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Salary of Reference Question

Discussion in 'Retirement' started by tonyuk, Jun 3, 2020.

  1. tonyuk

    tonyuk Occasional commenter

    I wondered what happens if I retire and go back into teaching and my salary and pension takes me above my salary of reference amount.
     
  2. diddydave

    diddydave Established commenter

    If you take your pension early with AAB then nothing, you get both salary and pension.
    If you take your pension at your NPA then they stop all your pension.
     
  3. tonyuk

    tonyuk Occasional commenter

    AAB, NPA?

    Okay I am looking at retiring early in a couple of years but a new additional salary position has come up. If I apply and get it then this would take me above my salary of reference (looking at taking a day off and returning full time) therefore trying to figure if it’s worth applying or if the salary of reference would mean it’s pointless. Hope that makes sense.
     
  4. diddydave

    diddydave Established commenter

    You only get a 'salary of reference' when you retire. It only is an issue if you take your pension at your NPA (60?) or later.
     
  5. tonyuk

    tonyuk Occasional commenter

    So yes my NPA is 60 I would take pension when 57 but may work till 62. So I take it I’m ok upto 60 if I’m reading this correctly but what about from 60-62 or is that still ok as I retired early?
     
  6. diddydave

    diddydave Established commenter

    Anytime after 60 you will be penalised if your salary + pension go above the salary of reference.

    If you are looking at your current benefit statement and can see the salary on there that is currently being used for your pension calculation then if you can take a job that pays more than that it will increase your pension calculation.
     
  7. tonyuk

    tonyuk Occasional commenter

    Ok great thanks at least I get some years at a higher salary. Any idea what the penalty is likely to be after 60?
     
  8. diddydave

    diddydave Established commenter

    Complete loss of the pension until it + your salary are less than the salary of reference...a good reason to take your pension before you reach your NPA if you intend working beyond it.

    I asked the question on the TPS website this week..."so if I go £1 over the salary of reference is all of my pension stopped" and the answer was "yes"
     
    Dorsetdreams likes this.
  9. tonyuk

    tonyuk Occasional commenter

    Great thanks for the advice
     
  10. diddydave

    diddydave Established commenter

    For your 'final salary' pension this is crucial!

    The higher your final salary then the higher your pension. Considering that you are likely to be able to have all of your service to date and probably for another year or two counted as the better final salary pension this could be considerable.

    There is a limit in the last 3 years of service, if your salary rises by more than 10% or £6241 then it is restricted to the higher of those two figures.

    Example.
    You have worked 30 years with a Final Salary of £40,000. That makes the final salary scheme pension:
    30 / 80 * 40,000 = 15,000
    But if in the last 2 years your salary rose to £50,000 then the final salary pension becomes:
    30 / 80 * 46,241 = 17,340

    Each £1000 that your final salary rises (up to the limit) adds £12.50 for EACH year of service to your pension.
     
  11. tonyuk

    tonyuk Occasional commenter

    Hi

    Unfortunately not final salary as I took a break in service hence I need to go in a couple of years or my pension falls off a cliff! So hence trying to build up a better salary at the moment and then when I rejoin again under the new scheme I will be adding to this pot.
     
  12. Dorsetdreams

    Dorsetdreams Occasional commenter

    Tony, I don't wish to sound nosy but there are at least three complications or areas of confusion in your last post. Maybe you could list your years of pension contributions and break.

    (Perversely, it can be people who DO contribute for a couple of extra years who might see their pension go over the cliff, but I doubt you are in that situation).
     
  13. tonyuk

    tonyuk Occasional commenter

    Hi
    Diddy has an idea of what I am talking about. So I was on SLT for many years and took a break am now back teaching so am no longer on best three. Have now been working for a few years on new scheme and potentially in a couple of years my pension could start to reduce. Hope that makes more sense.
     
  14. diddydave

    diddydave Established commenter

    Your 'final salary' service is never at risk.
    What is tricky will be the part none of know anything about for certain - what choices will be offered when the tribunal rules on how to address the mix of final salary and career average schemes.

    Your best 3-in-10, if you go back to work this year (Sep 2020), will run from 2010-2020 - so if your SLT salaries are in this period they will be used for the final salary pension calculation. If you work for another 2 years, as you say, then that period becomes 2012-2022...most likely the crucial years of that period for you are 2012-2015. To work out how much longer you can 'safely' stay in the TPS scheme you need to look back to the last day you worked at the higher salary, go back 3 years from that point and then 10 years after that date will be the 'crunch' time...given that is likely to be 2022 according to the dates you've posted here you have a couple of years yet and in that time we should know more about the choices that will be offered.
     
  15. tonyuk

    tonyuk Occasional commenter

    Hi

    Yes totally right I have about 2 years to make a decision (well to see what decision is made). What is used for the salary of reference is it the average salary shown in 80th scheme or the highest salary overall?
     
  16. diddydave

    diddydave Established commenter

    It is the one used in the 80th scheme. The one that is used to calculate your final salary pension.
     
  17. tonyuk

    tonyuk Occasional commenter

    Great thanks as that is revalued that gives a bit more flexibility!
     
  18. diddydave

    diddydave Established commenter

    You've raised a point in my mind that I will need to get confirmation of from TP.
    Also it made me read the regulations again and I believe I was wrongly advised by the chat I had online with TP that the entire pension is stopped if you go over the salary of reference figure.

    Firstly, if someone goes at 60, taking their Final Salary benefits as normal, and takes their Career Average benefits early I don't know if the total they can earn is the gap between the salary of reference and their total pension (both benefits combined) or if it is just the gap to their Final Salary benefits. My understanding is that abatement only applies to the Final Salary scheme as the Career Average scheme does not use a 'salary of reference' in calculating benefits. This is not something anyone will have had experience of yet because if they have reached 60 they will not have a combination of both types of pension scheme and would only have final salary benefits.

    Secondly, the regulations (http://www.legislation.gov.uk/uksi/2010/990/data.pdf) state "in any other case, the pension to which the person is entitled in any tax year is to be reduced if necessary so as to secure that the pension paid during that tax year does not exceed" which I believe means that you get enough of your pension to take you up to the gap between what your teacher's salary is and the index-linked salary of reference.
     
  19. diddydave

    diddydave Established commenter

    Particularly as the break being in 2015 could mean that treating that as the end of your Final Salary scheme and the rest since then as Career Average might see the Salary of Reference being index-linked from 2015 onwards...so gaining another 5 years of inflation...multiply the salary figure from August 2015 by 1.0834 to bring that up to this year's value.
     
  20. tonyuk

    tonyuk Occasional commenter

    Okay so effectively it could bring me up to my salary of reference with index link - sounds a nice couple of years of earnings potentially as the pension would, if I am reading it right, after 60 act as a top up before it is reduced.
     

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