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What is happening to my pension by benbenzhou


									                               REVIEW OF THE


   Recent coverage of the review of the TPS has left many teachers
   and lecturers confused about what the proposed changes will
   actually mean for them in practice. In some cases, TPS members
   have been led to believe that, once the changes are introduced,
   they will not be able to access their pension until their 65th birthday;
   or that if they do still retire at 60 their benefits will be reduced by
   23%; or that teachers or lecturers who become too ill to continue in
   their profession will be denied access to ill health retirement

   There is no substance whatsoever to any of these claims. The
   attached Q and A deals with the most common questions that are
   currently being asked. Full details of the proposed changes to the
   TPS can be found at

   February 2005

*0613f7e7-aa29-472e-b253-f00921bb27ba.doc                                 1
   Why is the Government forcing me to work for a further five years before
   I can access my pension?

   It isn’t. There is nothing in any of the proposals for changes to the TPS that
   would prevent teachers from choosing to retire at any time after the age of 55
   just as they can now.

   But I will lose 23% of my pension if I choose to retire at 60?

   You won’t. It has always been made clear that, for existing teachers, the
   higher pension age will not come into effect until 2013; and then will only
   apply to service after that date. The impact on existing teachers of the higher
   pension age will be very gradual. Also, the proposal to improve the rate at
   which pension benefits build up from 1/80th of salary for each year of service to
     /60th of salary with greater flexibility over the amount of lump sum taken
   means that even teachers with all of their service subject to a pension age of
   65 will achieve by age 62.5 the same level of benefits payable under the
   current scheme. For existing teachers, the guaranteed protection of their
   benefits to 2013 means that they will achieve this point at an earlier age. See
   illustrations at the Annex or go to the calculator at where you can get an illustration based on
   your own circumstances.

   In such a physically and mentally demanding job, why are you making
   teachers work until they drop?

   We’re not. A very significant proportion of the school workforce (including
   teaching assistants and admin staff) is covered by the Local Government
   Pension Scheme which already has a normal pension age of 65. Teachers
   will still be able to retire at, before or after age 60 as they can now. The long
   lead time for the introduction of the higher pension age combined with the
   increased opportunities for saving for retirement that will come out of the tax
   regime that will be introduced in 2006 will better enable teachers to plan for
   retirement at a point of their choosing and to phase in retirement by drawing
   part of their pension while continuing to work in a reduced capacity.

   But isn’t life expectancy much shorter for teachers who work until they
   are 65?

   No. Teachers who continue working up to age 65 enjoy on average the same
   life expectancy as those who retire at 60, i.e. around age 85 for men and 88
   for women.

*0613f7e7-aa29-472e-b253-f00921bb27ba.doc                                              2
   But if I become too ill to teach, why am I going to be deprived of my
   pension unless I’m too ill to work at all?

   You won’t be. Ill-health retirement will remain available to all teachers whose
   medical condition makes them permanently unfit to teach. The proposals are
   that those who are unfit for any form of gainful employment would receive
   higher benefits than under existing arrangements. Those who are unfit to
   teach but could undertake other forms of employment would receive benefits
   based on their actual service; there would be no enhancement, but neither
   would there be any reduction to take account of the early payment of benefits.

   Why are you preventing any form of early retirement before age 55 and
   stopping me from receiving compensation if I’m made redundant?

   We’re not. New Inland Revenue rules will come into effect from 2006
   resulting in the minimum retirement age (MRA) at which any occupational
   pension can be drawn in either public or private schemes rising from 50 to 55,
   although it will not apply to ill-health retirement benefits. For existing
   teachers, the increase in MRA will not apply until 2010.

   However, the existing arrangements for premature retirement and severance
   are too rigid and we are considering with unions and employers how more
   appropriate and flexible arrangements could be introduced. But we are
   committed to retaining both premature retirement and enhanced severance
   arrangements within the scheme provisions.

   Won’t all these proposals seriously damage teacher morale and

   No. A pension age of 65 is already a common feature of private sector
   pension schemes. We believe that access to the TPS will remain a powerful
   incentive to those considering entering teaching. The more attractive and
   flexible the TPS is as a benefit to the membership, the greater the contribution
   it makes to recruitment and retention. Retention will be supported by greater
   flexibilities that will enable teachers to avoid the “cliff edge” of retirement by
   choosing to draw part of their pension while continuing to work in a reduced
   capacity or on a part time basis

   Are these proposals leading to the end of a final salary scheme for
   teachers, as is being considered in other public service schemes?

   No. There are no proposals to end the arrangements that provide for pension
   benefits to be related to salary at retirement, although we are working with
   unions and employers about ways in which flexible retirement and winding
   down can better be supported by more flexible arrangements where teachers’
   highest salaries are not at the time of their retirement.

*0613f7e7-aa29-472e-b253-f00921bb27ba.doc                                           3
   Why aren’t there any benefits for teachers in these proposals?

   There are many benefits in the proposals. We are looking to introduce a
   number of improvements to the TPS that could be part of a package
   containing the higher pension age. In particular, we have identified that
   moving from a 1/80th scheme to a 1/60th scheme, benefits for unmarried
   partners and widow(er)/partner benefits payable for life could all be provided
   without any increase in the contributions paid by teachers.

   New flexibilities are also being considered that will enable you to have more
   options in the way that you save towards retirement; more choice about the
   mix of pension and lump sum that you can take at retirement; and the option
   of drawing some of your pension benefits from age 55 without retiring, but
   continuing to work in a reduced capacity.

