Teachers' Pensions
Methodology

Methodology

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As the benefit structure differs for the Final Salary and Career Average arrangements we use different methodologies to calculate the estimates.

Final Salary arrangement

The pension you receive is based upon your Final Average SalaryThe salary used to calculate a member’s final salary pension benefits based on the most beneficial of the following; either the last 365 days salary or the best 3 years’ salary over the previous 10 years plus any applicable inflation. If a member has part-time employment, their full time equivalent salary will always be used in the calculation., the number of years of Reckonable ServiceReckonable Service is any service that counts for benefits in the final salary arrangement. It can include service from pensionable employment, any additional service previously purchased, and any service credited into Teachers’ Pensions from another pension scheme. and the Accrual rateThe rate at which your pension builds up, based on your pensionable earnings (career average standard rate of 1/57th of pensionable earnings) or pensionable service (final salary 1/80th or 1/60th depending on when you joined and any service breaks you've had).. There is a different accrual rate for the different sections of the Final Salary arrangement. For reckonable Service with a Normal Pension Age (NPA)The age at which you're eligible to claim retirement benefits without actuarial reduction. of 60 the accrual rate is 1/80th, whereas for reckonable service with a NPA of 65 the accrual rate is 1/60th.

The formulas to use are therefore:

NPA60: final average salary/80 multiplied by reckonable service (divide any part year by 365 – for example 25 years and 247 days will be 25.67671233).

Example: a member with a final average salary of £30,000 and reckonable service of 25 years and 247 days will have an annual pension of 30,000/80 x 25.67671233 = £9,628.77 upon reaching their NPA of 60, plus an automatic lump sum of £28,886.30.

NPA65: final average salary/60 multiplied by reckonable service.

Example: a member with a final average salary of £30,000 and reckonable service of 25 years and 247 days will have an annual pension of 30,000/60 x 25.67671233 = £12,838.36 upon reaching their NPA of 65.

You will find the latest estimate of your final average salary on your Benefits Statement on My Pension Online (MPO). If you've not registered for a MPO account yet why not register now?

NB – if you have any deductions to your pension, as a result of Scheme Pays elections, a Pension Share on Divorce, or Lifetime Allowance charges, these will be deducted after calculating your pension.

Early Retirement: If you retire earlier than your NPA you will be receiving the pension for a longer period of time than the benefits have been costed for. Consequently the annual pension must be adjusted to reflect this point, which we do by applying a factor to the calculation. For example, retiring at age 55 in the NPA60 section of the Final Salary arrangement will require a factor of 0.796 to be applied to the pension, i.e. multiply the calculated amount by 0.796 to derive the final annual pension. The factors and guidance can be found here.

Example: a member with a final average salary of £30,000 and 25 years and 247 days reckonable service will have an annual pension of 30,000/80 x 25.67671233 = £9,628.77 upon reaching their NPA of 60, plus an automatic lump sum of £28,886.30. If the same person retired early, at age 55, their annual pension will be £9,628.77 x 0.796 = £7,664.50, plus an automatic lump sum of £22,993.50.

Late Retirement: If you retire after your NPA  in the NPA65 section of the Final Salary arrangement and have remained in pensionable service beyond your 65th birthday, the pension benefit based on the service prior to your NPA will be subject to a late retirement enhancement. The factors and guidance to calculate the late retirement enhancement are available here.

Career Average arrangement:
In the Career AverageFrom 1 April 2015 the method of benefit acrual for new entrants or transitioning members became Career Average Revalued Earnings. This is a defined benefit pension where a fraction of pensionable earnings are banked each year and revalued annually on a compound basis. arrangement you build up a pension ‘pot’ each year in the Scheme, based on your pensionable earnings in the year divided by the accrual rate. The normal accrual rate is 1/57th of your pensionable earnings, but you can choose to pay additional contributions for a faster accrual rate of 1/55th, 1/50th or 1/45th of your pensionable earnings.

For example, a member earning £30,000 per year will add one of the following amounts to their ‘pension pot’, depending on the rate of accrual:

Standard rate of 1/57th         = £30,000/57 = £526.32

Faster accrual rate of 1/55th = £30,000/55 = £545.45

Faster accrual rate of 1/50th = £30,000/50 = £600.00

Faster accrual rate of 1/45th = £30,000/45 = £666.67

At the end of each year we add the pension you’ve accrued in the year to your ‘pension pot’, and at the beginning of the next Scheme year we’ll revalue the pot to keep it in line with price increases. If you’re an active member of the Scheme we’ll add on an extra 1.6% to the revaluation.

But if you leave the Scheme you become a deferred member and the revaluation of Career Average benefits from that point is based on the Pensions Increase , without the extra 1.6%. However, should you return to pensionable service after a break of not more than 5 years we will treat the period of the break as having been in active service and amend the revaluation of your  ‘pension pot’ in the period to include the additional 1.6% at the start of each year.

If you return after a single break of more than 5 years the deferred benefits will continue to be revalued in line with the Pensions Increase and only new pension accrual will be revalued as active.

Last Updated: 05/03/2018 15:19

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