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2015 Scottish Teachers' Pension Scheme FAQs

Q1.  When will the new arrangements be implemented?

A. The new scheme will come into effect from 1st April 2015. Until then members will continue in their current pension scheme.

Q2.  What will the 2015 scheme look like?

A. The Framework Document is details the new scheme.

The main features of the new scheme are:

        • a pension scheme design based on Career Average Re-valued Earnings (see Q5);
        • an accrual rate of 1/57th of pensionable earnings each year;
        • revaluation of active members' benefits in line with CPI + 1.6%;
        • member's normal pension age will be equal to their state pension age, which applies both to active members and deferred members (new scheme service only).  If a member's SPA rises, then NPA will do so too for all post-2015 service;
        • pensions in payment to increase in line with CPI;
        • benefits earned in deferment to increase in line with CPI;
        • member contributions to be paid on a tiered basis (as now) to produce a total yield of 9.6 per cent of total pensionable pay in the Scheme;
        • optional lump sum commutation at a rate of 12:1, in accordance with HMRC limits and regulations;
        • Spouses/partner pensions in accordance with current provisions;
        • lump sum on death in service of 3 times FTE salary;
        • ill health benefits the same as those in the current scheme;
        • actuarially fair early/late retirement factors on a cost-neutral basis except for those with a NPA above age 65 who will have early retirement factors of 3% per year for a maximum of 3 years in respect of the period from age 65 to their NPA;
        • an employer cost cap to provide backstop protection to the taxpayer against unforeseen costs and risks
        • the public sector transfer club will continue, and consideration will be given to the best method of operation in the reformed schemes;
        • phased retirement arrangements which reflect those in the current scheme, with the additional option of a third drawdown of benefits after a member's 60th birthday;
        • abatement will not apply to service in the new scheme.  Abatement rules for the current scheme will remain unchanged;
        • members who leave the scheme and return within 5 years will have their accrued service in the current (NPA60/65) scheme linked to their final salary at retirement;
        • flexibilities to allow members to elect to pay a higher contribution rate in return for a higher accrual rate for a particular year, at full member cost, within existing limits on additional pension; and
        • members who in the new scheme have a normal pension age higher than 65 will have an option in the new scheme to pay additional contributions to reduce or, in some cases, remove any early retirement reduction that would apply, if they retire before their normal
          pension age.  Only reductions that would apply in respect of years after age 65 can be bought out and the maximum reduction that can be bought out is for 3 years (that would apply to a member with a normal pension age of 68 or higher).

Q3.  What are the terms of protection for members of existing schemes?

A. All members in the current NPA 60 scheme who are aged 50 and over on 1st April 2012, and all members of the current NPA 65 scheme who are aged 55 or over on 1st April 2012 would retain their existing pension entitlements (ie they would remain in their current scheme) until they draw their benefits or become entitled to do so (other than by drawing phased retirement benefits).  In the event that they were subsequently re-employed, future service would accrue benefits in the new 2015 scheme.

Members of the NPA 60 scheme who are aged between 46½ and 50 on 1st April 2012 would remain in the current scheme on a tapered basis:

    • a member who was 49 years and 11 months on 1st April 2012 would retain membership of their existing scheme until 1st February 2022 (by when they would be 59 years and 9 months), and from that date they would start to accrue service under the reformed scheme.
    • a member who is 49 years and 10 months on 1st April 2012 would remain in the existing scheme until 1st December 2021.  This tapering would continue on a linear basis until members who are 46 years and 7th months on 1st April 2012 remain in the existing scheme until 1st June 2015.
    • Those aged 46½ or younger on 1st April 2012 would all move to the reformed scheme from 1st April 2015.

Members of the NPA 65 scheme who are aged between 51½ and 55 on 1st April 2012 would remain in their current scheme on the same tapered basis as above, but all the ages quoted would be 5 years greater, eg a member who is 54 years and 11 months on 1st April 2012 will remain in the existing scheme until 1st February 2022.

Q4.  For members who are not covered by protection, what happens to the pension they will have earned up to 2015?  Will members have to wait until their state pension age to access it?

A. No. The pension members have earned up until 2015 is protected and they can access it in full at their current normal pension age.  Their pension will be linked to their final salary at the time they leave or retire.  If members have a pension age of 60 or 65, they will be required, as now, to retire and leave the pension scheme when they take their benefits.  This means that members will either have to take any additional 2015 benefits with a reduction as they are taken early, or defer accessing them to a later date.

Q5.  What is a Career Average Pension? How does it compare with a Final Salary Pension?

A. In a "Career Average" scheme, a member earns a proportion of their earnings for each year while in the scheme. In a "Final Salary" scheme those who have a number of promotions tend to do better than those with flat careers.

In the reformed Scottish Teachers' Pension Scheme members will accrue 1/57th of their annual salary each year in pension. This is then increased by CPI plus 1.6 per cent per annum until members retire. So if a member earned £34,200 per annum, they would earn 1/57th of this (£600) in pension. If in the next year CPI was 3.5 per cent then their pension would be increased by 3.5 plus 1.6 per cent = 5.1 per cent. So their £600 would be worth £630.60.  If their pay remained at £34,200, members would also add a further £600 of pension so after two years they would have £1,230.60 of pension saved.  This continues until the member retires.

