Teachers' Pensions

Premature Retirement

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If a member is 55 or over, then you may decide to grant premature retirement benefits if you make the member redundant, although you’re not obliged to do this and it is entirely at your discretion. If you do decide to grant a member premature retirement benefits you need to be aware that you will be legally obliged to pay Mandatory Compensation for the lifetime of that member. If the member has more than one employer, and the second employer has not agreed to make the member redundant, then you will cover the Mandatory Compensation for all of the member's service to their Normal Pension Age, including service with the other employers. This is assuming the member leaves pensionable service in their other employment, either by leaving that post or opting-out of their second employment.

The Scheme will pay the member Actuarially Adjusted Benefits (AAB)Pensions can be taken from the age of 55 (or earlier if due to ill-health). Where a pension is being paid out before the Normal Pension Age (NPA) for those benefits the amount is reduced using actuarial factors because it is being paid out for a longer period than if taken at NPA. based on the service completed by the member. You’ll be required to pay the difference between that and the service they could have completed, so that the member receives unreduced benefits. This is known as Mandatory Compensation. If family benefits are subsequently paid, they are not reduced and the scheme will pay the full amount.
Premature retirement is not an option at the end of a fixed-term contract. If you’re a Local Authority and make a severance payment, premature benefits can’t be paid.

Before premature retirement benefits can be paid the member must cease all teaching employment and their contract(s) of employment must end. Where a member works on a supply or casual basis, their contract must end. A non-working day is not considered as a break in service.

If a member has accrued both final salary and career average benefits then all their benefits have to be taken at the same time. You will have to pay Mandatory Compensation on both benefits.

You will be required to confirm:

  • the member’s proposed retirement date;
  • that you accept that you will have to pay part of the member’s benefits; 
  • how you propose to make those payments; and
  • details of  service and salary since your last service return or from a date required by Teachers' Pensions.

If there is any delay in providing the information the member may not receive their benefits at their retirement date / payable date.

Applications should be submitted at least 3 months before the proposed retirement date but any application received more than 6 months from the retirement will be rejected. This is because service and salary details can change in the intervening period.

You can choose to make the Mandatory Compensation payment direct to a member yourself or can contract with Teachers' Pensions to make those payments on your behalf.

If you contract with Teachers' Pensions to make the payments you’ll have to refund the Teachers’ Pension Scheme for the payments issued on your behalf. This is in addition to an administration fee.

You can make the refund to the Teachers’ Pension Scheme by one of three methods:

  • Pay as you go where the refund is made every 3 months based on the payments made in the previous 3 months;
  • On a one off lump sum basis where an actuarial calculation is undertaken using factors based on life expectancy provided by the Teachers’ Pension Scheme actuary; or
  • On a lump sum basis where an actuarial calculation is undertaken using factors based on life expectancy provided by the Teachers’ Pension Scheme actuary but the lump sum is paid over a period of two to five years. In those circumstances interest is charged on the total payment.

In addition to the mandatory element you may decide to grant additional benefits to the member. This is known as Discretionary Compensation. Again you can choose to make these payments direct to the member or can contract with Teachers’ Pensions to make those payments on your behalf. The arrangements for refunding the Discretionary Compensation are the same as those for Mandatory Compensation.

Unlike Mandatory Compensation Discretionary Compensation does not end when a member dies but continues to be paid at a reduced rate to the spouse or civil partner after a member’s death.

Last Updated: 20/06/2017 14:26

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