Section 9 – Calculating Retirement Benefits
Contents
1. Calculating retirement benefits 2. Defining average salary 3. Restrictions 4. Case Studies1. Calculation of retirement benefits
The way retirement benefits are calculated is set out below. If a teacher takes ARB retirement benefits their benefits will be reduced throughout their lifetime.
For teachers with service both prior to and after 1 January 2007
Pension - 1/80 of final average salary for each year of reckonable service.
Lump Sum - 3/80 of final average salary for each year of reckonable service.
For teachers with only service on or after 1 January 2007
Pension is 1/60 of final average salary for each year of reckonable service.
There is no automatic pension lump sum for members. There is however, the option to take a retirement lump sum, up to 25% of fund value, by surrendering £1 of pension for £12 of lump sum.
Reckonable service is the number of years and days the member has been in the TPS (that is, in pensionable employment), plus any other service they may be entitled to take into account. This could be service they have transferred from another pension scheme.
Back to the top2. Defining average salary
The better of the following calculations will be used.
- The salaries for each of the last 10 calendar years are increased to current day value. The average of the best consecutive three years re-valued salaries in those 10 calendar years is used.
- The pensionable salary received in the last 12 months before the date of retirement.
3. Restrictions
There maybe historic cases of members who joined the TPS between 1 June 1989 and 1 April 2008 who are affected by an earnings cap. Certain members may have elected to have this earnings cap lifted and previous “capped” service reduced. But from 1 April 2008, any member whose salary was below the earnings cap, or any new entrant, will have employee and employer contributions deducted based on full salary.
If the pensionable salary received in the last 12 months before retirement gives the higher average salary figure, and any salary or salaries in the final three years of pensionable employment was increased by more than £5,000 or 10%, the increase in that salary or salaries will be restricted to £5,000 or 10%, whichever is the greater.
The figure of £5,000 is applicable to retirements in 2010-11, and will be increased annually thereafter.
Where this restriction applies:-
- contributions in respect of any salary not used in the calculation of average salary will be refunded after retirement.
- you may (within 6 months of the retirement) elect to purchase Additional Pension, provided there is scope to do so.
It is only at retirement that TP will be in a position to determine which average salary calculation is the better of the two. It is therefore not possible to anticipate in advance of retirement whether this provision will apply in any particular case.
Any retirement benefit calculations can only be done on receipt of validated salary rates that have been provided by you. In no circumstances will we undertake calculations of estimates on behalf of employers on the basis of potential or hypothetical salary figures.
Back to the top
4. Case Studies
Example Calculation of Retirement Benefits Taking Account of New Average Salary Provisions Effective 01.01.2007:
Fictional Member: Retiring on 01.09.2011
Start date of pensionable employment: 01.09.2001
End date of pensionable employment: 31.08.2011
Member’s employment all Full Time.
Total Pensionable Service: 18 years 000 days
Last 10 Calendar Years:
Start date |
|
End Date |
Annual Salary |
Revalued |
Pen Days |
Factors |
Mainstream Qualified Teacher: |
||||||
01.09.2001 |
to |
30.11.2001 |
21,981.00 |
28,516.00 |
091 |
1.2973 |
01.12.2001 |
to |
31.03.2002 |
22,194.00 |
28,628.00 |
121 |
1.2899 |
01.04.2002 |
to |
30.11.2002 |
22,638.00 |
28,877.00 |
244 |
1.2756 |
01.12.2002 |
to |
31.03.2003 |
22,926.00 |
29,079.00 |
121 |
1.2684 |
01.04.2003 |
to |
30.11.2003 |
23,385.00 |
29,121.00 |
244 |
1.2453 |
01.12.2003 |
to |
31.03.2004 |
23,796.00 |
29,360.00 |
121 |
1.2338 |
01.04.2004 |
to |
31.03.2005 |
24,630.00 |
29,475.00 |
365 |
1.1967 |
Head Teacher: |
||||||
01.04.2005 |
to |
31.03.2006 |
34,659.00 |
40,388.00 |
365 |
1.1653 |
01.04.2006 |
to |
31.08.2006 |
35,550.00 |
40,826.00 |
153 |
1.1484 |
01.09.2006 |
to |
31.03.2007 |
36,580.00 |
41,145.00 |
212 |
1.1248 |
01.04.2007 |
to |
31.03.2008 |
37,640.00 |
40,749.00 |
365 |
1.0826 |
Part Time (Regular) Mainstream Teacher: |
||||||
01.04.2008 |
to |
31.03.2009 |
26,337.00 |
27,153.00 |
365 |
1.0310 |
01.04.2009 |
to |
31.03.2010 |
27,123.00 |
27,964.00 |
365 |
1.0310 |
01.04.2010 |
to |
31.08.2010 |
27,801.00 |
28,304.00 |
153 |
1.0181 |
01.09.2010 |
to |
31.03.2011 |
28,005.00 |
28,005.00 |
212 |
* |
01.04.2011 |
to |
31.08.2011 |
28,005.00 |
28,005.00 |
153 |
N/A |
N/A = no increase is due as this is the correct value as at the payable date of 1.09.2011.
