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Teachers Pension Scheme - Reforms

By Wesleyan

The Teachers' Pension Scheme (TPS) changed from 1 April 2015

Changes to the Teachers' Pensions Scheme (TPS) came into effect from 1 April 2015.  From this date a new scheme will be introduced which will be based on career average earnings. The new Scheme will be called the Career Average Arrangement by the TPS.

A member's Normal Pension Age (NPA) will be equal to their state pension age (SPA). Not all members will move to the Career Average Arrangement as transitional protections will be put in place for those closest to retirement.

The main features of the new scheme arrangements:

  • Pensions will be calculated on the Career Average Revalued Earnings (CARE) Scheme basis.
  • A member's Normal Pension Age (NPA) is linked to the State Pension Age (SPA) or 65 if higher
  • An accrual rate of 1/57th of each year's pensionable earnings
  • The pension accrued will be re-valued each year using factors provided by HM Treasury, currently the increase in the Consumer Price Index (CPI) plus 1.6%. This is referred to as indexation by the TPS
  • Deferred member benefits will also be indexed by a factor provided by HM Treasury, currently CPI
  • There are a wider range of scheme flexibilities allowing members to purchase a faster accrual rate in chosen years or to buy out any early retirement reduction over age 65
  • Benefits accrued in the existing scheme prior to transition to the new scheme arrangements will be protected and remain in the final salary arrangement

Members who have accrued benefits in their final salary scheme prior to being moved to the new TPS, they will have their existing benefits protected. For members, who will have benefits in both final and career average schemes, will receive benefits that include the benefits they have built up in their final salary arrangement and the benefits built up in the career average arrangement.

What is Career Average Revalued Earnings?

Once a member moves to the Career Average arrangement their pension benefits will be based on the amount they earn. Each year 1/57th of the member's salary will be notionally put aside in a pot which is then indexed annually by CPI plus 1.6%. At retirement the value of each year's pension pot will then be added together to calculate the annual pension they will receive.

Which members will be affected by the changes?

Existing members are split into three groups depending on how far they were from NPA at 1 April 2012 How a member will be affected by the changes then depends on which group they are in.

Protected Members: Those who were active members of the scheme on 31 March 2012 and were within 10 years of their normal pension age on 1 April 2012, either 60 or 65, will remain in final salary.

Tapered Members: Those who were active members of the scheme immediately before 1 April 2012 and were within 10 to 13 years 5 months of their normal pension age on that date, will remain in final salary arrangement for a tapered period of time. At the end of the tapered period they will then move into career average arrangement - this is their transition date.

A member will keep protection until:
  • they have a continuous break in service of more than 5 years
  • they take their pension benefits (other than phased benefits)

Transition Members:
Those who were active members but more than 13.5 years away from their NPA on 31 March 2012 will enter career average scheme on 1 April 2015.

Members, who join the scheme on or after 1 April 2015, will automatically enter career average arrangement.

If you are unsure how the changes to the TPS will affect you personally, and if you would like to discuss the options open to you, please contact your local Financial Consultant for more information.

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