1. Teachers’ Pension Scheme (TPS) TPS Reform 2015

2. TPS 2015 Aims Provide an overview of the reform process/issues
Look at the key changes/differences
Current issues/next steps
Aims as set out
Background / Key changes /Next Steps

3. Independent Public Service Pensions Commission
Lord Hutton’s Interim Report October 2010, Final Report March Conclusions/recommendations:
Public service schemes unsustainable in their current format
Move to Career Average Revalued Earnings (CARE)
Normal Pension Age linked to State Pension Age
Rationale for public servants to pay more towards their pensions
Protection of accrued rights
Governance and administration changes
Government accepted Lord Hutton’s recommendations as a basis for negotiation and set out a framework for reform
Coalition Government committed to pension reform
Commissioned Lord Hutton/IPSPC to consider the issues/case
Conclusions
Improved longevity behind rise in costs. TPS costing £5Bn per year and forecast to rise to £10Bn by
2007 reforms did not go far enough in addressing cost issues
Also fairness issues – final salary arrangements favour the high paid/those with fast career progression, and employers (and hence the taxpayer) had borne the cost of past improvements in longevity
In addition, discount rate overstated notional returns on past contributions and understated liabilities.
Outcomes
Contribution increases / CARE / NPA = SPA / New valuation arrangements
But protection of accrued rights and for those nearest retirement

4. Negotiations/discussions
Reference scheme set by HMT, based on Lord Hutton’s recommendations
Central discussions between HMT/Cabinet Office/TUC – process and framework
Scheme specific discussions:
Ministers, DfE officials, TU General Secretaries
TPS Discussion Forum – DfE officials, Unions, Employers
Discussions focussed on proposed variations to the Reference Scheme, within cost and design parameters - Proposed Final Agreement for TPS determined
A number of the teacher unions remain opposed to reform
Slide covers the process of discussion from 2011 to date
Framework set by HMT in light of Hutton recommendations
Schemes had scope to set arrangements (e.g. accrual rate) providing cost ceiling maintained.
Outcome was the proposed final agreement for the TPS which set the framework on which the new career average arrangements are built.
Some unions have still not accepted the case for reform – but have nevertheless been involved in discussions.

5. TPS 2015 - The Legislation Public Service Pensions Act 2013
The Teachers’ Pension Scheme Regulations (Laid 7/3/14) – covers the bulk of the arrangements for the reformed scheme
Amending regulations in respect of the above and the Teachers’ Pensions Regulations (Laid 3/10/14) – transitional and scheme valuation arrangements
Further regulations April 2015 – Premature Retirement, Additional Voluntary Contributions and minor amendments
Don’t propose to cover this in detail:
Main arrangements in place via the TPS Regulations – laid in March 2014
Deliberate ploy to lay ASAP in order to aid implementation/communication
Amending regulations laid in October 2014 covered valuation/further transitionals and necessary changes to the 2010 Regulations
PRC and AVC amendments – 1 April 2015
Further amending regs April 2015 to provide legal clarity on the continued payment of pension where the member retired on ill-health grounds and has now reached NPA.

6. Key Changes/Differences
Pre 2015
Final salary scheme with a 1/60th or 1/80th accrual rate
NPA of 60 or 65
Tiered contributions for members (since 2011) – 9.6% average (previously 6.4% for all)
Employer contributions -14.1%
Statutory Scheme with DfE as scheme managers
Pensions in payment indexed in line with Pensions Increase Act (was RPI until 2011)
Post 2015
Career Average Scheme with a 1/57th accrual rate
In service indexation Treasury Order + 1.6%
NPA – linked to a member’s SPA
Tiered member contributions – 9.6% average
Employer contributions – % from September (including admin. fee)
Still a statutory scheme , but in addition to DfE as scheme managers there will be Pension (Governance) Board and a Scheme Advisory (Policy) Board
Pensions in payment indexed in line with Pensions Increase Act
Slide covers key changes
Career average –pension banked each year and indexed rather than calculated on salary at the end of career.
Accrual rate and active index rate was felt to be best fit for teaching workforce – recognises people stay in teaching a long time – different to other schemes
NPA – rises from 60/65 to SPA (when reach SPA).
Moves with any future changes in SPA – part of the protection against future changes in longevity
Member contributions increased from 6.4% to 9.6% average over period from 2012 to 2014
Contributions tiered to protect low paid and recognise higher paid do best out of final salary
Valuation result 16.4 (+2.3%) + 0.8% admin charge = from Sept. 2015
Move to CPI indexation for pensions in payment following budget 2010

