Scottish Teachers’ Superannuation Scheme Reforms to STSS Sheila Armstrong Pensions Change Manager
OBJECTIVES Provide an overview of the main Scheme changes Describe contents of Employers’ pack Explain how the changes will affect current members Explain how the changes will affect new members Provide an opportunity to ask questions
Why change the STSS Scheme? • In 2002, the Government produced the Pensions Green Paper, proposing a range of reforms to occupational pensions. They were designed to:- • Ensure that people are adequately provided for in retirement. • Encourage older workers to continue to participate in the labour market. • Reflect both increasing life expectancy and the fact that many people want to work longer and to increase their retirement income.
Implementation Date 1st April 2007
To be removed • Past Added Years • Current Added Years • Allocation • Stepping Down • Paying contributions on a previously higher salary Existing elections will be honoured
New Pension Reforms – Summary 1/2 • Normal Pension Age (NPA) 65 for new entrants/pension based on 1/60th accrual rate • Revised calculation of Pensionable Salary • 2-Tier Ill-Health Arrangements • Purchase of Additional Pension Facility
New Pension Reforms – Summary 2/2 • Phased Retirement • Benefits for Unmarried Partners • Commutation of Pension for Lump Sum 12:1 • Death Grant increased to 3 times Pensionable Salary
Definition of a New Entrant • Members who join the STSS on or after 1st April 2007 with no previous service • Members who leave pensionable employment on or after 1st April 2007 and do not return within 5 years • Members who have been out of service for less than 5 years as at 31 March 2007, but do not return within 5 years from the date of leaving • Members who have been out of service for more than 5 years as at 31 March 2007 and do not return before 31 March 2008
Definition of an Existing Member • Teachers who are current scheme members on 31 March 2007. • Teachers who have been out of pensionable service for more than five years, but who return to teaching by 31 March 2008 will retain a NPA of 60 (irrespective of the length of break in service). • There will be a minimum period of 30 days reckonable service or 60 days pensionable employment that must be undertaken after a break in service. This is to allow teachers who have a subsequent break in service to return at a later date and retain Normal Pension Age (NPA) 60 in respect of their future service. • Transfer from comparable British service • No options exercise will be undertaken
Normal Pension Age (NPA) The NPA of 65 for members classed as New Entrants would only apply to any service after 1st April 2007 Any service accrued before this date would have a NPA of 60 The member will therefore have two separate pensions
Maximum Service For existing members the maximum service is 40 years at age 60 and 45 years at age 70 For new members the maximum service is 45 years at age 65. If the member works beyond age 65 their pension will be Actuarially Increased In both circumstances no lump sum will be paid if the member is over age 75 – convert into pension, with no option to commute
Actuarially Reduced Pension (ARP) To apply for ARP the member must be:- • An existing member - between age 55 and 60 • A new member – between age 55 and 65
Premature Retirement To apply for Premature Retirement the member must be:- • Existing Members – aged 50 or over • New Members – aged 55 or over
Pensionable Salary EITHER • The members’ salary in the last 12 months before retirement OR • The average of the revalued best 3 consecutive years’ salaries in the 10 years prior to retirement There will be a 2 year transitional period i.e. up until 31 March 2009 where we will compare the new calculation method with the current calculation method and pay the most beneficial.
Benefits - Existing Members Only If the member was in the scheme before 1st April 2007, the method of calculating benefits, provided an annual pension and lump sum based on reckonable service and pensionable salary:- Pension = Service x Pensionable Salary 80 Lump Sum = 3 times the Pension
Benefits - New Members Only If the member joined the scheme on or after 1st April 2007, the benefits will consist of an annual pension based on reckonable service and pensionable salary:- Pension = Service x Pensionable Salary 60 More to follow on lump sum later….
