Your Teachers' Pension Scheme is changing
22 November 2006 / Members
The Teachers’ Pensions Scheme is changing with modifications and improvements coming into effect from 1 January 2007 for existing or new scheme members. For further details, please see below:
Existing Members and New Entrants: Scheme Benefits
Please note: many of these provisions do not apply to existing members unless they are in pensionable employment on or after 1 January 2007.
New Fact Sheets providing detail on scheme changes
Definition of an existing member on 1 January 2007 and scheme benefits
Definition of a new member on 1 January 2007 and scheme benefits
Members' FAQs - all aspects of the scheme
New changes applicable to scheme members in pensionable service from 1 January 2007
- Option for all members to take a retirement lump sum up to the new HM Revenue & Customs limit at retirement. Further information on the new lump sum calculation can be found here. If you wish to calculate the maximum pension and lump sum in your own case, the maximum pension and lump sum modeller is available as an Excel spreadsheet here
- The changes incorporate an increase in employee contributions from 6% to 6.4% and employer contributions from 13.5% to 14.1% from 1 January 2007.
- The In Service Death Grant has increased from two times pensionable salary to three times pensionable salary.
- There will be a new definition of Average Salary for all members in service from 1 January 2007, where either the highest earnings in the last 365 days or the highest 3 consecutive revalued earnings in the last 10 years is used in the calculation of retirement benefits. For those retiring between 1 January 2007 and 31 December 2008, the existing salary definition will apply if this is higher.
- Nominated survivor partner benefits are payable for those in service from 1 January 2007, subject to: a 2 year qualifying period, a nomination, and proof of dependency at date of death.
- Spouses, surviving civil partners’ and nominated dependent partners pensions are payable for life, subject to members being in service on or after 1 January 2007, otherwise pensions cease on re-marriage, civil partnership or co-habitation.
- There are two tiers of ill-health retirement benefits – Total Incapacity Benefit and Partial Incapacity Benefit
- Members are able to draw some of all of their pension benefits while continuing to work as a teacher in a reduced capacity taking at least a 25% reduction in salary. This is subject to the employer agreeing to the member's new working arrangement and certifying the reduction in salary.
- A new provision for enhancing your pension known as Additional Pension (this replaces Past Added Years for existing members, although existing elections will be honoured). Teachers' AVCs are also available from Prudential. For details of costs of purchasing Additional Pension, please click here to download the new Additional Pension calculator (Excel spreadsheet, right-click link and choose Save As to download)
Case Studies: The effect of the revised arrangements
Case study 1 – Existing Teacher
- Amerjit is 45. She became a teacher straight from University aged 23, and has taken a four-year career break to have her children. She has a Normal Pension Age of 60 and providing she remains in pensionable employment until this age, her pension calculations will be based on 33 years service. Assuming her final salary is £37,000, this illustration shows what her benefits may be.
- Before conversion
- Pension £37,000 x 33/80 = £15,263
- Lump sum (3 x pension) = £45,789
- Under the new proposals she can convert an amount between the current 3/80ths and up to a maximum of 25% of the fund value into a lump sum. This means she could have a maximum lump sum of £81,765 – an additional £35,976 on top of the 3/80ths based lump sum of £45,789.
- For every £12 of additional lump sum taken, Amerjit’s pension would be reduced by £1. Therefore, if she decided to increase her lump sum by an additional £24,000 to a total of £69,789, her pension would be reduced from £15,263 a year to £13,263 a year.
Case study 2 – Existing Teacher
- Jim has taken time off to look after his elderly parents – he has been out of service for four years but fully intends to return to teaching. He hears about the changes to the Teachers Pension Scheme and secures a part-time contract to teach in a local school from April-November 2007. He eventually returns to the classroom full-time in the early part of 2009 and works to retirement. All his service is calculated on the basis of a Normal Pension Age of 60.
Case study 3 – New Entrant
- Paul becomes a teacher in September 2007 aged 35 years and retires in 2037 aged 65. Using today’s values for illustration purposes, assuming he has a final salary, he would be entitled to the following pension:
- Before conversion
- Pension £40,000 x 30/60 = £20,000
- He can convert up to a maximum of 25% of the fund value into a lump sum, meaning he could have a maximum lump sum of £85,680. For every £12 of lump sum taken, his pension would be reduced by £1. He could therefore convert a maximum of £7,140 of his pension and receive a lump sum of about £85.680.
- After maximum conversion
- Pension £12,860 (i.e. £20,000 minus £7,140)
- Lump sum £85,680