Employers' Guide
Section 10 – Calculating Abatement of Pension
1. Background
When a teacher takes up further teaching employment after retirement, this will automatically be pensionable and contributions should be deducted unless the teacher opts out of the TPS. This also applies if a retired teacher who is already in teaching employment takes up a new contract, any future service will be pensionable unless they opt out.
You should check with the teacher if they retired on the grounds of ill health before employing them. In those circumstances you must establish whether or not they are medically fit to undertake any re-employment. Both you and the teacher must inform TP immediately the re-employment starts as the teacher’s pension will stop.
You must ensure that the teacher completes a Certificate of Re-employment. This can be found in the secure member area of the website, “My Pension On-line”. You must also use STU to send TP a TR6 notification. If a teacher does not tell TP about their re-employment a substantial overpayment may occur that the teacher will be required to repay. It is therefore imperative that both you and the teacher inform TP immediately any re-employment starts. A Certificate of Re-employment must be completed for each tax year that the teacher is employed. Failure to complete the Certificate could result in a substantial overpayment that the teacher will be required to repay.
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2. How abatement works
If a teacher’s last retirement was phased or ARB retirement then their pension will not be affected. If they retired on age or premature grounds their pension may be reduced or stopped. If they retired on ill health grounds their pension will cease. They must complete a Certificate of Re-employment in all cases.
The teacher’s pension will be stopped if, in any tax year, their annual pension plus their earnings exceeds the highest salary in their average salary period (‘salary of reference’) plus pensions increase. Any compensation payment being made by their employer prior to retirement is included in the abatement calculation. Their pension will stop during the tax year from the point where earnings plus pension equal the ‘salary of reference’, but it will recommence at the start of the following tax year.
The salary of reference and the annual pension for those over age 55 is reviewed in line with the cost of living each April. The factors to enable you to calculate the relevant increases are shown in Appendix 7.
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3. Case studies
In either of the following examples the annual pension position will be re-assessed at the start of the following tax year and the process will be repeated for as long as the re-employment continues. Where there is a change to the teacher’s working pattern the position will also be reviewed.
Example 1
Re-employment commences on 6 April on an annual salary of £15,000. This leaves a balance of £15,000 before the salary of reference, (pension limit), £30,000 is met. If a teacher retired with an annual pension of £12,000, the pension will be paid in full with no abatement. |
|
Salary of reference + pensions increase |
= |
£30,000 |
Less re-employed salary/expected earnings |
= |
£15,000
------------ |
Pension limit |
= |
£15,000
------------ |
Annual pension + pensions increase
------------------------------------------------ |
= |
daily pension rate |
365 |
eg. |
£12,000
---------- |
= |
£32.87
|
365 |
Pension limit
----------------------- |
= |
number of days pension can be paid* |
Daily pension rate |
eg. |
£15,000
------------ |
= |
456 days (i.e. 1 year 91 days)* |
£32.87
|
If * exceeds 365 annual pension not affected. |
Example 2
Re-employment commences on 6 April on a salary of £20,000. During the tax year they receive a pension of £10,000 from TP plus £5,000 compensation pension from their previous employer. The increased salary of reference is £30,000 with an earnings limit of £15,000. |
|
Salary of reference + pensions increase |
= |
£30,000 |
Less re-employment annual salary/expected earnings |
= |
£20,000
------------ |
Pension limit |
= |
£10,000
------------ |
Annual pension + pensions increase
----------------------------------------------- |
= |
daily pension rate |
365 |
eg. |
£15,000
---------- |
= |
£41.09 |
365 |
Pension limit
----------------------- |
= |
number of days pension can be paid* |
Daily pension rate |
eg. |
£10,000
---------- |
= |
243 days* |
£41.09 |
If * less than 365 days annual pension will be stopped.
Review period commenced 6 April (start of tax year) for 243 days = 6 December. Pension suspended from 6 December for remainder of tax year.
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