Award Forms The existing Award Forms have been replaced with the following:- Awards 26 Part 1 STSS (RET) 2 Awards 26 Part 2&3 STSS (RET) 1 Awards 82 STSS (FA82) 2 Pen 1 (T) Guidance STSS (RET) 1 Employee =1 and Employer = 2 www.sppa.gov.uk
PIB (Partial Incapacity Benefit) Permanently incapable of teaching but capable of other work NO ENHANCEMENT TIB (Total Incapacity Benefit) Permanently incapable of teaching and incapable of any other work ENHANCEMENT IS HALF OF PROSPECTIVE SERVICE TO NORMAL PENSION AGE 2 Tier Ill-health Arrangements
Purchase of Additional Pension • Members (or employers on member’s behalf) can buy up to £5,000 pension throughout their career in multiples of £250 • Can choose whether this pension will count for dependants’ benefits • Doesn’t matter how many Past Added Years member has bought or is in the process of buying prior to 01 April 2007.
Phased Retirement • From age 55 • Pension drawdown for all members (maximum 75%) • Must work in a reduced capacity for 12 months (reduction of at least 25% of previous salary) • Can drawdown pension only twice before NPA • Benefits will be actuarially reduced
Surviving Partner Benefits • Benefits for opposite-sex and same-sex partners for both new and existing members will be introduced • Service from 1st April 2007 will automatically count for surviving partner benefits (option to buy previous service must be taken within 6 months of making nomination) • Members must complete a joint declaration of partnership (must have lived with the partner for 2 years, be free to marry or form a civil partnership, be financially interdependent) • Spouses’/partners’ pensions payable for life (where teacher dies in pensionable employment on or after 1st April 2007 or upon death of teacher who retired on or after 1st April 2007)
Preserved Members - Partners • Preserved members can nominate their partner if they meet the criteria Member does not have to be in pensionable employment to nominate, but the member will have to have 2 years service from 1st April in order for beneficiary to qualify for pension
Commutation • Existing member on 1/80th accrual rate will be able to commute an additional 19.64% of pension (i.e. additional to lump sum of 3 x pension) • New entrant on 1/60th accrual rate will be able to commute 35.71% of pension • Percentages calculated by Government Actuary and represent 25% of teacher’s ‘fund value’ after commutation • Commutation of lump sum is open to pension credit members
Commuted Benefits – Existing Scheme If the member was in the scheme before 1st April 2007 and was in pensionable employment on or after 1st April 2007, then the member can convert (Commute) part of their pension to receive a lump sum up to 25% of their fund value. The formula for calculating the maximum amount of lump sum is as follows:- (Pension x 20) + (Lump Sum x 20/12) 4.6667
Commuted Benefits – New Scheme If the member joined the scheme on or after 1st April 2007, the formula for calculating the maximum amount of lump sum is as follows:- (Pension x 20) 4.6667
Commuted Benefits These formulae represent 25% of the fund value and is the maximum lump sum the member can take. The fund value is based on the members Normal Retirement Pension and any Additional Pension they have purchased For each £1 of pension commuted there will be £12 of lump sum paid.
Death Benefits • Death grant increased to 3 x pensionable salary (where death occurs on or after 1 April 2007) for both new and existing members • Accrual rate for survivor’s benefits will remain at 1/160th • For both new and existing members
Contribution Rates • Member’s contribution rate will increase to 6.4% from 1stApril 2007 (currently 6%) • Employer’s contribution rate will increase to 13.5% from 1st April 2007 (currently 12.5%) • Employer’s contribution rate will increase further from 1st April 2008 – depends on outcome of 2005 valuation (estimated to be around 14.25%)
Additional Facts • Life Time Allowance (LTA) = £1,600,000 from the 6th April 2007 (2007/08) • STSS Earnings Limit =£112,800 from 1st April 2007 (2007/08)
Pension Summary – Differences Existing MembersNew Entrants NPA 60 NPA 65 1/80th Accrual Rate 1/60th Accrual Rate Lump Sum 3 x Pension No Fixed Lump Sum Pensionable Salary (3) Pensionable Salary (2)
Pension Summary – Both Schemes • Option to Commute • 2-Tier Ill-Health Arrangements • Purchase of Additional Pension • Phased Retirement • Benefits for Unmarried Partners • Commutation of Pension for Lump Sum 12:1 • Death Grant 3 times Pensionable Salary