Changes to Northern Ireland Teachers’ Pensions (2007)
Following a series of meetings between the Department of Education (new window) (DENI) and representatives of union and employer associations, agreement has been reached on the main features of the scheme for both new entrants and existing members, which are now the subject of wider consultation. These are contained in a copy of the draft ‘joint statement and summary of reforms’.
A normal pension age (NPA) of 65 for ‘new’ members of the Northern Ireland Teachers’ Superannuation Scheme (new window) (NITSS) was part of the agreement reached last year but the subsequent negotiations have improved on the degree of protection for ‘existing’ members with NPA of 60.
DENI intends to introduce legislation in the school year 2010/11 that will remove the earlier option for teachers to take early retirement from age 50 in cases of redundancy ('premature retirment'). As in England and Wales, the option to access an Actuarially Reduced Pension from age 55 will be available. It should be borne in mind that from 2010 onwards UK law will prevent any retirement before age 55 except in cases of ill health. It should be remembered that in England and Wales, members of the Teachers’ Pension Scheme (new window) (TPS) can at present access an Actuarially Reduced Pension from age 55. The availability of this option in Northern Ireland will probably be warmly welcomed by Northern Ireland Teachers. The proposed changes to the NITSS mirror those proposed for England/Wales with the exception of a few minor detail differences. NASUWT argues that we want to reach the same conclusion to the consultation process, with essentially the same outcomes, as has been achieved in England and Wales.
The main changes and their implications can be summarised as follows.
1. The change to a normal retirement age of 65 will apply to ‘new entrants’ to the NITSS on or after 1 April 2007.
2. Normal pension age 60 will continue to apply to ‘existing members’ who are in service on 31 January 2006. Deferred (‘out of service’) members who re-enter pensionable employment within five years of any ‘break’, or by 31 December 2007 regardless of the length of break, will be treated as ‘existing’ members. The five-year limit applies to any subsequent break(s) in an existing member’s service.
N.B. this means that teachers with previous service in NITSS must return to teaching within five years or by 31 December 2007 at the latest to retain ‘existing member’ status for any future service, otherwise future service will be based on 60ths and an NPA of 65, while benefits from any service as an existing member will continue to be payable at age 60 based on 80ths. If they do not return to service after 1 April 2007 their pension will be based on NPA of 60 and the current definition of final salary.
3. From 1 April 2007, the definition of final average salary for the calculation of pension benefits will be based on the better of the salary in the last year or the average of the best three consecutive years (increased in line with RPI) in the last ten years.
The new definition may not exceed the current ‘best year in the last three’ in every case but transitional provisions provide for pension to be based on either the old or the new definition, whichever is the better, for retirements up to 31 December 2008.
N.B. The new definition of final salary will apply to teachers on safeguarded salaries from 2006 onwards. This means that safeguarded management allowances will count for pension purposes in their entirety, provided they retire before the end of 2015. After 2015, any safeguarded sum will gradually drop out of the ‘final salary’ calculation.
N.B. As a result of the above, the ‘stepping down’ arrangements will be discontinued from 1 April 2007 but anyone with an existing stepping down/contributions on a former higher salary election as at 31 March 2007 will continue to have that protection if it produces a more favourable outcome at retirement.
4. A two-tier ill health retirement scheme will be introduced for both new and existing scheme members. The initial qualifying criteria for IHR remains the same (i.e. a permanent incapacity for teaching) but the level of benefit depends on the individual’s ability to undertake other employment.
A higher level ‘total incapacity benefit’ (TIB) – payable where an individual would be capable of only doing a job greatly below the overall weight of the job of a teacher – would be based on an enhancement of half prospective service up to NPA 60 or 65 as appropriate (this will be better than the existing level of enhancement for ill heath retirees on TIB with at least 13 years to NPA). ‘Partial incapacity benefit’ (PIB) would be based on accrued service only, with no enhancement. The proposed lower tier PIB would be paid ‘where an individual is permanently incapable of teaching but capable of a range of other types of work’. Payment of partial incapacity benefit would not be subject to periodic review, giving PIB ill health retirees a greater degree of certainty than under the present scheme.
N.B. Deferred members who have left teaching but have yet to draw their pension can qualify for the IHR benefits based on actual service (i.e. without enhancement or actuarial reduction) if, and only if, they meet the criteria for total incapacity benefits.
