have one opportunity to buy out the reduction and this must be done within six months of first entering career average. Contributions towards the buy out option last throughout a member’s career, unless they revoke their election. Members need to understand that this is a long term commitment and that the rates they will be required to pay will change throughout their career.

TPS advice Members of the schemes must seek independent financial advice before electing for any of the flexibilities Factsheets on the changes can be found at tsheets.aspx tsheets.aspx

Annual rate of pensionable earnings Contribution rate Up to £25,9997.4% £26,000 to £34, % £35,000 to £41, % £41,500 to £54, % £55,000 to £74, % £75,000 and above 11.7% Changes to your monthly contributions - From April 2015 Your monthly contributions are based on your salary, so the more you’re paid, the higher your contributions. From 2015 the contribution rates are changing to the table shown below: