Changes to the Teachers’ Pensions Regulations from 1 April 2008

1 April 2008

The Department for Children Schools and Families (DCSF) undertook a major reform of the Teachers’ Pension Scheme (TPS) on 1 January 2007 in a process of scheme modernisation.  Details of which can be found here.

However, there were some aspects which were not included at that time pending further consideration and negotiation.  These issues have now been addressed through regulations that came into force on 1 April 2008.  The opportunity has also been used to revisit and readjust a couple of the 2007 reforms in the light of experience.

The main changes are in the following arrangements:

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The Earnings Cap

The TPS retained the notional earnings cap after overriding legislation removed the provision on 6 April 2006 pending further consultation.  The notional earnings cap for the 2008/2009 tax year is £117,600.

The Regulations governing the TPS have been amended so that the earnings cap will no longer apply in respect of any new entrant joining the TPS from 1 April 2008. 

Existing members who are currently affected by the earnings cap will be given a time-limited opportunity between 1 April 2008 and 31 December 2008 to reach agreement with their employer as to whether to retain the earnings cap for the remainder of their service or have the cap lifted.  The latter will involve the payment of higher member and employer contributions after the effective date of the change. 

Where the member and the employer agree to have the earnings cap lifted, the capped reckonable service prior to the effective date of the election will be apportioned.  Apportioning the capped reckonable service in this way will protect the scheme so that the member does not receive a past service “windfall”.

Although this is a time limited options exercise, the earnings cap will be lifted automatically and previous capped reckonable service apportioned where a member:

  • takes up new employment with a new employer;
  • takes up a new post with the same employer; or
  • has a variation of contract such that the functions are materially different from those which existed before and Teachers’ Pensions are notified of this

Any change of contract resulting from an involuntary TUPE transfer will not trigger the lifting of the earnings cap.

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Purchase of Additional Pension

Under arrangements introduced from 1 January 2007, members in pensionable employment are able to buy blocks of additional pension in units of £250 per annum, although contributions could not continue beyond Normal Pension Age (NPA).  To provide additional flexibility for members with a NPA of 60 who continue in pensionable employment beyond that age or are re-employed after age 60, employers and members can now buy additional pension using the same factors as those members who have an NPA of 65 (if they still have scope within the overall limit, which is £5,200 for the year ending 31 March 2009).

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Recovery of member contributions

Difficulties can arise where a member who was in pensionable employment has not had contributions deducted and subsequently leaves the teaching profession.  This can create long-term debts within the scheme accounts, which is no longer financially acceptable.  To address the problem (and as a last resort) the Regulations have been amended to allow service to be ‘discounted’ for pension purposes if the debt is not paid within three years of receiving a formal demand.  This change in Regulation will only apply to new debts discovered after 1 April 2008.

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Parental leave

Parental leave is a right for parents to take time off work to look after a child or make arrangements for the child's welfare.  Certain provisions have been changed to include parental leave, but paid and unpaid parental leave will remain non pensionable.

Nevertheless, where a member is absent and in receipt of parental leave:

  • Dependants are eligible to receive short term pension benefits where a member dies.
  • The member can also be considered under the in-service ill health pension criteria.
  • The reduction in salary on account of parental leave can be disregarded for the purposes of calculating the average salary, contributions on a former higher salary and part-time reckonable service.
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Retention of NPA 60 for some TUPE Transferees

From 1 January 2007, any new entrant who does not have service in the TPS prior to 1 January 2007 or in a comparable Teachers’ Scheme in Scotland or Northern Ireland will have a NPA of 65.  From 1 January 2008, a person with retained service in TPS who has a relevant break of more than 5 years will have an NPA of 65 for future service whilst maintaining an NPA of 60 in respect of existing service.

For avoidance of doubt under the changes introduced from 1 April 2008 but with an effective date of 1 January 2007, individuals in another public service pension scheme with an NPA of 60 whose contract is transferred involuntarily into employment covered by the TPS will now retain an NPA of 60 in the TPS.  These arrangements will not apply in transfers from the Local Government Pension Scheme (LGPS) where the NPA is already 65, even where the member satisfies the “rule of 85”; this is taken into account within the transfer arrangements whereby service credit adjustments can be made.

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Entitlement to Incapacity Benefits

For avoidance of doubt, the amending regulations clarify that members have six months from leaving pensionable employment to submit an ill-health retirement application to be considered as an “in service” member.  This reflects existing practice.

Please note that the above six months is not in addition to any non-pensionable employment whilst on unpaid leave as part of a contractual relationship with an employer; in those circumstances the ill-health application form must be submitted before the contractual relationship ends. If not, the member is viewed as an out-of-service member for benefit purposes.

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Conversion of lump sums in excess the permitted maximum lump sum

The Regulations have been amended so that any member with an automatic lump sum which exceeds the permitted maximum (£412,500 for the 2008/2009 tax year) will have the excess lump sum converted to extra pension on rates determined by the scheme actuary.

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Definition of child

The previous definition of ‘child’ has been reinstated into the TPS provisions, backdated to 6 April 2006, but including specific reference to financial dependency to allow children’s pensions to be paid to un-adopted step children as dependant’s pensions.  Where a member died between 6 April 2006 and 31 March 2008, leaving both natural as well as un-adopted step children, the children’s pension will be re-apportioned as at 1 April 2008.  In other words, there will be no recovery of payments made to natural children prior to 1 April 2008.

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