The Teachers’ Pensions etc. (Reform Amendments) Regulations (Northern Ireland) 2007

EXPLANATORY NOTE

(This note is not part of the Regulations.)

These Regulations amend the Teachers’ Superannuation Regulations (Northern Ireland) 1998 and also the Teachers’ Superannuation (Additional Voluntary Contributions) Regulations (Northern Ireland) 1996 and the Teachers (Compensation for Redundancy and Premature Retirement) Regulations (Northern Ireland) 1991.

Schedule 1 contains amendments to the Teachers’ Superannuation (Additional Voluntary Contributions) Regulations (Northern Ireland) 1996. Paragraph 1(b) amends regulation 2 so that “dependant” includes a person in whose favour a nomination under regulation E22A of the Principal Regulations has effect. Paragraph 4 amends regulation 12 so that benefits may be provided from the age of 55 (rather than when a person became entitled to benefits under the Principal Regulations) and to change the options available if the participator dies within five years after the retirement pension commences. The other amendments are consequential on the amendments to the Principal Regulations or are drafting amendments.

Schedule 2 contains amendments to the Teachers’ (Compensation for Redundancy and Premature Retirement) Regulations (Northern Ireland) 1991. Paragraph 4 amends regulation 11 so that long-term compensation payable to a survivor is payable for life if the teacher was in pensionable employment after 31 March 2007. The other amendments are consequential on the amendments to the Principal Regulations or are drafting amendments.

The amendments to the Teachers Superannuation Regulations (Northern Ireland) 1998 (“the Principal Regulations”) are contained in Schedule 3.

Regulation B1 of the Principal Regulations is amended so that part-time employment is pensionable without the person having to make an election. However, where the person was in part-time employment on 31st March 2007 the employment is not pensionable unless an election is made to this effect. Regulation B1 of the Principal Regulations is also amended to provide that, where a person is in full-time employment and at the same time in part-time employment, the part-time employment is not pensionable. (Paragraph 1(b) and (c) of Schedule 3).

New provisions are also made to allow teachers in independent schools to become members of the Scheme (providing certain conditions are met). (Paragraphs 1(a) and 2 of Schedule 3).

Regulation B3 of the Principal Regulations is amended so that the maximum age at which a person can be in pensionable employment is increased from the age of compulsory retirement (65) to 75. (Paragraph 3(a) of Schedule 3).

A further amendment to Regulation B1 provides that where a person was in such employment on 31st March 2007 the employment is not pensionable unless an election to that effect is made and there are also special provisions relating to persons who go back to employment after retiring on ill health grounds. (Paragraph 3(b) of Schedule 3).

New provisions are made under which members may acquire additional pension benefits. Regulations C3, C4 and C6 of the Principal Regulations which provided for members to be able to purchase added years are omitted. However, where persons are currently making contributions in order to purchase added years they can continue to do so. In place of these provisions the new regulation C2A of, and the new Schedule 2A to, the Principal Regulations provides for persons to be able to elect to pay additional contributions, either as a lump sum or in monthly payments, and in return to receive an increased pension with or without increased benefits for dependants. The new regulation E5A provides for such increased pension; the amount of the pension specified in the election is indexed linked up to the month in which the person becomes entitled to retirement benefits. If the election specifies benefits for dependants the new Regulation E29A provides that they are at a rate which is half the rate of the increased pension. (Paragraphs 7 – 10, 23, 42 and 61 of Schedule 3, Schedule 4 and paragraphs 6 to 8 of Schedule 5).

Regulation E4 of the Principal Regulations is amended to provide that the minimum age at which a person who is not a “post 5th April 2006 entrant” can be entitled to benefits under regulation E4(7) (redundancy or efficient discharge of employer’s functions) is raised from 50 to 55 where the person has not reached the age of 50 before 6th April 2010. (Paragraph 22(e)(ii) of Schedule 3).

New provisions are made for normal pension age in place of the provision that persons are, broadly speaking, entitled to benefits at the age of 60. Where a person enters pensionable employment for the first time on or after 1st April 2007, his normal pension age will be 65. A person who was in employment on 1st April 2007 however retains a normal pension age of 60. If such a person has a break of service of five years or less this will not affect his pension age. However, there are special provisions for a person who has a break of service of five years or more (defined as a person with mixed service). The definitions of “normal pension age” and related terms are contained in the new regulation EA1 of the Principal Regulations and regulation E4 which deals with entitlement to benefits is amended accordingly. (Paragraphs 19 and 22 (a) to (c), (d)(i), e(i) and (f) of Schedule 3).