In a final salary scheme members would instead receive a credit of 2 years service. In the current (NPA65) scheme members would have earned over that same period 2/60ths of their final salary on retirement. What members get at retirement depends on how much their salary grows.

Q6.  What happens to a member's pension if their state pension age increases?

A. If a member's state pension age rises, then the age at which they can take their 2015 benefits rises in line with that. Members will be able to take their benefits at any age after 55 but there will be an actuarial reduction if it is before their state pension age.

Q7.  What happens to my pension if I have a break in service?

If you leave teaching you will become a deferred member and your benefits will be uprated by CPI only.  However, if you return to being an active member within 5 years then the in-service index-linking rate (CPI +1.6%) will apply as if you had never left and that rate applies going forward.

If you return to being an active member after a break of over 5 years pension benefits earned up to the point of the break will continue to be index-linked in line with the out-of-service rate (CPI) and only pension earned from the point you return to service will attract in-service index-linking (ie CPI + 1.6%).

Q8.  What happens to my pension if I leave pensionable service and do not return?

If you leave and never return to being an active member the out-of-service index-linking rate (ie CPI) will apply until the pension benefits are drawn.

Q9.  What is faster accrual?

You will earn pension each year at a rate of 1/57th of your pensionable earnings.  However, you will be able to elect to earn pension at a faster rate by meeting the full cost of the extra pension through additional monthly contributions from salary.

There will be 3 faster accrual rates to choose from: 1/45th, 1/50th and 1/55th. You will be able to elect to purchase faster accrual at the start of
each April provided that you remain in active service and you will pay the higher contribution rate for the remainder of the year.

Any extra pension accrued through this option would be treated in the same way as other pension, eg it would benefit from the same rules on indexation and dependants' benefits.

Q10.  Will I be able to commute pension for a lump sum?

The reformed scheme will not provide an automatic lump sum. However, you will (subject to HMRC tax limits) continue to be able to take up to 25% of the value of your pension, as valued under HMRC rules, as a lump sum.  The pension will be converted at a rate of £1 of pension for £12 of lump sum.

Q11.  Will there be any change to the criteria for ill health retirement?

The existing provisions for ill health retirement will continue in the new scheme.  Entitlement will continue to be based on the member's capability for work until their Normal Pension Age which will be linked to State Pension Age.

Q12.  Will there be a death grant payable to my beneficiary when I die?

Different levels of death grant will be paid, depending on whether the scheme member is active, deferred or a pensioner at date of death.  The amounts payable are as follows:

Scheme member's status at the time of death Death grant
Active 3 x final salary
Deferred 2.25 x member's accrued pension
Pensioner Five times pension at
date of death less pension paid to date of death

 

Q13.  Will there be early retirement options?

The arrangements from the current scheme which allow scheme members to apply for early payment of pension benefits where they leave pensionable or excluded employment after they have reached age 55 will continue to apply in the new scheme.  Where pension is paid before the member reaches NPA, it will be adjusted, on an actuarial cost-neutral basis, to take account of the fact that the benefits are being paid early or late.

Q14.  What is the 3% Actuarial Adjustment?

Where members draw their pension before their NPA, the reduction in the annual pension is on average approximately 5% for each year, eg if a member draws the pension 4 years early, it would be reduced by approximately 20%. However, where an active member with a NPA over 65 elects to receive the pension before their NPA, the adjustment to the level of benefits will be fixed at 3% for each year (up to a maximum of 3 years) between age 65 and the member's NPA.  This adjustment is applied regardless of the member's age at the point of retirement subject to a minimum age of 55 years, although only a maximum of 3 years between the member's 65th birthday and their NPA will benefit from the 3% rate.

For example, a member moves to the reformed scheme on 1st April 2015 aged 40 with 15 years in the current scheme.  The member has a normal pension age of 60 in the current scheme and a normal pension age of 67 in the reformed scheme.  At age 59, the member decides to retire from teaching and applies for actuarial adjusted benefits from both schemes as she is retiring from both before her NPA.  The member's benefits will be subject to one year of actuarial adjustment and her career average benefits will be subject to 8 years of actuarial adjustment.  The final 2 years of actuarial adjustment for her career average benefits (ie the 2 years after age 65) will be subject to the lower adjustment rate of 3%, in line with the new flexibility in the reformed scheme.

Q15.  How does a member buy out the post-65 Actuarial Adjustment

An active member may elect to buy-out some or all of the 3% actuarial adjustment referred to above.  This flexibility will not provide increased benefits at NPA, but would allow a member to retire from age 65 without any actuarial adjustment being applied. The full cost of buying out the 3% actuarial adjustment would be borne by the scheme member, and would depend on the age at which the member commenced paying.  It would be paid for by way of monthly contributions.  An election must be made within 6 months of joining the reformed scheme.

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