There are several ways of increasing the benefits payable to members when they retire. This section outlines the current options available, but members should get more detailed information from SPPA before making a final decision. The current options are:
- Additional Pension (AP);
- Within the CARE scheme, ERRBO’s and Faster Accrual
- purchase of Added Years where notice of intention was received prior to 1 April 2008 and contract was commenced within the following year;
- Additional Voluntary Contributions (AVCs) payment of Free-standing Additional Voluntary Contributions (FSAVCs).
In certain circumstances members may also elect to pay extra contributions to increase the amount of family benefits which may become payable.
From the 1st April 2007, both new and existing members can purchase Additional Pension (AP). Members have the option to purchase AP either by:
- a lump sum
- in instalments
The minimum commitment will be for extra contributions that will provide additional pension of £250 a year on retirement. Payment by this method normally attracts tax relief.
Members may buy in instalments or by a lump sum payment. Where a member buys in instalments they will be required to pay a fixed amount each month and commit to the purchase over whole years, up to a maximum of 20, or to NPA if earlier.
It should be noted that supply teachers only have the option to purchase AP by lump sum.
Payments will be reviewed after each scheme valuation so if the member is making payments by instalments they may increase or decrease depending upon the results of the valuation. If a member does not wish to continue making payments after an increase following a scheme valuation they may cancel the election and receive a pension based upon the contributions they have already paid.
A member may make a new election(s) at any time as long as they do not exceed the maximum.
An employer may purchase additional pension on behalf of the member but payment must be made in one lump sum.
Additional pension can be bought in multiples of £250 up to a maximum of £7,000. Details of increases to the maximum amount of AP will be notified to employers via the SPPA website.
Members' can purchase an AP solely for personal benefits or for a combination of personal and partners' benefits.
|Cover Option||Cover Afforded|
|single||Member pension only|
|Single plus dependants||Member pensions and, in the event of the members' death, dependants' pensions for any surviving partner and/or dependent children|
To be eligible to make an election to purchase AP the member must be employed in reckonable service after 1st April 2007. The factors used to calculate the members' additional pension are based on the following:
NPA 60 - can make an election before their 60th birthday (last factor Age 59) or 65th birthday (last factor age 64).
NPA 65 - can make an election before their 65th birthday (last factor Age 64).
NPA SPA - can make an election before their state pension age.
The minimum repayment period is one year and the maximum repayment period is 20 years. Repayment can start at any time but must end before the member attains their 'elected payable age' as follows:
NPA 60 - can make an election before their 59th birthday (last factor Age 58) or 64th birthday (last factor Age 63)
NPA 65 - can make an election before their 64th birthday (last factor Age 63).
NPA SPA - can make an election on the birthday prior to them reaching SPA. e.g. if SPA is 67 can make election before their 66th birthday.
Cessation of Additional Pension
AP instalment purchases will cease for any of the following reasons:
- death of the member;
- member retiring on the grounds of ill health;
- on request from the member;
- following a break in pensionable employment of at least 2 months;
- when AP is taken before the final instalment is due.
If an AP purchase is cancelled due to any of the above reasons within 2 months of the start date, all contributions paid to date will be refunded by SPPA.
If an AP instalment purchase has run for at least 2 months when it is stopped, the AP purchased is not cancelled, but terminated.
|Cancellation||Any||Refund of AP contributions made (to member's estate if the member has died).|
|Termination||Death||If dependant's cover is being purchase, a full AP credit is given and outstanding future contributions waived.|
|Ill-Health Retirement||A full AP credit is given and outstanding future contributions waived.|
|Any other reason||A full AP credit for the actual amount of AP is given (on advice of the Sceme Actuary).|
Following a break in pensionable employment of less than 2 months, where there is a shortfall in AP contributions due to that break, the member has the option, on returning to pensionable employment, to purchase the shortfall in contributions.
An existing member with an NPA 60 can elect to purchase AP to either age 60 or 65 (elected payable age). If members take AP earlier than their elected payable age, an actuarial reduction will apply.
AP for member's of NPA 65 can only be purchased to age 65 and must also be taken with the main scheme pension, however, the member has the option to take the AP at the same time as a phased retirement election prior to retirement or at retirement. If the member takes this option, the AP must be taken in full (and any unfulfilled AP in instalment purchases cancelled or terminated accordingly).