7. Pension Accounts Part 4 of the TPS Regulations 2014
Accrual rate of 1/57 of the member’s pensionable earnings
Accrued pension “banked” in a pension account for each member
Banked pension indexed annually
Indexation for active member is 1.6% above rate specified in treasury order
Indexation for deferred members equal to rate specified in treasury order
If return to pensionable service after no more than 5 years treasury order plus 1.6% applies during the gap in service
Won’t dwell on Career Average Basics other than to say each year bank 1/57th of pensionable earnings and final pension is made up of the amount banked each year
Indexation rate is a key part of the way pension builds up and the TPS rate of CPI + 1.6% is the largest ( to my knowledge) for the public service schemes
Deliberately arrived at the balance of a slower accrual rate/faster indexation in negotiating the changes – reflects that teachers tend to stay in teaching long-term – and that helps standards
Following graph demonstrates how pension builds

8. Pension account - example
Demonstrates the impact of indexation over time – compounding
By year 5, pretty hefty chunk of indexation is being added to pension each year – and so on
Breaks in service of over 5 years are of significant importance therefore

9. TPS 2015 – Other key details/changes
Protection for service in the existing scheme (final salary link) and tapered or full protection for those within 13.5 years of NPA at April 2012
Same ‘retirement’ options – voluntary; premature; phased; age and ill-health (phased retirement extended - a third application can be made provided over age 60)
Early ‘retirement’ options - from age 55 (though plans to move to 57 in 2027)
Early leavers - repayment of contributions if < 2 years’ service, or club/non-club transfer, or leave in scheme
Wider range of scheme flexibilities – additional pension, faster accrual, buy-out
Survivor benefits – maintained in line with current arrangements (i.e. NPA 65 arrangements)
Employer cost cap – to protect the taxpayer if scheme costs increase
Accrued rights and those near retirement protected (more on a later slide)
Members can still retire or draw part of benefits early – no-one forced to work to 67/68
Additional flexibilities to help members to save more to boost their pension saving – to retire early or receive a bigger pension
Retain additional pension – add faster accrual and buy-out
In addition, AVC scheme will be altered to add flexibilities from Budget 2014 (lump sum plus drawdown) and additional round of phased retirement possible
Family benefits – effectively the same as in the NPA 65 scheme
Employer cost cap ensures taxpayer protected from rises in costs relating to members (principally longevity)

10. Protection and salary link mainly Schedule 3 of the TPS Regulations 2014
Members at 1 April 2012 within 10 years of NPA remain in the current scheme.
Tapered protection for members within years of their NPA. That means members will join the Career Average Scheme but at a later date.
If a member has a break in pensionable service of more than 5 years covering April 2012 or thereafter either do not have or lose protection.
Possible to maintain protection if transfer to another public service pension scheme (subject to 2 schemes test) or if move to other pensionable public service and return to the original scheme without having a break of more than 5 years.
Salary Link
Members who have continuity of service on will have their final salary benefits based on the salaries being paid prior to their retirement.
If a member has a break of more than 5 years then this salary link will be broken and the final salary benefits will be based on salaries at the break.
Maintain link if transfer benefits to another public service pension scheme without having a break of more than five years.
Full protection – within 10 years at 1/4/12 – stay in final salary
Tapered – over 10 to within 13.5 years at 1/4/12 - move after 1/4/15
No protection – move on 1/4/15
Final salary link applies to everyone if have continuity of employment at 1/4/15
Lose if break of more than 5 years
Gets complicated on transfer – but aim is to maintain the link if transfer to another public service scheme and to provide the protection the person would have had in the new scheme