New provisions are made in Regulation E4 of the Principal Regulations to provide for a new case G. This allows a person to retire and to elect to receive his pension benefits before normal retirement age, known as actuarially reduced benefits. The employer’s consent, which cannot be withheld for more than six months from the date on which the teacher notified his employer of his wishes, is required where the teacher is in pensionable or excluded employment at the time of his application. (Paragraph 22 (f).) Regulation 23 amends regulations E5 and E6 of the 1998 Regulations to give effect to the amount of the actuarially reduced pension and lump sum to be paid. (Paragraphs 23 (E5) (6) and (7), and paragraph 23 E6 (4)).

There are related changes to the way in which retirement benefits are calculated. Where a person has a normal pension age of 60 there is no change; the person receives a lump sum and pension calculated by reference to 80ths of the person’s average salary. Where, however, the person has a pensionable age of 65 he will receive a pension calculated by reference to 60ths of his average salary but will not receive a lump sum (unless he elects to commute a part of his pension under new regulation E6A described below). Again, there are special provisions for persons with mixed service. (Paragraph 23 of Schedule 3 – the substituted regulations E5 and E6).

Provision is made by the new regulation E4A of the Principal Regulations to allow a person to elect to receive some of his pension benefits without the requirement of having to retire, known as phased retirement benefits. To be eligible, a person needs to have reached the age of 55 and either is to continue in his employment or has secured further employment elsewhere. In both cases, his employer has to certify that he taken a minimum reduction in salary of 25% compared to before he applied for phased retirement benefits. A person can choose to make up to two such elections of his pension benefits before retirement. The amount of phased retirement benefits is calculated as set out in regulation E5 and (where applicable) E6 but taking into account adjustments. The average salary is calculated as the person’s average salary immediately before the change in employment and the effective reckonable service is the percentage of the election up to the date of that change. Similar adjustment is made for any additional benefits to be paid as part of the phased retirement benefits.

New provision is made under which, where a person has a normal pension age of 65, and accrues reckonable service after reaching that age, his pension is actuarially enhanced – the substituted regulation E5(9) to (13).

Further changes are made to the provisions relating to the lump sum (regulation E6 of the Principal Regulations). Paragraph (4) of the substituted regulation E6 provides that a person’s lump sum cannot exceed his “permitted maximum” defined in Schedule 1 by reference to the Finance Act 2004; paragraph (6) provides that a person aged 75 or over cannot receive a lump sum. The new regulation E6B however provides that where a person is prevented from receiving a lump sum because he is 75 or over he will receive an increased pension.

New regulation E6A of the Principal Regulations contains new provisions whereby a person may elect to receive a further lump sum in place of part of his pension. If such an election is made the annual rate of pension is reduced by £1 for every £12 of lump sum.

New provisions are made for persons who retire on ill health grounds; they apply where the application for retirement benefits was received by the Department on or after 6th April 2007. The existing provisions will continue to apply where the application was received before that date. Under the new provisions, a person who is not in pensionable employment or taking a period of unpaid leave or a career break immediately following pensionable employment is only entitled to benefits if, as well as being incapacitated, his ability to carry out work is impaired by more than 90% and likely permanently to be so (regulation E4(4) Principal Regulations). Where however a person is in pensionable employment or taking unpaid leave or a career break immediately following pensionable employment and is entitled to benefits he will also be entitled to payment of an additional “total incapacity pension” and, where applicable, lump sum if his ability to carry out work is impaired by more than 90% and is likely permanently to be so (new regulation E8A). New regulation E13A provides for a person who ceases to be incapacitated. Where he has received the additional total incapacity pension but the person’s ability to carry out work ceases to be impaired by more than 90% the total incapacity pension ceases to be payable. If a person ceases to be incapacitated his retirement pension ceases to be payable. If a person takes up certain types of employment his ability to carry out work is treated as ceasing to be 90% impaired or (as the case may be) he is treated as ceasing to be incapacitated. Regulation E33 is also amended to make explicit provision that an application for ill health retirement pension must be signed by the person’s employer and must be accompanied by necessary medical evidence. (Paragraphs 22(d)(ii), 25, 28 and 47(a) of Schedule 3).

Regulation E11 of, and Schedule 10 to, the Principal Regulations, which provide for allocation of part of retirement pension to the provision of alternative benefits is omitted, subject to savings. (Paragraphs 27 and 69 of Schedule 3 and paragraph 9 of Schedule 5).

Regulation E20 (death grant) is amended to provide that where the death occurs on or after 1st April 2007 death grant is three times average salary (Paragraph 31(b) of Schedule 3).

Regulations E20 and E21 are amended to require any death grant or supplementary death grant to be paid, in the absence of another nominee, to a surviving nominated partner (paragraphs 31(d) and 32(d) of Schedule 3).