AP for member's of NPA SPA can only be purchased to SPA and must also be taken with the main scheme pension, however, the member has the option to take the AP at the same time as a phased retirement election prior to retirement or at retirement. If the member takes this option, the AP must be taken in full (and any unfulfilled AP in instalment purchases cancelled or terminated accordingly).
If a member leaves pensionable employment they cannot continue to make contributions.
Employers should automatically notify SPPA when a member with AP leaves STSS employment or changes employers. If there is a gap in service then the member will be credited with the amount of pension accumulated, based on actual instalments paid before they left the scheme/changed employer.
AP will be calculated based upon the contributions paid up to the day they leave the scheme. Members can, however, make a one off lump sum payment to clear the outstanding contributions, but they must make payment within one month of leaving pensionable employment.
Member Retires before Elected Payable Age
If a member retires before their 'elected payable age' and also before the end of a payment period they will receive an AP based upon the contributions they have made.
Member's AP will be paid on retirement at their 'elected payable age', but they can request it to be paid earlier if they retire on premature, phased or actuarially reduced grounds.
In those circumstances members' AP will be actuarially reduced.
If a member has more than one AP they must claim them all at the same time. If a member applies for phased retirement benefits whilst in pensionable employment their additional pension may be taken at first or second phased retirement, or paid at the date of the final award.
The AP must be taken in full.
Member Retires on Ill Health Grounds
If a member retires on ill health grounds their AP will be paid immediately without reduction provided that they were in good health when they made their election and have paid contributions for 12 months or more.
Contributions will be refunded if the member has paid contributions for less than 12 months.
If a member, while in good health, elects to buy AP for dependants then subsequently dies, a full AP will be paid based on the members original AP contract.
If a member has arranged to purchase AP for personal benefits, no AP benefits will be paid to their dependant(s).
Divorce / Partnership Dissolved
If a member's marriage or civil partnership is legally ended, SPPA will be required to provide information to the court about their AP in the same way as required to provide information about their scheme benefits.
HMRC Restrictions - Recycling of Pension
If a member significantly increases their pension contributions in the two tax years before retirement or the tax year of retirement itself, with the intention of using the retirement lump sum to indirectly fund the contribution increase, this may breach the recycling rule, e.g. the use of savings or a loan to fund the contribution increase with the intention of replenishing savings or repaying the loan.
If a member breaches the recycling rules their retirement lump sum will be treated as an "unauthorised payment" and taxed at 40% by HMRC.
Members will normally receive tax relief through the PAYE system if they pay by instalments. Members will be required to contact HMRC regarding tax relief on lump sum payments.
If a member wishes to claim tax relief for a lump sum payment for a specific tax year the payment must be received by SPPA before 5th April of the relevant tax year.
Part Time Members
If a member changes to a part-time contract they will be required to pay the same instalment sum they paid whilst working full time.
If a member does not wish to continue making payments they may cancel the election and receive a pension based upon the contribution they have paid.
An AP calculator is available on our website.
Early Retirement Reduction Buy Out (ERRBO)
From 1st April 2015 members of Teachers’ 2015 can elect to pay extra contributions to reduce or remove the early retirement reduction if they retire after age 65 and before your NPA. An election(s) can be taken out for 1, 2 or maximum 3 years depending on their NPA. In certain circumstances, members can select an amount other than a full year only if their NPA is not their birthday eg: if theirNPA is 66 years 4 months they could elect to purchase 1 year and 4 months. However, they cannot reduce their early retirement age below 65.
Examples: A member has an NPA (linked to SPA) of age 68. The member can buy out an ERRBO arrangement for 3 years and retire at age 65, or buy 2 years and retire at age 66 or 1 year and retire at age 67 with unreduced benefits. A member has an NPA (linked to SPA) of age 66 years and 1 month. The member can buy an ERRBO for 1 year and 1 month and retire at age 65, or buy an ERRBO for 1 month and retire at age 66 with unreduced benefits. Important note: The allowable limit for the purchase of additional pension benefits is £6,500 from 1st April 2015. This limit will be amended each year by a rate equal to the change in prices (currently the consumer prices index).
When can I apply?