   We are working closely with union and employer representatives over the
   most appropriate package of changes that will ensure the long term
   affordability of the TPS as a high quality pension scheme. We shall be
   providing further details on the proposals later in the year.

   So if the changes are so good, why is there so much opposition to

   That’s not the case. The unions and employers have been closely involved in
   the review of the scheme and the proposals include many scheme
   improvements and changes that unions have been seeking for some time.
   The increase in pension age allows for these to be introduced as part of a
   package of changes that could be provided without any increase in the
   contribution paid by teachers. We understand that the proposal to increase
   the normal pension age will never be popular, but this is essential if we are to
   maintain a defined benefit scheme with guaranteed and inflation proofed
   benefits that is affordable and justifiable to taxpayers, many of whom have
   access to much less generous pensions arrangements.

   February 2005

*0613f7e7-aa29-472e-b253-f00921bb27ba.doc                                           4


   1.    The attached examples show the effect of increasing the normal
   pension age to 65 from 1 September 2013 when combined with an
   improvement in the accrual rate from 1/80th for each year of service plus a fixed
   lump sum of 3 times pension to 1/60th for each year of service, also with a lump
   sum of 3 times the pension.

   2.     The “target” pension and lump sum is what would have been payable if
   no change is made to either the pension age or the accrual rate. For the
   purpose of illustration, an assumed salary at retirement of £30k has been
   used in all examples. This represents a fairly typical average salary of retiring
   teachers. The actual salary would not change the % of the target pension and
   lump payable at retirement.

   3.     This demonstrates that even a teacher currently aged 24 would
   achieve the “target” level of benefits at around 62.5. The 49 year old teacher
   would still reach their “target” within a matter of months of reaching age 60. In
   all cases, benefits substantially in excess of the “target” are achieved by
   remaining in work until age 65.

   4.     A modeller is available at that
   enables individual teachers to assess the impact of the proposed changes on
   their own position. The teacher unions and their appointed actuaries all
   accept that the modeller fairly reflects the impact of the proposed changes.

*0613f7e7-aa29-472e-b253-f00921bb27ba.doc                                          5

   Example 1

   Date of birth                                      01/09/1955 (age 49)
   Service to 31/8/2013                               35 years
   Working pattern                                    Part time - 0.5
   Pensionable salary                                 £30,000
   Service from 1/9/2013 to 31/8/2015                 1 year
   Service to 31/8/2015                               36 years

   Comparison with target and actual pension + lump sum;-

                TARGET       ACTUAL         ACTUAL    ACTUAL    ACTUAL    ACTUAL    ACTUAL
                at age 60    Age 60         Age 61    Age 62    Age 63    Age 64    Age 65
   Pension      £13,500      £13,422        £13,597   £13,791   £14,009   £14,253   £14,525
                £40,500      £40,265        £40,790   £41,374   £42,027   £42,759   £43,575
   % of
                               99.5%         101%      102%      104%       106%     108%

   Example 2

   Date of birth                                      01/09/1965 (age 39)
   Service to 31/8/2013                               25 years
   Working pattern                                    Full time
   Pensionable salary                                 £30,000
   Service from 1/9/2013 to 31/8/2025                 12 years
   Service to 31/8/2025                               37 years

   Comparison with target and actual pension + lump sum;-

                TARGET       ACTUAL         ACTUAL    ACTUAL    ACTUAL    ACTUAL    ACTUAL
                At age       Age 60         Age 61    Age 62    Age 63    Age 64    Age 65
   Pension      £13,875      £12,937        £13,462   £14,040   £14,679   £15,391   £16,175
                £41,625      £38,810        £40,387   £42,119   £44,037   £46,173   £48,525
   % of
                                93%           97%      101%      106%       111%     117%

*0613f7e7-aa29-472e-b253-f00921bb27ba.doc                                                     6
   Example 3

   Date of birth                                      01/09/1975 (age 29)
   Service to 31/8/2013                               15 years
   Working pattern                                    Part time - 0.6
   Pensionable salary                                 £30,000
   Service from 1/9/2013 to 31/8/2035                 13.2 years
   Service to 31/8/2035                               28.2 years

   Comparison with target and actual pension + lump sum;-

                TARGET       ACTUAL         ACTUAL    ACTUAL    ACTUAL    ACTUAL    ACTUAL
                at age 60    Age 60         Age 61    Age 62    Age 63    Age 64    Age 65
   Pension      £10,575      £9,543         £9,964    £10,423   £10,929   £11,491   £12,105
                £31,725      £28,628        £29,891   £31,269   £32,787   £34,472   £36,315
   % of
                                90%           94%       99%      103%       109%     115%

   Example 4

   Date of birth                                      01/09/1980 (age 24)
   Service to 31/08/2013                              10 years
   Working pattern                                    Full Time
   Pensionable salary                                 £30,000
   Service from 1/9/2013 to 31/8/2040                 27 years
   Service to 31/8/2040                               37 years

   Comparison with target and actual pension + lump sum;-

                TARGET       ACTUAL         ACTUAL    ACTUAL    ACTUAL    ACTUAL    ACTUAL
                at age 60    Age 60         Age 61    Age 62    Age 63    Age 64    Age 65
   Pension      £13,875      £11,764        £12,553   £13,413   £14,358   £15,406   £16,550
                £41,625      £35,291        £37,660   £40,238   £43,074   £46,218   £49,650
   % of
                                85%           91%       97%      104%       111%     120%

*0613f7e7-aa29-472e-b253-f00921bb27ba.doc                                                     7

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