ACTUARIALLY REDUCED PENSIONS

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					ACTUARIALLY REDUCED PENSIONS
GUIDANCE FROM THE NATIONAL UNION OF TEACHERS

GUIDANCE FOR NUT MEMBERS CONSIDERING RETIREMENT BEFORE THE AGE OF 60

What are Actuarially Reduced Pensions? Actuarially Reduced Pension, or ARP, is the phrase used to describe a teacher’s pension and lump sum payment that has been reduced by a specific amount to reflect the fact that the pension benefits have been paid earlier than the normal retirement age of 60. The amount of the reduction has been calculated by the Government Actuary to take into account the loss to the scheme of the contributions that would have been payable by both the teacher and the employer, together with the loss to the scheme of the pension benefits being paid early.

Who is eligible to apply for an ARP? Any full-time or part-time teacher who is aged between 55 and 60 at the payable date and has been employed in pensionable/excluded employment on or after 30 March 2000. n.b. The ARP must be at least equivalent to the value of the state guaranteed minimum pension, (GMP), otherwise no ARP is payable. As a rule of thumb, where a teacher has accrued more than 5 years’ full time pensionable employment, the GMP is less than the ARP.

Will my application for an ARP require the consent of my employer? In the case of a teacher in employment who wishes to apply for an ARP, the consent of the employer is required. Such consent cannot be withheld by the employer for longer than 6 months.

By how much is the pension and lump sum reduced? This will depend on the teacher’s age at the time the ARP becomes payable. The percentage reduction in the pension and lump sum will be as set out in the tables in the Appendix to this leaflet. To illustrate the effect of an ARP, let us look at a few examples. Figures have been rounded to the nearest pound.

Example 1 A teacher aged 55 years 1 month retires having completed 30 years of reckonable service and with an average salary over the final year of that service amounting to £27,861. The unreduced pension would be £10,448 and the unreduced lump sum £31,344.

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If that teacher took an ARP the pension would be reduced by £2,657 leaving a reduced pension of £7,791 and the lump sum would be reduced by £4,846 leaving a reduced lump sum of £26,498.

Example 2 A teacher aged 57 years 6 months retires having completed 20 years of reckonable service and with an average salary over the final year of that service amounting to £28,932. The unreduced pension would be £7,233 and the unreduced lump sum £21,699. If that teacher took an ARP the pension would be reduced by £1,023, leaving a reduced pension of £6,210 and the lump sum would be reduced by £1,779, leaving a reduced lump sum of £19,920.

Example 3 A teacher aged 59 years 10 months retires having completed 35 years of reckonable service and with an average salary over the final year of that service amounting to £33,324. The unreduced pension would be £14,579 and the unreduced lump sum £43,737. If that teacher took an ARP the pension would be reduced by £146, leaving a reduced pension of £14,433 and the lump sum would be reduced by £249, leaving a reduced lump sum of £43,488.

Will the ARP be adjusted when I reach age 60? No. The ARP will continue for so long as you receive your pension entitlement.

Will the ARP be subject to any increase? Although the basic ARP will continue for so long as you receive your pension entitlement, it will be subject to cost of living increases, as measured by the Index of retail prices, in the same way as an unreduced pension.

Will the ARP affect the pension payable to my spouse should I die? No. The ARP will apply only to your pension entitlement. Any benefits payable to your spouse and/or children, in the event of your death, will not be affected.

Will ARPs replace the Premature Retirement Compensation arrangements? No. Premature Retirement Compensation (PRC) is still available for teachers over age 50 who are either made redundant or whose employment is terminated in the interests of the efficient exercise of the employer’s functions. The cost to the employer of the early payment of the pension benefits will be lower under the new arrangements due to the less severe actuarial reductions.

Will ARPs affect the ill health retirement arrangements? No. The ill health retirement arrangements are not affected in any way.

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APPENDIX Reductions for ARPs (age 55-59) and cost to employer of PRC (age 50-59)

Last updated in February 2002

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