11. Employer contributions and the employer cost cap Schedule 4 of the TPS Regulations 2014
Employer contribution rate following scheme valuation is 16.4%
Administration fee to be implemented at the same time - hence ‘total’ employer contribution rate is 16.48%
Implementation of the new rate delayed till September 2015.
Employer cost cap following scheme valuation is 10.9%.
In the event of a breach of the employer cost cap the Scheme Advisory Board will play a central part in advising the Secretary of State on appropriate scheme changes – default is to adjust the accrual rate.
Result of valuation using new methodology and discount rate
Fully reflects cost of scheme – including past service costs and hence cost of improved life expectancy
Aware of impact on budgets – brokered delay till September
Proposed admin fee – in line with other schemes – gives the pensions board more scope to shape future service
Checks and balances in place
Delayed to Sept in line with employer contribution increase.
Cost cap =- protect employers (taxpayer) from future rises
Scheme advisory board will play a key role in addressing any breach

12. The remaining slides are not part of the formal presentation but provide further detail if required.

13. Retirement Part 4 of the TPS Regulations 2014
Pre 2015
Qualification is 2 years.
Retirement benefits calculated as:
Service x 1/80 (or 60) x Final Average Salary.
Post 2015
Qualification remains as 2 years.
Retirement benefits calculated on a Career Average basis each year i.e.:
Salary x 1/57 = the pension for that year
That pension is then ‘banked’ and all the banked pensions are added together when the member takes their benefits.
Already covered this
But worth bearing in mind from a data point of view that the key is no longer accurate data at the end of the member’s career, but rather accurate data all the time!

14. Retirement - types The basic retirement types will remain the same however there will be subtle changes
Post 2015
Age retirement from NPA - new NPA linked to SPA currently between
AAB (early retirement) from age 55 (likely to increase to 57) – however early retirement factors different and up to 3 years above 65 are set at 3% per annum.
Phased – now possible on 3 occasions, only 2 before age 60.
Premature – from age 55 (57).
Late retirement – unchanged.
Beneficial AAB rates (the 3%) will also apply to phased and premature.
Pre 2015
Age retirement at 60 or 65.
AAB from age 55.
Phased retirement from age 55 on a maximum of 2 occasions.
Premature retirement from age 55 at employers’ consent.
Late retirement after NPA – only NPA 65 get enhancement.
Same range of retirement opportunities but some key things to note:
NPA = SPA when reach retirement age, if changes during a member’s career their NPA changes with it.
AAB, Premature and Phased
as part of changes to State Pension NMPA likely to increase to 67 in 2027.
Advantageous actuarial adjustment rate applies in all these cases – provided in service at time of applying for those with an NPA of over 65 – so the reduction will be 3% rather than 5% for up to 3 years.
Phased – will be able to take an additional drawdown after age 60 (3 in total)
All aim to maintain/improve flexibility to manage workforce.

15. Early leavers
Pre 2015
If less than 2 years pensionable service then can claim a repayment of contributions less tax and NI.
Transfer pension benefits to another approved pension scheme.
Unlimited aggregation if service left in the TPS and index linked to protect it from increases in the cost of living.
Post 2015
If less than 2 years pensionable service then can claim a repayment of contributions less tax and NI.
Transfer pension benefits to another approved pension scheme. Club scheme arrangements will continue. Working with HM Treasury to ensure full guidance is made available soon.
Unlimited aggregation if service left in the TPS, indexation is Treasury Order (TO) only while out of service.
BUT if return is within 5 years it will be TO +1.6% for the period while out of service.
If return is after 5 years then TO only for period while out of service and beyond.
Key issues here
If have a break and return within 5 years then in-service indexation applies throughout (TO + 1.6%) – link to previous unlimited aggregation arrangements
Transfers – Club arrangements will continue – see next slide