Members only have one opportunity to buy out this reduction. The election must be made within six months of joining Teachers’ 2015 and the election will be backdated to their start date. You should note that members will be required to pay any arrears of contributions back to their start date.
A member joins Teachers’ 2015 on 5th May, their application must be made before 5th November. It is not possible to make a retrospective application.
How much will it cost?
How much the election costs depends on the members age in complete years at the day before the effective date of the arrangement and the number of years’ reduction the arrangement is for. Contributions are payable on all pensionable earnings in addition to their normal tiered contributions.
Members must pay the extra contributions from the start date of their contract up to their retirement date unless they apply to cease the contract early on grounds of hardship or leave the scheme.
They must pay the extra contributions on all pensionable earnings i.e. if a member has more than one employment contract, the extra contributions must be paid on each contract. If they change employment they must provide their new employer with information about the extra contributions they are paying for the contract.
If a member applies to take out a buy out agreement, the value of any Additional Pension and / or Faster Accrual contracts they have in Teachers’ 2015 will be taken into account when calculating the buy out agreement.
This is to ensure that the maximum amount allowable is not exceeded.
How do I apply?
Members can download a form from the website . Use this form to find out about their eligibility to enter into a buy out agreement and the rate of the additional contributions they would pay. If they wish to proceed they will need to sign and return the form. The employer will be instructed to deduct the additional contributions from the effective date.
What if my circumstances change?
A member can terminate the arrangement at any time and receive a proportional credit based on the contributions already paid. Please note a refund of contributions can only be made where a member leaves all pensionable service before qualifying for benefits.
Faster accrual is available only in the 2015 CARE scheme.
The member must be in pensionable employment and under normal pension age (which will be the same as their State Pension age).
Applications must be made within one month of joining Teachers’ 2015 if the election is to take effect from their start date. Thereafter, applications must be made before the end of each year for the contract to begin the following 1st April. The election will run for one scheme year only from 1st April to 31st March.
Faster accrual contributions are based on the member's age on their last birthday at the start date of the election. They must pay the higher contributions for the one year period of the election unless the agreement is revoked. The standard accrual rate is 1/57th and there are three faster accrual options:
If the member has more than one employment, they can choose to pay the higher contributions on one or more of their employment contracts (the higher contributions do not have to be paid on all contracts). If they change employment during the year, they must provide their new employer with information about the higher contributions they are paying for the faster accrual contract for the contact to continue.
Important note: There is a maximum allowable limit for additional pension benefits. Where the member has also applied to take out a contract to purchase Election to Buy Out the Standard Reduction and / or Additional Pension in Teachers’ 2015, the value of any Election to Buy Out the Standard Reduction / Additional Pension will be taken into account when calculating their faster accrual contract.
When a member elects to pay faster accrual contributions, the pension they are building up for that year will be higher than the standard accrual rate. The additional pension built up will be added to their pension pot and revalued each year in line with the consumer price index plus 1.6%, throughout their membership in the scheme.
To apply, members should complete the application form. We will advise the employer each time a member amends the accrual rate.
For Information Only: Members can no longer elect to purchase past added years. This provision was withdrawn from 1st April 2007.
Notices of intention to purchase received prior to April 2007 were honoured if the application was made within one year of notice being received by SPPA. If members have more than one STSS employment contract and they opt to buy additional service, contributions must be paid on earnings from all posts.
Income tax relief is normally automatic on regular contributions. Members would need to contact HMRC for advice about tax relief on any lump sum payment. Contributions are based on an elected % of salary and are deducted by employers on behalf of member and sent to SPPA. Additional contributions are only made by the member. The employer does not contribute to the additional service contracts.
Additional Voluntary Contributions (AVC's)
Prudential is the appointed provider of Teachers' Additional Voluntary Contributions (Teachers' AVCs) to the Scottish Teachers' Pension Scheme. Prudential has been chosen by the Secretary of State.
Teachers' AVCs are set out in regulation and are an integral part of the benefits offered to members to provide extra benefits in retirement. They are invested, so the value can go down as well as up and members could get back less than they put in.
Keeping your staff informed
It's important your staff are regularly reminded of how they can improve their pension benefits.
You can raise awareness of Teachers' AVC s with your staff by sharing a link to Prudential's Teachers’ AVC website. You can find this link here.