From 1 April 2022 eligible members of the Teachers’ Pension Scheme (TPS) will see changes which rectify the pension discrimination based on the McCloud judgement. Find answers to some common questions you may have and what it could mean for your finances.
What happens from 1 April 2022?
- All affected members return to their legacy scheme, pre 2007 section or 2007 section, for the remedy period from April 2015 to 1 April 2022.
- Active members move to the 2015 scheme from 1 April 2022 and the legacy schemes will close to new contributions.
- The Deferred Choice Underpin (DCU) is introduced, allowing members to choose which scheme they receive benefits from for the remedy period.
What is the background to these changes?
In April 2015, public sector pension schemes were reformed, with most members moved into new career average arrangements. Following consultations with member representatives, transitional protections were put in place to protect those close to retirement. These protections meant that members within 10 years of retirement on 31 March 2012, would not move into the reformed schemes, usually referred to as the 2015 schemes.
The Government's remedy to remove this discrimination from all public sector pension schemes is to introduce a deferred choice underpin (DCU).
Who is affected?
- All members who were in service before 31 March 2012 and on or after 1 April 2015, including members who were in service on 31 March 2012 and then took a qualifying break of less than 5 years. This also includes members who left pensionable service, or who took their pension benefits, after 1 April 2015.
- All public sector schemes including Teachers’, the NHS, Local Government, Armed Forces and Judicial.
Due to how the reformed schemes were introduced, separate consultations have been published for the Local Government schemes in Scotland and England & Wales. A separate consultation was also issued for the schemes in Northern Ireland.
What does this approach mean for teachers?
As some members will benefit from moving to the reformed scheme, the Government will give members a choice via the DCU. This is the approach selected following the consultation and is where members will be given the choice, when they access their scheme benefits, of which scheme they wish to receive benefits from during the period from 1 April 2015 to 31 March 2022, also known as the ‘remedy period’.
For those members who have already taken benefits or are planning to retire (including partially) before October 2023, the choice will be offered 'as soon as practicable’. Their choice will then be applied retrospectively.
In the meantime eligible members will remain in, or be returned to, their legacy schemes for service between 2015 and 2022. All members still active in the scheme as at 1 April 2022 will be moved into the CARE scheme.
The majority of teachers went into their careers thinking they would retire at 60, however as a result of these changes, this now means that your retirement age is going to be in line with the state pension age, which currently is 67.
So what can teachers do about it?
This means that teachers who have been teaching for more than ten years will essentially have two pension pots - the legacy scheme and the CARE scheme. Whilst the legacy scheme has a normal retirement age of 60 for the 80th section or 65 for the 60th section, the CARE scheme retirement age is the state pension age. If you want to retire at normal retirement age so no early retirement penalty is applied, you will be drawing your benefits from the legacy scheme before being able to draw from the CARE scheme. This could result in a potential gap of between three and eight years to bridge before full pension can be drawn.
What teachers need to do
If you are planning on retiring before now and October 2023, the TPS will contact you to make your choice after your retirement. If any additional benefits are due, they will be backdated to your actual retirement date.
There are a number of options available to you to help bridge the financial gap by reassessing your finances including taking out a private pension, AVC, buy out or phased retirement.
Do you need further guidance?
With areas as complex as this, it's a good idea to get advice. To best understand how you are affected by these options and in particular the most recent changes, you can book a no-obligation financial review to speak to a Specialist Financial Adviser from Wesleyan Financial Services.