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Impact of McCloud case

Discussion in 'Retirement' started by meister, May 28, 2020.

  1. meister

    meister New commenter

    What would be the best method of calculating the impact of the McCloud judgement on individual pensions, assuming we are put back on FS arrangements?

    I was transferred to the career average on 1/6/17 and left teaching on 31/8/19 - so basically it is working out the difference it would make for those 27 months.

    Any suggestions welcome?
  2. diddydave

    diddydave Established commenter

    If you have your benefit statement you should be able to work it out but the following all need taking into consideration.
    1) FS retirement age at 60 (or 65) compared to CA at 66,67,68 etc depending on your age.
    2) The lump sum
    3) How many more years yet to teach (the CA gets bumped up by 1.6% above inflation, whereas the FS gets bumped up by any pay increases above inflation - including promotions) - not applicable to you as you have already left.
    4) What is/was the 'final salary' - and by this I mean the one used to work out your FS pension not just the salary from the last year. Most people's from around 2019 will actually be about 10% more than they were actually earning in their last year.

    For the maths it's a case of comparing the amounts added to each pension and then looking at what happens if you take them at the same age, with greater reductions for the CA with its NPA of 67 compared to the FS at 60.

    So, as I always say - it depends...everyone's circumstance are different but I'll give a general stab at doing some examples.

    I will assume that your final salary was 10% above your last year's salary and that you were in the 80ths scheme with an NPA of 60 and in the CA scheme with an NPA of 67.

    So for each £10,000 of your last years salary:

    For the last 27 months (2.25 years).

    The FS pension would therefore be increased by 2.25 80ths of £11,000 (inc. the 10% extra)
    = £309.38

    The CA pension would be increased by 2.25 57ths of £10,000
    = £394.74

    Taking these at 55
    The FS pension pays 81.1%
    The CA pension pays 56.1%

    FS pension = 0.811 x £309.38 = £250.90
    CA pension = 0.561 x £394.74 = £221.45

    In addition the FS pension gives you a lump sum of 3 times the pension so you'd also get £752.70 in the lump sum

    By the way if your final salary is exactly the same as your last year then the figures are at 55 years old:
    FS Pension: £228.09 + lump sum of £684.27
    CA Pension: £221.45
    PeterQuint likes this.
  3. meister

    meister New commenter

    Thanks DD - very comprehensive answer - much appreciated!
    Your assumptions are broadly correct - FS 80th scheme with NPA of 60 and CA scheme with NPA of 67.
    Final salary used in latest benefit statement of 55.6K

    Sorry that I didn't make clear but I intend to leave salary until aged 60 (currently 55) and not to take it early.
  4. meister

    meister New commenter

    .....I intend to leave PENSION until....
  5. diddydave

    diddydave Established commenter

    ok, a more personalised scenario for you then ;)

    At 60 the Final Salary scheme gets no reduction so pays 100%.
    At 60 the Career Average scheme pays 69.9%

    FS Pension: 2.25 80ths of £55,600 = £1563.75 plus extra lump sum of £4691.25
    CA Pension: 2.25 57ths of £55,600 = £2194.74

    At 60:
    FS Pension: 100% of £1563.75 = £1563.75 plus extra lump sum of £4691.25
    CA Pension: 69.9% of £2194.74 = £1534.12

    So, from those figures you are better having your pension taken as being in the final salary scheme than the career average one.
  6. PeterQuint

    PeterQuint Lead commenter

    My calculations are similar to DD’s. A few of us have done similar.

    The end result tends to be a marginally higher annual pension, but an increased automatic lump sum.
  7. meister

    meister New commenter

    Thanks to DD and others - hopefully we will get clarification of exactly how the Govt will respond to McCloud soon!!
  8. diddydave

    diddydave Established commenter

    Yes, I think the tribunal was due to rule in June on the firefighter's situation, though of course that could well be delayed by the pandemic, and then suggestions on how that would be applied to each of the other public sector schemes would need to be thrashed out.
  9. PeterQuint

    PeterQuint Lead commenter

    A couple of bits of news.

    Firstly, the FBU have taken the government to court again.

    The legislation used to implement pension changes say costs mast be monitored and, if pensions are not costing as much as predicted, the government must reduced contributions, or raise the amount of benefit accrued.

    It was discovered earlier that pension costs were not as much as expected, but because of uncertainty about McCloud, the government has ‘paused’ the process.

    The FBU are effectively arguing the pause in unlawful.

    letap likes this.
  10. PeterQuint

    PeterQuint Lead commenter

    Secondly, the government have made a statement in the Commons saying:

    • Members will not need to make a claim to ensure that changes apply to them
    • Members will get an as yet undefined choice between benefits
    • It is anticipated that the choice may have an impact on an individual’s tax position
    • Any solution to Public Sector Cost Cap mechanisms which were paused in January 2019 will be considered alongside any McCloud remedy
    letap likes this.
  11. PeterQuint

    PeterQuint Lead commenter

  12. letap

    letap Occasional commenter

    I would be interested to know what this means exactly as I planning to make a significant contribution to a SIPP next year - I assuming this has something to do with the annual pension contribution?
  13. diddydave

    diddydave Established commenter

    It's likely to be a reference to the firefighters schemes where the different schemes had different contribution levels. As pension contributions are tax free any change, retrospectively, would change the tax amounts that should have been paid in those years. This is not something that teachers need to worry about as their pension contributions for their two schemes are identical - so the tax position is the same no matter which scheme they are/were in.
  14. PeterQuint

    PeterQuint Lead commenter

  15. diddydave

    diddydave Established commenter

    I have no special knowledge beyond what I read there or on the Government's consultation page: https://www.gov.uk/government/consultations/fee-paid-judicial-pension-scheme-amendments

    They have published a set of proposals so I'd say it was your latter point about asking people what they think.

    ..but having said that one point flew out at me that may be relevant to the teaching profession regarding supply teachers!:

    "...a Supreme Court decision in O’Brien v Ministry of Justice [2013] UKSC 6 that fee-paid judges had been treated less favourably than relevant full-time salaried judges because they had not been entitled to a pension (O’Brien 1)"

    That sounds incredibly similar to the position Supply Teachers are in when employed by an agency who are not allowed to join the TPS.
    PeterQuint likes this.
  16. PeterQuint

    PeterQuint Lead commenter

    Who’d foot the bill?
  17. diddydave

    diddydave Established commenter

    As always...the employer...and through them the 'customer'...i.e. tax payers.
  18. PeterQuint

    PeterQuint Lead commenter

    Who would the employer be in that case?

    The school where they were on supply? The supply agency?
  19. diddydave

    diddydave Established commenter

    Ahh...I see...we're a long way from that being even considered...the first step would need a legal challenge from a supply teacher but given that 'agency' workers exist in many professions I doubt that there would be any traction on that. The judges I think are different in that they were employed directly - so in the same way that supply teachers if employed by the school CAN join the TPS they wouldn't be discriminated against in the same way.
    PeterQuint likes this.

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