16. Transfers – other points to note Part 10 and Schedule 3 of the TPS Regulations 2014
Club Transfers
Must make an election within 12 months of joining new scheme and within 5 years of leaving old scheme
Possible after NPA and up to 75
Final salary and career average benefits move at the same time but as separate ‘pots’
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.)
Career Av. Benefits will transfer if request made within 12 months of joining and gap is less than 5 years.
Receiving scheme will pay the old scheme’s indexation on transferred benefits – so if a NHS member moves to TPS then TO + 1.5*% is paid
If have service in both schemes then final salary and career average benefits both move – normally the final salary will go into last open final salary arrangements for the new scheme.
LGPS position still subject of discussions between HMT and DCLG/LGA
Must transfer to retain final salary link
Can maintain protection, or lose it, subject to 2 schemes test
CUKS – currently can wait till retirement to decide whether to transfer important to let anyone who might be affected know that that will not be possible post reform

17. Ill Health Chapter 6 of Part 5 of the TPS Regulations 2014
Criteria for ill health retirement will remain the same, except the test is against the new NPA once a member is in the reformed scheme. There are some other changes:
Post 2015
In service application if apply within two years, where a member leaves teaching due to the same illness.
Salary at date of leaving or when “stepped down” (with employer agreement) used in calculation of benefits.
Enhancement , where applicable, is:
pensionable earnings at retirement (£)
 multiplied by
 half prospective service to normal pension age (years and days)
 divided by 57.
Pre 2015
Members considered in service if they apply within 6 months of leaving service.
Final average salary used in the calculation of benefits and enhancement.
Arrangements for in-service applications amended to cater for slow to develop illnesses
Will be treated as in service if received within 2 years of leaving
Enhancement – based on salary when left – though former higher salary will be used where employer confirms that step-down was part of seeking to manage the illness.

18. Additional Flexibilities Schedule 2 of the TPS Regulations 2014
Post 2015
Additional Pension will continue, with existing elections honoured and new elections possible.
New flexibilities
Members can to elect to pay a higher contribution rate in return for a faster accrual rate for a particular year, at full member cost. 1/55, 1/50 & 1/45.
Members in the new scheme with a NPA higher than 65 will have a one-off (on joining) option to pay additional contributions to reduce or, remove the early retirement reduction that applies to up to three years beyond 65 (i.e. buy-out the 3% reduction).
New limit of £6,500, covering all flexibilities purchased in the career average arrangements – but can go beyond that for buy-out.
Pre 2015
Additional pension subject to certain limits (circa £6,200 currently).
Wider range – recognising higher NPA and that some people will want to save more to manage their retirement
AP continues
Faster Accrual – each year – 1/55, 1/50, 1/45
Buy-out – one-off option within 6 months.
Limit of £6,500. Can breach if elect to purchase buy-out.
AVC – will offer more flexibilities

19. Survivor Benefits Part 6 of the TPS Regulations 2014
Pre 2015
The long-term pension is calculated at the rate of 1/160th of the average salary for each year of survivor benefits service.
The rate paid for children is:
half of the adult’s pension if only one child, and
if there are two or more children an amount equal to the adult pension is divided equally between each child.
Enhancements based on old style ill health arrangements – i.e. on length of service.
Post 2015
In line with current NPA 65 arrangements
Adults will receive 37.5% of a member’s career average benefits (60/160).
A child will receive 18.75% of a member’s career average benefits if only one child.
If there is more than one child an amount equal to the adult pension (37.5% of a member’s career average benefits) is divided equally between each child.
If dependent is eligible for enhancement, it will be 37.5% of half a member’s potential service to NPA x final pensionable earnings/ i.e. in line with post 2007 ill health arrangements.
Same range of benefits and entitlements
Same benefit structure as in NPA 65 arrangements