* Increase factor is not available at the time of the award.
Reckonable Average Salary Calculation:
Will be the better of:
Calculation 1 – best consecutive 1095 pensionable days in last 10 Calendar Years based on re-valued salary rates.
10 Calendar Year Average Salary Period = 01.09.2001 to 31.08.2011:
Best 3 years average Salary Period =
01.04.2005 |
to |
31.03.2006 |
40,388.00 |
365 |
14,741,620 |
|
01.04.2006 |
to |
31.08.2006 |
40,826.00 |
153 |
6,246,378 |
|
01.09.2006 |
to |
31.03.2007 |
41,145.00 |
212 |
8,722,740 |
|
01.04.2007 |
to |
31.03.2008 |
40,749.00 |
365 |
14,873,385 |
|
|
|
|
|
1095 |
44,584,123 |
|
Divided by 1095 = 40,716.09
Average Salary: £40,716.09
Deemed Date for Future Increases: 12.04.2011 day after date to which salary rates revalued.
Calculation of Benefits will therefore be:
18.000 (pensionable service) x 40,716.09 (uplifted average salary) divide by 80 =
£9,161.12 (Annual Pension) and £27,483.36 (lump sum) payable from 01.09.2011.
2nd Bite PI is still outstanding from 12.04.2011 up to the payable date of 01.09.2011.
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Calculation 2 – the last consecutive 365 pensionable days based on un – revalued salary rates.
01.09.2010 |
to |
31.03.2011 |
28,005.00 |
212 |
|
|
01.04.2011 |
to |
31.08.2011 |
28,005.00 |
153 |
|
|
|
|
|
|
365 |
|
|
Average Salary £28,005.00
Deemed Date 1.9.2011
Calculation of benefits will therefore be:
18.000 (pensionable service) x 28,005.00 divide by 80 =
£6,301.12 (Annual Pension) x 3 = £18,903.36 (lump sum)
No 2nd Bite PI Due as Deemed Date is the day before the payable date.
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Re-calculation in April 2012 – to apply 2nd Bite PI.
A recalculation of retirement benefits will be done to ensure the uplifted Annual Salary rates include the relevant 2nd bite pensions increase thus bringing them up to the value as at the payable date of the award. This will ensure any additional lump sum and pension arrears are paid.
In the first calculation the salary rates have only been re-valued up to 12.4.2011 (first bite PI). We now need to re-value the salary rates up to the payable date of the award of 01.09.2011 by applying 2nd bite PI.
See below the re-valued salary rates including 2nd bite. Please note I have based these figures on an estimated 2nd bite pensions increase of 1.13% from 13.4.2011 up to 1.9.2011.
The system will determine the best 3 year average salary period and recalculate the benefits on this revised average salary. The amounts previously paid will be taken into account to determine any additional lump sum and arrears due.
