CIRCULAR NO.:45/00(D)
DATE:14 March 2000

TO:
Secretaries of Divisions and Local Associations
Secretaries of Retired Teachers' Sections and Members of the
Advisory Committee for Retired Teacher Union Members

- FOR INFORMATION

ACTUARIALLY REDUCED PENSIONS

Dear Colleague

Further to Circular 220/99(D), dated 11 October 1999, the Government is introducing provisions for teachers to be able to retire early with Actuarially Reduced Pensions despite unanimous opposition from the teachers' organisations. This does not, in any way, satisfy the NUT's demands for effective and affordable provisions for early retirement. The Union will, therefore, continue to pursue its demands through the Teachers' Superannuation Working party.

Following pressure from the teachers' organisations, the provisions, which will come into effect on 30 March 2000, will contain somewhat less severe actuarial reductions than originally proposed.

These provisions are entirely at the request of individual teachers and an employer cannot compel a teacher to take an Actuarially Reduced Pension. Similarly, an employer may not prevent a teacher from receiving an Actuarially Reduced Pension and cannot withhold permission for more than six months from the date of the request.

The document accompanying this circular set out questions and answers about the issues most commonly raised by members concerning Actuarially Reduced Pensions. Details will be given also in the next edition of 'The Teacher'.

NATIONAL UNION OF TEACHERS
HAMILTON HOUSE, MABLEDON PLACE, LONDON WC1H 9BD

Yours sincerely

DOUG McAVOY
General Secretary

STEVE SINNOTT
Deputy General Secretary

BARRY FAWCETT
Assistant Secretary
Salaries, Superannuation, Conditions of Service and Health and Safety AW/MLC

GUIDANCE TO DIVISIONS AND ASSOCIATIONS ABOUT ACTUARIALLY REDUCE PENSIONS

What are Actuarially Reduced Pensions?

Actuarially Reduced Pension, or ARP, is the phrase used to describe a teacher's pension and lump sum payment that has been reduced by a specific amount to reflect the fact that the pension benefits have been paid earlier than the normal retirement age of 60.

The amount of the reduction has been calculated by the Government Actuary to take into account the loss to the scheme of the contributions that would have been payable by both the teacher and the employer, together with the loss to the scheme of the pension benefits being paid early.

Who is eligible to apply for an ARP?

Any full-time or part-time teacher who is aged 55 or over at 30 March 2000 and is contributing to the Teachers' Pension Scheme, or

Any teacher who leaves pensionable service on or after 30 March 2000, having completed sufficient service to qualify for pension benefits, may apply on reaching age 55,

By how much is the pension and lump sum reduced?

This will depend on the teacher's age at the time the ARP becomes payable. The percentage reduction in the pension and lump sum will be as set out in the tables in the Appendix to this circular.

To illustrate the effect of an ARP, let us look at a few examples.

Example 1

A teacher aged 55 years 1 month retires on 31 August 2000 having completed 30 years of reckonable service and with an average salary over the final year of that service amounting to £23,514.

The unreduced pension would be £8,818 and the unreduced lump sum £26,453.

If that teacher took an ARP the pension would be reduced by £2,242.42, leaving a reduced pension of £6,575.58 and the lump sum would be reduced by £4,089.63, leaving a reduced lump sum of £22,363.37.

Example 2

A teacher aged 57 years 6 month retires on 31 August 2000 having completed 20 years of reckonable service and with an average salary over the final year of that service amounting to £28,569.

The unreduced pension would be £7,142 and the unreduced lump sum £21,427.

If that teacher took an ARP the pension would be reduced by £1,010.59, leaving a reduced pension of £6,131.41 and the lump sum would be reduced by £1,757.01, leaving a reduced lump sum of £19,669.99.

Example 3

A teacher aged 59 years 10 month retires on 31 August 2000 having completed 35 years of reckonable service and with an average salary over the final year of that service amounting £30,801.

The unreduced pension would be £13,475 and the unreduced lump sum £40,426.

If that teacher took an ARP the pension would be reduced by £134.75, leaving a reduced pension of £13,340.25 and the lump sum would be reduced by £230.43, leaving a reduced lump sum of £40,195.57.

Will the ARP be adjusted when I reach age 60?

No. The ARP will continue for so long as you receive your pension entitlement.

Will the ARP be subject to any increase?

Although the basic ARP will continue for so long as you receive your pension entitlement, it will be subject to cost of living increases, as measured by the Index of retail prices, in the same way as an unreduced pension.

Will the ARP affect the pension payable to my spouse should I die?

No. The ARP will apply only to your pension entitlement. Any benefits payable to your spouse and/or children, in the event of your death, will not be affected.

Will ARPs replace the Premature Retirement Compensation arrangements?

No. Premature Retirement Compensation (PRC) is still available for teachers over age 50 who are either made redundant or whose employment is terminated in the interests of the efficient exercise of the employer's functions. The cost to the employer of the early payment of the pension benefits will be lower under the new arrangements due to the less severe actuarial reductions.

Will ARPs affect the ill health retirement arrangements?

No. The ill health retirement arrangements are not affected in any way.

Pensions Advice

Pensions Circular March 01

Pensions Front Page

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