HE Institutions and PRC Regulations

30 April 2007 / Employers

HE Institutions and the Teachers (Compensation for Redundancy and Premature Retirement) Regulations 1997 (“PRC Regulations”)

 

The purpose of this note is to provide clarification about the impact of the withdrawal of HE institutions (HEI) from the PRC Regulations with effect from 1 January 2007.

In summary:

HEIs are no longer subject to the PRC regulations except where premature retirement benefits are awarded under regulation E4(5) of the Teachers’ Pensions Regulations 1997 in which case mandatory compensation (in full) would be payable.

Members of the Teachers' Pension Scheme employed by HEIs are no longer ‘eligible teachers’ for the purpose of Part III and Part V of the PRC Regulations. (Part III covers payment of Discretionary Compensation for Termination (otherwise known as enhanced severance)) and Part V covers Discretionary Compensation for Premature Retirement (otherwise known as additional years compensation). This means that HEIs have flexibility to make compensatory awards that are no longer driven by the terms of the PRC regulations but better suited to local circumstances.

  • Mandatory Compensation

The decision to award unreduced premature retirements is still available to HEIs - but as a discretionary decision on the part of the institution. As was the statutory position before 1 January 2007, HEIs may award premature retirement under regulation E4(5) the Teachers' Pensions Regulations 1997 (Case D) and, in that event, the teacher would be statutorily entitled to full mandatory compensation by virtue of regulation 7 of the PRC regulations. 

Because full mandatory compensation has a statutory basis, HEIs may discharge the liability by making a capitalised payment to the TPS.  

  • Discretionary Compensation

Regulation-wise, with regard to Discretionary Compensation for Redundancy (Part III of the PRC Regulations), the effect of the amendment on 1 January 2007 was that where members of the TPS employed by HEIs have ceased to be in relevant employment by reason of redundancy or in the interests of the efficient discharge of their employers' functions, Part III no longer applies. And, with regard to Discretionary Compensation for Premature Retirement (Part V of the PRC Regulations), the effect of the amendment on 1 January 2007 was that me mbers of the TPS employed by HEIs are no longer 'eligible teachers' for the purpose of Part V.

In summary, HE institutions (HEI) are no longer subject to the PRC Regulations in relation to:

  • Discretionary Compensation for Termination (commonly referred to as ‘enhanced severance payments’), and
  • Discretionary Compensation for Premature Retirement (commonly described as ‘compensatory added years’).

This does not mean that HEIs cannot pay enhanced severance payments or additional pension and retirement lump sum as compensation. Rather, the HEIs are now no longer driven by the terms of the PRC Regulations in deciding what compensatory payments to award.

Such compensatory payments could be in addition to mandatory compensation or to partially ‘top-up’ actuarially reduced benefits (ARB). However, as payment of any additional compensation would not have a statutory basis, payment of a capitalised sum into the TPS to discharge the liability (in effect, making the TPS an annuity provider) is out of the question. HEIs are, however, free to negotiate the form that the compensation takes at local level.

  • Actuarially reduced benefits (ARB)

Of course, ARB cannot be awarded by employers - the decision to apply for ARB by individuals aged 55 or over is solely a matter for the individual. Indeed, HE institutions should advise individuals considering ARB to seek independent financial advice.

  • Additional Pension under the Teachers' Pension Scheme

A further option for all TPS employers to consider in developing premature retirement packages is the option to make a lump sum payment to purchase up to £5,000 additional annual pension payable under the teachers' pensions regulations. Institutions can obtain estimates using the calculator provided by TP on www.teacherspensions.co.uk.

The additional pension arrangements replace the former Past Added Years (PAY) arrangements; under which employers could purchase PAY using Method B (lump sum) if the person had past gaps in pensionable employment.

The additional pension facility may only be used if the scheme member has not attained his or her normal pension age (age 60 for existing scheme members and age 65 for new entrants). Payments must be made within a month of the date TP notifies the employer that the election has been accepted, provided the teacher has not attained normal pension age. No payment can be accepted after the person has attained normal pension age.

  • Further information:

Contact - Elaine Schegar, Assistant Director, UCEA, Woburn House, 20 Tavistock Square, LONDON WC1H 9HU or by email at Elaine.Schegar@ucea.ac.uk

April 2007

 

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