Last 10 Calendar Years:
First Bite
Start date |
|
End Date |
Annual Salary |
Re-valued |
Pen Days |
Factors |
Mainstream Qualified Teacher: |
||||||
01.09.2001 |
to |
30.11.2001 |
21,981.00 |
28,838.00 |
091 |
1.2973 |
01.12.2001 |
to |
31.03.2002 |
22,194.00 |
28,952.00 |
121 |
1.2899 |
01.04.2002 |
to |
30.11.2002 |
22,638.00 |
29,203.00 |
244 |
1.2756 |
01.12.2002 |
to |
31.03.2003 |
22,926.00 |
29,408.00 |
121 |
1.2684 |
01.04.2003 |
to |
30.11.2003 |
23,385.00 |
29,450.00 |
244 |
1.2453 |
01.12.2003 |
to |
31.03.2004 |
23,796.00 |
29,692.00 |
121 |
1.2338 |
01.04.2004 |
to |
31.03.2005 |
24,630.00 |
29,808.00 |
365 |
1.1967 |
Head Teacher: |
||||||
01.04.2005 |
to |
31.03.2006 |
34,659.00 |
40,844.00 |
365 |
1.1653 |
01.04.2006 |
to |
31.08.2006 |
35,550.00 |
41,287.00 |
153 |
1.1484 |
01.09.2006 |
to |
31.03.2007 |
36,580.00 |
41,610.00 |
212 |
1.1248 |
01.04.2007 |
to |
31.03.2008 |
37,640.00 |
41,209.00 |
365 |
1.0826 |
Part Time (Regular) Mainstream Teacher: |
||||||
01.04.2008 |
to |
31.03.2009 |
26,337.00 |
27,460.00 |
365 |
1.0310 |
01.04.2009 |
to |
31.03.2010 |
27,123.00 |
28,280.00 |
365 |
1.0310 |
01.04.2010 |
to |
31.08.2010 |
27,801.00 |
28,624.00 |
153 |
1.0181 |
01.09.2010 |
to |
31.03.2011 |
28,005.00 |
28,322.00 |
212 |
2nd bite only |
01.04.2011 |
to |
31.08.2011 |
28,005.00 |
28,005.00 |
153 |
N/A |
N/A = no increase is due as this is the correct value as at the payable date of 1.09.2011.
Calculation – best consecutive 1095 pensionable days in last 10 Calendar Years based on re-valued salary rates.
10 Calendar Year Average Salary Period = 01.09.2001 to 31.08.2011:
Best 3 years average Salary Period =
01.04.2005 |
to |
31.03.2006 |
40,844.00 |
365 |
14,908,060 |
|
01.04.2006 |
to |
31.08.2006 |
41,287.00 |
153 |
6,316,911 |
|
01.09.2006 |
to |
31.03.2007 |
41,610.00 |
212 |
8,821,320 |
|
01.04.2007 |
to |
31.03.2008 |
41,209.00 |
365 |
15,041,285 |
|
|
|
|
|
1095 |
45,087,576 |
|
Divided by 1095 = 41,175.87
Average Salary: £41,175.87
Deemed Date for Future Increases: 01.09.2011
Calculation of benefits will therefore be:
18.000 (pensionable service) x 41,175.87 divide by 80 =
£9,264.57 (Annual Pension) x 3 = £27,793.71 (lump sum)
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Arrears of pension:
Arrears of pension will be due from 1.9.2011 up to 12 April 2012 based on the difference between £9,264.57 and the rate of £9,161.12 that was paid i.e. £103.45 a year. This would be approximately £63.00 gross for the period of the arrears.
The “deemed date” for the next increase on annual pension is 01.09.2011 the day after the date to which salary rates have been re-valued.
Increased Lump Sum:
£27,793.71.10 Less Lump Sum Paid of £27,483.36 = Credit Balance Due of £310.35
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Annual Pension Rate payable from 12 April 2012.
The pension rate of £9,264.57 will be due an increase from the deemed date of 1.9.2011 up to 12.04.2012.
Based on 1.58% increase for this 7 month 11 day period the pension rate would be increased to £9,410.95.
The deemed date for the next increase due in April 2013 would be 13.04.2012.
Example of First Phased Retirement, Second Phased Retirement & Final After Phased Retirement Calculations:
First Phased Retirement:
- Members “effective date” of retirement is 15.09.2011 and is retiring on Actuarially Reduced Phased Retirement grounds at age 55:
- The member’s “average contributable salary” over the last 6 months prior to the last day of pensionable service in the higher paid post i.e. up to 14.09.2011 is £36,000.00.
- The member’s contributable salary from the “effective date” of retirement on 15.9.2011 is £28,800.00 (a 20% decrease in contributable salary).
- The member’s “average salary” to be used in the calculation of the retirement benefits (based upon the last 365 days of pensionable service prior to 14.09.2011) is £35,500 and the deemed date is 15.9.2011.
- The member wishes to take 50% of their accrued retirement benefits.
Step 1. Calculate the total pensionable service accrued up to the “effective date” of retirement in the usual way.
- Up to and including 14.09.2011 the member will have accrued 25 years 145 days service for personal benefits and 23 years 162 days for family benefits.
Step 2. Determine the amount of service to be used in the calculation of the phased retirement benefits.
- Member has elected to take 50% of their personal benefits at this time. These benefits will be subject to actuarial reduction as the member is under Normal Pension Age (NPA).
- The calculation is as follows:
25 years and 145 days (25.3972) x 50% = 12.6986 years = 12 years 254.99 days (days rounded down to 254 days).
