Employers' Guide

Section 7 - Retirement (other than Ill Health)

Important: Additional notes in respect of members regarding the option to convert part of the pension into additional retirement lump sum.

The Premature Retirement Application form is available for download here:

Application for Premature Retirement Benefits (PDF)

1. Introduction to the retirement arrangements

To ensure that a teacher’s retirement is handled efficiently and satisfies their expectations of receiving their benefits on time, it is essential that you work closely with the teacher and TP. This section describes the various retirement options for scheme teachers. It also outlines the application process and your role in this.

When teachers approach you about retirement you may wish to make them aware of the following:

  • That real time estimate of the teacher’s personal TPS benefits and state benefits is available on the TP website in the teachers’ secure area ’My Pension On-line‘.
  • That a number of retirement application forms are available in the teachers’ secure area ’My Pension On-line‘.
  • Normal age retirement - at age 60 or 65 (depending upon whether the member joined the scheme before or after 1 January 2007) or on ceasing teaching employment after these ages.
  • Actuarially reduced benefits (ARB) - this is available from age 55. The applicant requires your consent if they apply while still in employment.
  • Phased retirement – this is available from age 55 and is where the teacher takes a proportion of their retirement benefits and continues working on a lower salary. The applicant requires your agreement.
  • Premature retirement - this is available from age 55 on the grounds of redundancy or organisational efficiency. You must certify the grounds for retirement and agree to pay mandatory compensation.
  • Ill health retirement - this is subject to medical evidence being accepted by the medical advisors appointed by the DfE that the person is permanently incapable of teaching. Full details are provided in Section 8.
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2. Age retirement

The NPA for a teacher is dependant upon whether the teacher joined the scheme on or before 1 January 2007. Where a teacher was a teacher of the TPS before 1 January 2007 and has not transferred their service out, their NPA is 60. Where a teacher joins the scheme for the first time on or after 1 January 2007 their NPA is 65.

If a deferred teacher subsequently returns to service with a break of less than five years, and accrues 30 days reckonable service or 60 days’ pensionable employment, they will retain a NPA of 60 for their future service. If a teacher returns with more than a five year break in service, then future service will have a NPA of 65 but previous service will retain a NPA of 60. These are “mixed service” teachers.  Special arrangements may apply to teachers who have transferred in previous service from teaching in Scotland or Northern Ireland.

Before age retirement benefits can be paid the teacher must cease all teaching employment. If a teacher ceases teaching employment at any time after NPA they immediately become entitled to the payment of their retirement benefits. If the teacher subsequently takes up further employment but has at least a day’s break between the two employments, their age benefits will be payable from the day after the first employment ceased and the second period of employment will be treated as re-employment after retirement which may be subject to abatement.  In the case of supply teachers their contract must have ended, a non-working day will not be considered as a break in service. While benefits cannot be paid until a written application is made, you and teachers should be aware that once a teacher has reached NPA and has ceased to be in pensionable employment the teacher immediately becomes entitled to their benefits.  You should therefore encourage teachers to claim their benefits promptly to avoid the unnecessary accrual of pension arrears.

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3. Actuarially Reduced Benefits retirement (ARB)

A teacher may access their retirement benefits before their normal retirement age if they are aged 55 or over and have pensionable or excluded employment on or after 30 March 2000. If the teacher is in pensionable or excluded employment at the time the application is made, they must obtain your consent. You cannot withhold consent for more than 6 months from the date on which the teacher requests permission from you. Before ARB retirement benefits can be paid the teacher must cease all teaching employment. In the case of supply teachers their contract must have ended, a non-working day will not be considered as a break in service.  If a teacher submits an application having left teaching but then returns to teaching service before the nominated payable date then the application is void.

These benefits will be actuarially reduced permanently, according to the teacher’s age at retirement although the reduced pension will attract index linking. ARB cannot be awarded if the benefits are less than the guaranteed minimum pension.  Any family benefits paid after the teacher has died will not be reduced.

There is an ARB retirement calculator on the website which you and the teacher can use to obtain a basic calculation of ARB.

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4. Phased retirement

Phased retirement arrangements allow teachers to continue working while drawing some of their accrued pension benefits. The teacher’s pensionable salary must reduce by at least 20% for a minimum of 12 months following the date of retirement. This could, for example, be because they have taken up a post of lesser responsibility or because you agree to a reduction in working hours.

The teacher may take phased retirement if they commence a new appointment in a support role, such as a classroom assistant, provided that the appointment is in an educational establishment. The new appointment may be with a different employer but must be within 6 months of the employment ceasing. The application form must be signed by the employer responsible for the new working arrangement and must be made within 3 months of the teacher taking up employment. The teacher may make a maximum of two phased retirements..

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5. Premature retirement

You can award unreduced premature retirement benefits to scheme teachers aged over 55 whose employment has terminated on the grounds of redundancy or organisational efficiency. Before ARB retirement benefits can be paid the teacher must cease all teaching employment. In the case of supply teachers their contract must have ended, a non-working day will not be considered as a break in service.  Premature retirement is not an option if the person is employed on a fixed term contract. There are two types of compensation that you will be responsible for:

  • Mandatory compensation - you are legally obliged to pay mandatory compensation (Part IV of the Teachers (Compensation for Redundancy and Premature Retirement) Regulations 1997). The TPS will pay an actuarially reduced pension and lump sum based upon the teacher’s pensionable service and you pay the difference so that the scheme teacher receives unreduced benefits for their lifetime. Any family benefits that come into payment at a later date are paid by the TPS and are not reduced. You can estimate the costs of mandatory compensation payable by accessing the ARB/Retirement Calculator on the TP website.
  • * discretionary compensation - you have discretionary power under Part V of the Teachers (Compensation for Redundancy and Premature Retirement) Regulations 1997 to pay discretionary compensation by way of additional pension and lump sum. You will be responsible for any family benefits in respect of these discretionary compensation payments. The decision to increase the teacher's benefits in this way, and by how much, is entirely at your discretion but is subject to certain limits. There are no costs to the TPS in relation to discretionary compensation payments.