5. Survivor benefits will be payable (for life) for ‘financially dependent or interdependent’ unmarried partners (of either sex) in respect of service after 1 April 2007 with a limited right for existing members to purchase benefits for past service. Survivor pensions for spouses, civil and unmarried partners will require two years’ qualifying service, as now, and will continue to be on the existing basis of 1/160th for each year of reckonable service regardless of whether the member’s pension accrual rate is 1/80th or 1/60th.
N.B. There will be a procedure for nominating partners who will have to provide proof of ‘financial’ dependence/interdependence, using a range of evidence, at the time of the member’s death.
6. The death grant will be increased from two times to three times salary from 1 April 2007.
7. For new entrants only the pension accrual rate will be 1/60th for each year of service with an option to give up or ‘commute’ by giving up as much pension as they wish within new limits set by Her Majesty’s Revenue and Customs.*
Although the benefits are only payable in full from age 65, the new 60th provision produces better benefits per year of service as new entrants will receive a bigger initial pension which they can then ‘commute’ by giving up as much pension as they wish within new limits set by Her Majesty’s Revenue and Customs.*
N.B. as the example below illustrates, this will allow teachers to take at least the equivalent of the existing lump sum and pension (albeit only payable in full from age 65). In most cases, new entrants could choose to commute their pension for a lump sum at the rate of 12:1 to receive:
- EITHER the same annual pension as under the existing 80th scheme with a bigger lump sum;
- OR the same lump sum as the existing scheme with a bigger residual pension;
- OR a lump sum of 3 x their new annual pension;
- OR some other combination within the HMRC limits.
Final Pensionable Salary: £30,000. Pensionable Service: 20 Years |
||
Provision |
Annual Pension |
Lump Sum |
|
20/80th |
£7,500 |
£22,500 |
|
|
|
|
|
20/60th |
£10,000 |
|
|
or |
£7,500 |
+ £30,000 |
|
or |
£8,125 |
+ £22,500 |
|
or |
£8,000 |
+ £24,000 |
8. N.B. Existing members do not have the option to switch to the new 60th pension arrangement but under the new tax regime they will, if they wish, be able to take a higher tax-free lump sum (within the HMRC limits) than at present with a reduced level of pension (see para. 9 below).
9. This means, once the changes are in place, existing members retiring after
1 April 2007 will be able to access more of their TP benefits as a tax-free lump sum by giving up some of their pension. The existing provision provides an automatic lump sum of three times pension – this amount cannot be reduced under the proposals. However, the new provisions will enable existing members to take a lump sum (at the time of retirement) up to the HMRC limit of 25% of their fund value with a correspondingly reduced annual pension. For example, current benefits of £10,000 p.a. plus a £30,000 lump sum could be exchanged for a £57,500 lump sum and a pension of £7,708 p.a.
10. New part-time employees with contracts commencing on or after
1 April 2007 will automatically become members of the pension scheme unless they opt out of NITSS. Teachers on existing non-pensionable part-time contracts will remain outside of NITSS unless they make an election to opt in, or until they enter into a new contract on or after 1 April 2007. However, any who have previously chosen to opt out of NITSS will have their existing election (to opt out) applied in any new part-time contract unless they opt in.
N.B. The above provisions mean that existing part-timers will have to opt in to NITSS by 31 March 2007 at the latest to obtain benefits – and normal pension age 60 – as ‘existing’ members of the scheme.
11. The existing provisions for purchasing past added years (PAY) will be replaced by a new facility to purchase up to £5,000 per annum of additional pension benefits. The cost of purchasing additional pension has not yet been finalised but will be similar to existing arrangements.
N.B. the new facility to purchase additional pension benefits will operate alongside any existing elections to purchase PAY made before 1 April 2007.
12. Precise details of the phased retirement arrangements that will enable both existing and new NITSS members aged 55 or over to continue working as a teacher within the NITSS while drawing part of their accrued pension benefits have yet to be finalised. They will, however, require a reduction of at least 25% in responsibilities/salary for at least 12 months, but without the same need for employer agreement as under existing ‘stepping down’ arrangements. N.B. Any part-pension will be actuarially reduced if it is taken before NPA, but will not be subject to abatement.
13. With effect from 1 April 2007 the contribution rate for existing and new members will be 6.4% of salary, compared to the existing 6%, in order to allow the protections and improvements above to be implemented. N.B. the employers’ contribution rate will decrease to 13.6% from the same date.
Except for the accrual rate of 60th, the normal pension age of 65 and an enhanced pension for those who choose not to draw their benefits until after age 65, all the improvements above apply to existing as well as new members.
14. Retirement at age 55 with actuarially reduced benefits
This facility is now available in Northern Ireland for all teachers.
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