Step 3. Calculate the phased retirement benefits.
Using the determined service total and the average salary the calculation is as follows:
1. Annual Basic Pension:
£35,500.00 x 12.6986 = £5,635.00 x 0.794 (ARB factor for age 55) = £4,474.19
80
2. Annual deduction for NI Mod and Grad at State Pension Age (SPA):
£5.10
Any deduction for NI Mod or Graduated Abatement will be deducted from this annual pension at “State Pension Age” (SPA).
3. Basic Lump sum:
£35,500.00 x 12.6986 x 3 = £16,905.00 x 0.794 (ARB factor for age 55 ) = £13,422.57
80
4. Pensions Increase:
The deemed date for Pensions Increase on this annual pension is 15.09.2011. Pensions increase is applied annually each April.
5. Family Benefits (FB):
An FB pension will not be calculated at the time of phased retirement– this will be done at “Final Retirement”.
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Second Phased Retirement Calculation of Retirement Benefits:
The member is retiring at age 60 on Age Phased Retirement grounds having accrued a further 5 years of pensionable service. The members “effective date” of retirement is 15.09.2016:
- The member’s average contributable salary over the last 6 months prior to the last day of pensionable service in the higher paid post i.e. up to 14.09.2016 is £31,174.00.
- The member’s contributable salary from the “effective date” of retirement on 15.9.2016 is £24,939.00 (a 20% decrease in contributable salary).
- The member’s average salary to be used in the calculation of the retirement benefits (based on re-valued salaries in the last 10 calendar years) is £38,000.00 and the deemed date is 15.9.2016.
- The member wishes to take 75% of their accrued retirement benefits.
Step 1. Calculate the total pensionable service accrued up to the “effective date” of retirement in the usual way.
- Up to and including 14.09.2016 the member will have accrued 30 years 145 days service for personal benefits and 28 years 162 days for Family benefits.
Step 2. Determine the amount of service to be used in the calculation of the second phased retirement benefits.
Total service calculated at Step 1 (30 Years 145 days = 30.3972) Multiplied by
The total % the member wishes to take (75%) = 22.7979 = 22 years 291 days Less.
The amount of service used in the first phased retirement award calculation of 12 years 254 days equals:
The amount of service to be used in the second phased retirement calculation i.e. 10 years 37 days (10.1014 years).
Step 3. Calculate the second phased retirement benefits.
Using the determined service total and the average salary the calculation is as follows:
1. Annual Basic Pension:
£38,000.00 x 10.1014 = £4,798.16
80
2. Deductions for NI Mod and Grad at SPA:
N/A – already calculated and applied to first phased retirement pension.
3. Basic Lump sum
£38,000.00 x 10.1014 x 3= £14,394.48
80
4. Pensions Increase:
The deemed date for Pensions Increase on this annual pension is 15.09.2016. Pensions increase is applied annually each April.
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Final Retirement after Phased Retirement - Calculation of Retirement Benefits:
- The member is taking “Final Age Retirement” at age 64 having accrued a further 4 years of pensionable service. The members “effective date” of retirement is 15.09.2020:
- The member’s average salary to be used in the calculation of the retirement benefits (based upon re-valued salaries in the last 10 calendar years) is £39,000.00 and the deemed date is 15.9.2020.
Step 1. Calculate the total pensionable service accrued up to the “effective date” of retirement in the usual way.
- Up to and including 14.09.2020 the member will have accrued 34 years 145 days service for personal benefits and 32 years 162 days for family benefits.
Step 2. Determine the amount of service to be used in the calculation of the “Final” retirement benefits.
Total Service calculated at Step 1 (34 years 145 days ) Less.
The amount of service used in the first and second phased retirement award calculations of 22 years 291 days equals:
The amount of remaining service to be used in the calculation of “Final Retirement Benefits” i.e. 11 years 219 days (11.6 years).
Step 3. Calculate the final retirement benefits.
Using the determined service total and the average salary the calculation is as follows:
1. Annual Basic Pension:
£39,000.00 x 11.6 = £5,655.00
80
2. Deductions for NI Mod and Grad at SPA:
N/A – already calculated and applied to first phased retirement pension.
3. Basic Lump sum:
£39,000.00 x 11.6 x 3= £16,965.00
80
4. Pensions Increase:
The deemed date for Pensions Increase on this annual pension is 15.09.2020. Pensions increase is applied annually each April.
- Family Benefit Pension:
£39,000.00 x 32.4438 = £7,908.18
160