Provision is made for benefits under the Principal Regulations to be paid to the surviving partner of a member (who is not his surviving spouse or surviving civil partner). New regulation E22A provides for the member to make a nomination and for the circumstances in which the nominee becomes a “surviving nominated partner” who is entitled to benefits (paragraph 34 of Schedule 3).

Regulations E22, E24 to E28 and E30 are amended to provide for short- and long-term pensions to be paid to the surviving nominated partner (paragraphs 33(a), 36(b) and (d), 37, 38(a), 39(k) and (l), 40(2)(a), (b), (e) and (g) and 43(a)) of Schedule 3). The service that counts for the purpose of calculating a surviving nominated partner’s pension is specified in new paragraph (7B) of regulation E28; but regulation C8 and Schedule 6 are amended to enable a member to pay family benefit contributions to make periods of his service (which would otherwise not do so) count for the purpose of calculating such a pension (paragraphs 12 and 67(i) of Schedule 3). Regulation E29 is amended to provide for the calculation of long-term pensions payable to children where a pension is payable to a surviving nominated partner (paragraph 41 of Schedule 3).

Regulation E23, which relates to the nomination of close relatives to receive benefits under the Principal Regulations, is given a new heading to avoid confusion with new regulation E22A. Amendments are made to provide that, if a partner is nominated under regulation E22A, any previous nomination made under regulation E23 ceases to have effect and no such nomination may be made while the nomination under regulation E22A is current (paragraph 35 of Schedule 3). Regulation E26 is amended so that a person nominated under regulation E23 does not receive a pension if he is co-habiting at the date of the member’s death (paragraph 38(b) and (c) of Schedule 3).

Regulation E27 is amended to clarify the periods of service which count for the purpose of a pension payable to widowers and to surviving civil partners where a transfer value has been accepted in respect of comparable British service (paragraph 39(c), (e), (f), (g) and (j) of Schedule 3).

Regulation E30 is amended so that a pension payable to a survivor is payable for life if the member was in pensionable employment after 31st March 2007 or was paying or had paid additional contributions under old regulation C6 or regulation C7 in respect of that period.

Regulation E31 of the Principal Regulations is amended and regulation E31A inserted to make new provisions for determining a person’s average salary on which benefits are calculated. The effect of the amendments, when taken with section 8(2)(a) of the Pensions (Increase) Act (Northern Ireland)1971, is that a person’s salary is either the salary in the last 365 days of service or the average of the salary, indexed linked up to the date when the average salary service ended, for the best 1,095 consecutive days of service in the previous ten years. Under transitional provisions, the existing provisions continue to apply where a person’s entitlement to benefits took effect before 1st April 2007. Where a person became entitled to benefits on or after 1st April 2007 but before 1st April 2009, the average salary will either be that calculated under the old provisions or that calculated under the new provisions whichever is the higher. There are amendments to introduce a 10% cap on any salary increase in each of the last three years if the last year is the best year and introduces obligations on employers to meet the cost of the additional pension benefits; new provisions also detail the necessary course of action should the employer not meet the additional cost. (Paragraphs 29 (c)(i) and (ii) and (d), 44 and 45 of Schedule 3 and paragraph 10 of Schedule 5).

Regulation E32 (effective reckonable service) of the Principal Regulations is amended so that there is no longer a restriction on reckonable service including service in excess of 40 years before reaching 60. (Paragraph 46(a) of Schedule 3).

Regulation H1 of the Principal Regulations, which provides for modifications where a person is employed at a reduced salary, is amended so that it will only apply (where the person continues to be employed by the same employer) where the reduced rate of contributable salary had effect before 1st April 2007 or (where the person had a break in employment) where the old employment ceased before 1st April 2007 and the new employment started before 1st May 2007. (Paragraph 54 of Schedule 3).

New provisions are made (new regulation H6A of the Principal Regulations) whereby the Department may, before paying a lump sum require a declaration to be made relating to the recycling of the lump sum by the person to whom the payment is to be made. (Paragraph 55 of Schedule 3).

Paragraphs 56 – 60 of Schedule 3 amend Part I of the Principal Regulations (pension sharing). The amendments reflect the change to the normal pension age described above and the new provisions whereby persons can commute part of their pension into a lump sum.

The definition of “appropriate factor” in Schedule 1 to the Principal Regulations, which is the factor by which a pension or lump sum is actuarially reduced in the case of early retirement, is inserted. Under this definition, the “appropriate factor” is determined from time to time by the Department after taking advice from the Government Actuary.(Paragraph 61 of Schedule 3). Parts II and IIA of Schedule 6 are also amended to remove the tables and factors (for the purpose of calculating the cost of making past years service count for pension benefits for survivors) from the Principal Regulations and provide for these to be determined in the same way (paragraph 67(b)-(h) of Schedule 3).

The other amendments to the Principal Regulations are consequential on the matters set out above or are drafting amendments.