PENSIONS
Understanding the April changes to teachers’ pensions
Henry Tapper chief executive officer for AgeWage explains upcoming changes to teachers’ pensions from April 2022, along with who they will impact and why
T eachers’ pensions are changing (again). For a scheme that has its foundations in the 19th century and two million members, it’s remarkably flexible, responding to the changing needs of members, participating employers and its ultimate sponsor – the Treasury. The changes need to be understood and digested There are three different ways of calculating benefits in the teachers’ pension scheme (TPS): ● if you joined before 2007, you get an automatic lumpsum and a pension based on your final salary ● if you joined after 2007, you must elect to have a tax-free sum ● if you haven’t yet retired, you’ll find your benefits calculated based on your career average earnings (CARE), rather than your final salary (details below). For members, the impact will be felt over time, but the substantial change for payroll today will be onboarding new software and reconciling member contributions. This is in readiness for substantial changes that come in with the new financial year. Parts of the teaching profession are still coming to terms with the increase in contributions required in 2019, as we’ll see. Let’s start by looking closely at who’ll be impacted…
● ‘tapered’ members: you were a member at 1 April 2012 and were between ten and 13 and a half years before your pension age. You and 30,000 others are about to be moved to the CARE scheme ● ‘transition’ members: you were more than 13 and a half years from your retirement age before 1 April 2012. You were moved to the CARE scheme in 2015 ● ‘new’ members: you joined the scheme on or after 01/04/2015; so, you’re entitled to career average benefits. From 1 April 2022, the changes mean: ● your last day of service in the final salary scheme will be 31 March 2022 ● all members will be in the career average scheme from 1 April 2022 ● the salary link will still apply for those with service in the final salary scheme (unless you have a break of more than five years) ● all service will be built up in the career average scheme and you will have the opportunity to enhance your pension through pension flexibilities ● all overtime will be pensionable from 1 April 2022 ● once moved to the career average scheme, you’ll have a normal pension age of either your state pension age or age 65, whichever is later ● all teaching employment contracts will be pensionable in TPS – if you had an additional part-time position (on top of a full-time position), you can have both
Who’s impacted? Currently, if you’re a member, you fall into one of four categories. Depending on which category you fall into, your pension may be based on your final salary or your CARE, which is typically less generous. For a scheme that has its foundations in the 19th century and two million members, it’s remarkably flexible These categories are: ● ‘protected’ scheme members: you’ll be in the final salary scheme if you were an active member at 1 April 2012 and were ten years or less from your pension age. All protected members will be pensioners by April, so the only things that could potentially change for them will result from McCloud
| Professional in Payroll, Pensions and Reward | April 2022 | Issue 79 30
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