2022 Summer Term

The know zone

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    Will the government's new Skills and Post-16 Education Act measure up, deliver growth and boost the economy? Anne Murdoch investigates. More
  • Debunking myths
    Jacques Szemalikowski offers reassurance around changes to the pension scheme. More
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Jacques Szemalikowski offers reassurance around changes to the pension scheme.

Debunking myths

It has been a critical time in the world of public sector pensions. 

In March, the Public Service Pensions and Judicial Offices Bill received Royal Assent. Members will recall that this is designed to implement the Transitional Protection Remedy, rectifying the discrimination identified in the so-called McCloud judgment (see Leader archive bit.ly/3yPc5Aj). 

Applicable across the public sector pension landscape, for ASCL members this essentially means the Teachers’ Pension Scheme (TPS) and the Local Government Pension Scheme (LGPS). The LGPS requires a far simpler solution, simply extending the current underpin to all members regardless of age. 

In the TPS, however, when the reformed scheme was introduced in 2015, ‘protection’ was provided to members within ten years of their normal pensionable age (NPA) as of April 2012. TPS members afforded such protection remained in their legacy scheme. Consequently, anyone with this protection will now have reached the pensionable age in their legacy scheme and could legitimately retire on full benefits, if they wished. 

All further accrual into the legacy (final salary) TPS ceased on 31 March 2022. 

From 1 April, everybody is on the reformed Career Average Revalued Earnings (CARE) scheme. Worryingly, there are quite a few myths circulating regarding the closure of the legacy scheme and the move to the reformed scheme. 

Separate schemes 

The best way to think about it is to consider the legacy and reformed TPS as two separate but related schemes. 

Under the legacy scheme, it is no longer possible to add any more years, months or days to your accrual. However, all your accrual to date is completely protected. Moreover, all time accrued up to 31 March is linked not to your current final salary in the legacy scheme, but to your actual best final salary in the future. This will be calculated in exactly the same way as before, on your final salary whenever you chose to retire. The NPA for this pension remains the same. Contrary to myth, there is absolutely no need to take any action whatsoever. 

From 1 April, under your reformed TPS CARE scheme, accrual is no longer based on your final future salary but on your actual re-evaluated salary each year. 

Another myth is that this will be detrimental to members – not so. For many members this may even prove more beneficial. As ASCL members are school leaders, it is often the case that salaries starting on 1 April 2022 are not dissimilar to final salaries. 

Despite the NPA being the same age as your state pension age, and there being no automatic lump sum, two crucial factors offset these. 

First, the accrual rate, which was 1/80 in the legacy scheme, is now 1/57 – so much better. This means that every year, 1/57 of your actual gross salary forms a slice of your annuity (annual pension) for life. 

Second, this, and all your subsequent accrual, is revaluated each year by inflation (Consumer Prices Index (CPI)) + 1.6%. As inflation is currently at its highest rate for a generation, this represents genuine inflation-proofing, with all your annual accruals being totally compound revaluated every April. Depending on circumstance, in some scenarios it is possible to retire early with a reduction, convert some annuity into the same lump sum as would have been automatic in the legacy scheme and still end up with a better annuity. 

Tax efficiency 

Another myth is scheme contributions. There is no change. These remain the same as in the legacy scheme and are taken out of salary before any tax is applied. This tax efficiency, alongside the strong accrual and revaluation rates, make this an investment in ASCL members’ future that is hard to beat – and that is before consideration of the unqualified life insurance and ill health safety nets that remain as strong as before. 

Finally, don’t forget that under the remedy, everyone (eventually) will be rolled back into the legacy scheme up to 31 March 2022. On retirement you will have a choice of whether to take the portion of your pension accrued from 1 April 2015 to 31 March 2022, in either the legacy scheme or in the reformed scheme. The final myth to bust, then, is that benefits will always be better in the legacy scheme. 

Jacques Szemalikowski
ASCL Conditions of Employment Specialist: Pensions
@ASCL_UK


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