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Actuarially Reduced Pensions for Teachers

Note: This general advice is given in good faith and is as accurate as possible. However, cases vary and there are many pitfalls. Any member investigating the possibility of retiring early should contact the Union before discussing the matter with their headteacher, etc., and before making any application.

The Government has introduced, from January 2000, a new way for teachers on the Teachers' Superannuation Scheme to retire early, but this pension will be "actuarially reduced". This is bad news, because it means that the pensioner will not get the full pension to which (s)he would otherwise be entitled (the number of 80ths of reference salary accrued by the years of reckonable service). Instead that "normal" pension will be reduced by about 5% to 6% per "missing" contribution year, given that the "normal" retirement age is 60.

So, a teacher retiring age 55 on an actuarially reduced pension would be penalised for 5 year's missing contribution years and receive only about three-quarters of the pension which would otherwise have been payable.

It is important to note that the reduced pension is for life. It does not revert to a normal pension at age 60 or 65. What is more, although the actuarially reduced pension will attract an annual increase based on the retail price index, the difference between your reduced pension and the pension you would otherwise have got, increases with time, because wage inflation is invariably higher than price inflation.

So, why would anybody want a reduced pension?

Nobody would, but since April 1997, getting early access to a pension any other way has been severely curtailed. Teachers might be tempted to take this as the only way out, particularly as this is likely to be the only way method of retiring without requiring the permission of the employers (a period of notice will still be required, however). Members should first consider the alternatives.

The main other ways of retiring are:

Early retirement on the grounds of efficiency is now highly restricted and less than a dozen teachers aged 55-60 are likely to be allowed to retire "in the interests of efficiency" in Suffolk each year. However, this option is still available and members should enquire about making applications as soon as possible.

Another complication is the possibility of "commuting" the pension: which is for teachers who are seriously or terminally ill, but not necessarily "permanently unfit to teach". This is an alternative to all the other forms of pension and needs separate advice.

Details of Actuarially Reduced Pensions

An idea of the reductions, as a percentage of the accrued pension which would otherwise be payable, is given in this table:

Age: 55 56 57 58 59
Reduction: 27.2% 22.6% 17.7% 12.3% 6.4%

The lump sum is also reduced, but by much less than for the pension itself.

However, in the Union's view, these reductions in pension are highly punitive, particularly as they remain in force for life. The Suffolk NUT believes that this is tantamount to a "miss-selling of pensions", because the benefits will have been reduced, without notice, just before they become payable. Teachers aged 50+ have been paying into the scheme for up to 40 years on the basis that the existing benefits would be payable. At "maturity", this is suddenly changed to the detriment of the pensioner.

After taking an actuarially reduced pension

There may be ways, however, of avoiding having to take a reduced pension or of using the in-coming regulations to greater advantage:

It should be possible therefore, for a teacher to retire, continue teaching part time, increasing their final total of pension benefits payable as they go. This can mitigate the loss of pension, but the additional pension accrued would never compensate for the missing pension income from the main pension, after full retirement.

Other alternatives for the member desperate to leave or reduce their teaching work but not wishing to take an early retirement which would severely reduce the pension benefits towards which they have contributed for many years, include:

nutlogoPublished by Suffolk Division of the National Union of Teachers

January 2000