SPPA consulted on phased withdrawal for independent schools from the Scottish Teachers’ Pension Scheme (STPS) during 2022. Following the consultation, the option of phased withdrawal will be implemented with an effective date of 16 August 2023.
What is Phased Withdrawal?
The purpose of phased withdrawal is to enable independent schools to cease enrolling new teaching employees into the STPS, whilst allowing existing members to continue contributing to the scheme. An alternative pension arrangement must be offered to new employees who are not eligible to join STPS.
Before considering phased withdrawal, it is important to consider the implications of becoming a phased withdrawal school and how this could impact new teaching employees, as any new employees recruited to the school would no longer be able to join or continue membership of the STPS. The following benefits currently available from STPS may not be available in alternative pension arrangements:
- defined benefit scheme and is based on their salary and length of membership and is not a defined contributions scheme. As such, the final pension is not dependent on investments.
- pension is indexed linked in line with CPI
- option to receive a tax-free lump sum at retirement
- options to increase the pension through the purchase of additional pension or faster accrual
- Ill health benefits may be payable should the employee become too ill to continue their employment
- Family benefits are provided in the event of death
Before reaching a decision to become a phased withdrawal employer, it is important to consult staff and trade unions.
If you reach a decision to become a phased withdrawal school, the way existing employees will be treated will differ to new employees.
How Do I Become a Phased Withdrawal School?
- Ensure all staff have been consulted in advance and are aware of the conditions of phased withdrawal.
- You must notify SPPA of your intention to become a phased withdrawal school via e-mail to email@example.com and specify the date you wish to transition to a phased withdrawal school.
- On receipt, SPPA will confirm your phased withdrawal date.
- Following confirmation, you must continue to submit returns for existing members of the scheme
- No details should be submitted to SPPA for new employees who are not eligible to be enrolled into STPS.
Treatment of Existing Employees under Phased Withdrawal:
- Existing members can continue contributing to the STPS until they leave employment
- Employees who have opted out of the scheme prior to the phased withdrawal date will have the opportunity to re-join the scheme. At the next auto enrolment staging date they should be auto enrolled into STPS. If they elect to opt out again at that point, they will not have the opportunity to re-join again and should be offered your chosen alternative pension in the future.
- Employees who opt out after the phased withdrawal date will not be eligible to re-join the scheme in the future and should be offered your chosen alternative pension scheme.
- Employees on sick leave or family leave, where the period of leave is covered by the contract of employment or statutory rights would be able to re-join the scheme if they return to service within 5 years. If they return after 5 years, they would not be eligible to re-join and should be offered your alternative pension scheme.
Treatment of New Teaching Employees under Phased Withdrawal
Employers must enrol all eligible new teaching employees into a qualifying pension under workplace pension legislation. New employees should be offered your chosen alternative pension scheme and should be made aware that they are not eligible to join STPS. New employees with previous membership of STPS will not be able to transfer their STPS pension to the new arrangement unless it is a defined benefit scheme.
Re-employment of Employees into STPS
A recognised break can occur in the following circumstances:
- If you’ve an opted-out employee whose opt out was in place at the time that you moved to phased withdrawal
- If you’ve a member (employed before the phased withdrawal date) returning from non-pensionable family leave or non-pensionable sick leave (e.g., extended maternity leave), which ends at any time after you moved to phased withdrawal, they’ll be eligible for the STPS, provided that the break is no more than five years. For example, a member who leaves service on 1/9/2022 and returns to service on 1/9/2027 has not had a break exceeding five years. If this member returned on 2/9/2027, this would be a break of more than five years
- If you’ve a new employee taking up new employment at your school, you wouldn’t re-enrol them into the STPS (unless it was a compulsory transfer of employment)
- If you’ve a new employee who’s subject to a compulsory transfer (for example following a merger of two schools) and was previously employed in a school participating in the STPS and was eligible, they should be enrolled in the Scheme upon taking up the new contract of employment.
Any breaks in employment, other than a those detailed above, mean the employee can’t be a member of the STPS while you’re a phased withdrawal employer.
Active Members not on a Recognised Break
The following are circumstances which would not be classed as a recognised break and will lead to an employee not being eligible to join the STPS in the future are:
- A break in pensionable service of at least one day, other than for the reasons stated above (e.g., sickness absence), will lead to the loss of future STPS membership.
- A member who opts out of the Scheme after the phased withdrawal date will also cease to be in eligible employment. If a member opts out after you’ve become a phased withdrawal school, they’ll no longer be eligible to be in the Scheme. You must offer them an alternative pension scheme, which they can join at any time or will be enrolled into through auto enrolment. If a member retires in any way that results in a break in employment after the phased withdrawal date, they’ll no longer be eligible for the Scheme. If they return to employment with the same employer, they’ll need to be offered an alternative pension scheme.
- Earnings for ineligible employment aren’t taken into account for abatement assessments.
- If a member has a break in service which isn’t related to Ill-health or, who opts out, they’ll no longer be covered for death in service benefits. If the break is related to Ill-health (unpaid sick leave for example) and the member dies within 12 months, they may be entitled to in service death benefits. Medical evidence would be required.
- If a member has a break in service which isn’t related to Ill-health, or who opts out, they’ll no longer be covered for enhanced in service Ill-health benefits. If they subsequently become permanently incapacitated, they may be entitled to out of service Ill-health benefits. If the break is related to Ill-health (unpaid sick leave for example) and the member applies for Ill-health benefits within two years, they may be entitled to in service Ill-health benefits. Medical evidence would be required.
Members who leave service or opt out of the Scheme will have the same rights and options as anyone who had left such as refund (if less than 2 years), transfer, deferred benefits or claim benefits if they have reached their minimum normal pension age (currently age 55).
Can I Reverse the Decision to Become a Phased Withdrawal School?
If you no longer wish to be a phased withdrawal school, you can request to become an accepted school by contacting SPPA by e-mailing firstname.lastname@example.org. This would give staff who are excluded from joining the scheme due to phased withdrawal the option to join the scheme. You would be subject to financial assessment before eligibility to become an accepted school would be confirmed. Once all checks are complete, SPPA would confirm the date of change to an accepted school. From that date onwards, you would no longer be considered a phased withdrawal school and all eligible teaching staff should be enrolled into STPS.