20. Death Grant Chapter 3 of Part 6 of the TPS Regulations 2014
Pre 2015
In service death grant of 3 x average salary.
If out of service and has 2 years of pensionable service the death grant is the retirement lump sum accrued to date, or if there is no adult pension payable, the pension contributions plus interest of 3% if higher.
Supplementary Death Grant (SDG) is payable of annual rate of pension times 5 (minus any pension already paid) if member dies within 5 years of retirement.
Post 2015
In service death grant = 3 x final FTE salary.
Out of service death grant = member’s career average pension x 2.25, or if there is no adult pension payable the pension contributions plus interest of 3% if higher.
SDG is payable of annual rate of pension times 5 (minus any pension already paid) if member dies within 5 years of retirement.
Main point of note here is that for in-service it is the salary at death that applies – not 10 year average arrangements as is the case in the final salary scheme

21. Transitional members – retirement Schedule 3 of the TPS Regulations 2014
These are members who have a mixture of Final Salary and Career Average service. These members need to be aware of the choices open to them regarding when to take each type of benefit.
Premature
If granted premature retirement both sets of benefits have to be taken at the same time, i.e. Final Salary and Career Average
Age retirement
Conditions for taking benefits do not change, members must be out of service and have reached their NPA.
Final salary at 60 or 65, Career average at SPA .
If out of pensionable service plus between 60/65 and SPA can take Final Salary benefits without taking Career Average at same time. If taking Career Average at the same time then that element will be AAB.
If taking Career Average benefits then Final Salary benefits have to be taken if not already in payment.
AAB
If taking AAB both sets of benefits must be taken at the same time
For members with service in both schemes, must take benefits together –
unless
out of service and post NPA in final salary scheme – in which case can take final salary on an age basis and then decide whether or not to take career average at the same time
Take phased - when can take up to 75% of final salary, career average, or both
Phased
If taking phased do not have to take all benefits at the same time or draw down the same percentage

22. Transitional members - ill health & death mainly Schedule 3 of the TPS Regulations 2014
Eligibility is assessed on the scheme the member is in when they make their application.
All scheme benefits have to be taken at the same time.
Enhancement is only applied once, not to both sets of benefits.
Enhancement is FTE pensionable earnings at retirement times half prospective service to normal pension age divided by 57 (but provision to take account of a previous higher salary).
Death
The death grant is based on the scheme the member is in when they die.
Only one in service death grant is paid, i.e. not one for the final salary service and another for the career average service.
Enhancement is only applied once, not to both sets of benefits
Enhancement is 37.5% of the enhancement that the member would receive if retiring on ill health.
Ill health and death benefits are paid according to the scheme the member is in at the time of retirement/death
So only get one enhancement or death grant
For ill health may mean a higher enhancement (cos of higher NPA) but assessment is against the higher age

23. Member contributions Part 9 of the TPS Regulations 2014
2015
Current
Actual Pensionable Pay
Gross Rate
Full Time Equivalent Pensionable Pay
Up to £14,999
6.4%
Up to £25,999
7.4%
£15,000 to £25,999
7.2%
£26,000 to £34,999
8.6%
£26,000 to £31,999
8.3%
£35,000 to £41,499
9.6%
£32,000 to £39,999
9.5%
£41,500 to £54,999
10.2%
£40,000 to £44,999
9.9%
£55,000 to £74,999
11.3%
£45,000 to £74,999
11%
£75,000 and above
11.7%
£75,000 to £99,999
11.6%
£100,000 and above
12.4%
Lots of debate plus responses to consultation
Best fit recognising previous tiers/aims (to protect low paid) and lack of actuarial case for tiers in a career average scheme
Commitment to review at future valuations