* This is not applicable to HE institutions or employers in the Independent sector. This information is for guidance only as the discretionary provision does not fall within TP's remit. As such any further information or clarification should be directed to the Department for Education (contact Robert Elliot telephone 01325 735 588 or email Robert.ELLIOT@education.gsi.gov.uk)

The following information provides guidance to employers on how to obtain the costs that they would be responsible for when a TPS teacher of their staff is awarded Premature Retirement Benefits.

Calculating the value of Mandatory Compensation

Use the ARB / Premature Retirement Calculator to enter the appropriate details for the scheme member. In the example below the member is male, aged is 56 years and 2 months, his accrued pensionable service is 34 years 204 days and his final salary is £41,000 p.a.

 

Age input to calculator:

56 years 2 months

 

Service used in calculation:

34 years   204 days

 

Salary used in calculation:

£41000


A

Your Actuarially Reduced Pension:

Basic Pension
£14,824

Converted: Residual Pen
£11,912


B

Your Actuarially Reduced Lump Sum:

Basic LS
£44,472

Converted: Maximum LS
£79,413

 

Factor used from Table 2:

0.837


C

Unreduced Pension for comparison:

Basic Pension *
£17,711


D

Unreduced Lump Sum for comparison:

Basic LS *
£53,133

* The converted figures would be based on the TP share only, i.e. amounts shown above.
(Figures rounded down to nearest £)

The TPS will pay the ‘reduced’ values, A (£14,824) and B (£44,472). The employer would pay an annual pension of C minus A and a one off lump sum of D minus B. In this example these would be £2,887 and £8,661 respectively.

As well as paying the mandatory values above, employers can pay additional discretionary compensation, as explained above.

If you use the ARB and premature retirement calculator that is on the website you can work out the difference between the reduced and unreduced amounts of pension and lump sum. .

First calculate the difference between the reduced and unreduced amounts of pension and lump sum and make a note of these two figures (e.g. above C minus A= pension and D minus B= lump sum). Then refer to section 19 of the employers guide and click on bullet point 5 entitled administration of mandatory compensation payments

Click on the link to view the PRC Actuarial tables

Refer back to your notes and multiply the pension difference (previously obtained from the ARB calculator) by the appropriate factor obtainable from the table; this will calculate the cost for the pension to be paid over the teacher’s lifetime.

As the lump sum is a one off payment simply add on the lump sum difference and this will provide the capitalised cost for you.

Payment of Mandatory and Discretionary Compensation

Employers can put in place their own arrangements for paying their elements of the lump sum and pension to the teacher. Alternatively, TP can provide a service to administer these payments on your behalf. More details about these arrangements can be viewed in Section 19: Services TP can provide to Employers.

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6. The Application Process

General Guidance

Retirement application forms should be completed wherever possible electronically by the teacher using the secure area of the website ’My Pension On-Line‘.  When completing the Employer’s section of the form, you should provide details of the last two years’ service and salary. The information must be split at 31 March for each year. If the final salary rate is not known please do not leave it blank. The current salary should be entered and this should include the GTC payment. It is essential that you complete this correctly or the teacher will either be underpaid or overpaid benefits. If benefits are overpaid they must be recovered. The teacher will be informed of the reason for the change in their level of benefits, i.e. that you supplied incorrect information.

Application forms should be submitted approximately 4 months in advance of the retirement date. This enables TP to conclude any issues affecting retirement and undertake processing to ensure payments are made on the correct date.

Multiple Employment

If the teacher is in pensionable or excluded employment with more than one employer, all pensionable/excluded employment must be terminated before ARB and Premature retirement benefits can be paid. The exceptions to this are Age retirement, where the teacher has opted out of the TPS and phased retirement, where employment may continue. If the teacher is continuing in pensionable or excluded employment with more than one employer, the form must be completed by the main employer, who must certify that the teacher’s salary from all employments will reduce by 20% of their salary in the 6 months prior to phased retirement. If the main employer does not certify the reduction, the application is invalid. The teacher is required to supply details of their other employers on their application form, along with details of their period of employment with each employer.

Completion by the Employer

You must complete the section of the form relating to service and salary details and then forward it to TP.

If the salary used in the average salary calculation is the final year’s salary, it may be restricted if the teacher’s salary in any of the final three years increased by £5,000 * or 10%, whichever is the greater. In these circumstances there may be a refund of contributions and, at your discretion, you may purchase additional pension for the teacher by a one off payment, but only within 6 months of the teacher leaving pensionable employment.

* This figure is reviewed annually in line with movements in the cost of living.

For Age retirement

Where a teacher continues in employment after age 75, the application form should be submitted in time for the lump sum to be paid before the 75th birthday as lump sums cannot normally be paid on or after age 75 due to HMRC restrictions.

For Premature retirement

Where premature retirement is being approved, it is important that you complete the declaration to confirm the reason the employment is terminating i.e. redundancy or efficient discharge of employer's function.

Enhanced Severance - No enhanced severance can be paid if the teacher is retiring on these grounds.

Mandatory Compensation - You must confirm on the form that you will pay the mandatory compensation, and whether you wish TP to administer it on your behalf. The application cannot be processed without this information.

You must issue the Premature Retirement Application form, which is available for download here:

Application for Premature Retirement Benefits (PDF)

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