TEACHERS’ PENSIONS OVERPAYMENTS - ADVICE FROM THE NATIONAL UNION OF TEACHERS

SECTION 1 WHY TEACHERS’ PENSIONS HAVE BEEN OVERPAID

Why has my pension been overpaid? The overpayment has happened because you have received increases in your teacher’s pension which were too high. Specifically, the problem applies to a part of your pension known as the Guaranteed Minimum Pension (GMP). Some of the annual increase due on that part of your pension is supposed to be paid to you by the Government through an increase in your state pensions, not through an increase in your teacher’s pension. For some teachers, however, both pensions were increased, leading to a total overpayment.

What is the GMP? The GMP is a part of your occupational pension that is guaranteed by Government. You receive this guarantee because, as a member of the Teachers’ Pension Scheme, you were “contracted out” of the State Earnings Related Pension Scheme (SERPS).

The GMP is a complex mechanism, but it was set up to make sure that people could not lose out because they were contracted out of SERPS. It covers the period April 1978 to 5 April 1997.

What should have happened? As soon as your state pension starts to be paid to you, the Government takes on the responsibility for paying part of the increase on your GMP built up while a member of the Teachers’ Pensions.

You have a right to an increase in your teacher’s pension each year, which reflects rises in the cost of living. You also have a right to an increase in the GMP part of your pension.

Your teacher’s pension is index linked to the Retail Prices Index rate of inflation each year. The Government pays the whole of this increase on the GMP built up between 6 April 1978 and 5 April 1988. This GMP increase is, however, paid through an increase on your state pensions, not your teacher’s pension.

For the GMP built up between 6 April 1988 and 5 April 1997, the Teachers’ Pension Scheme pays the increase up to 3 per cent, with any additional increase beyond 3 per cent being paid by the Government. The GMP increase paid by the Teachers’ Pensions Scheme is paid through an increase in your teacher’s pension, while the GMP increase paid by Government is again paid through an increase in your state pensions.

The Teachers’ Pension Scheme pays the RPI increase on the remaining part of your pension excluding the GMP part of your pension.

1 The result is that all parts of your pension are increased in line with the Retail Price Index. In some cases, part or all of this increase is paid through your state pensions rather than your teacher’s pension. The overall effect, however, is that your total pension is protected against inflation.

If all of this had been done correctly, you would have received the correct increases and there would have been no problem.

What went wrong? Teachers’ Pensions should have been told when you started to receive your state pension, so they could adjust the annual pension increase to reflect the GMP increase being paid through your state pension. It appears that due to a systems fault, this did not happen in a minority of cases.

These people were, as a result, being paid two sets of pension increases on their GMPs, once from Teachers’ Pensions through their teachers’ pension and once from the Government through their state pension. As a result, the total pensions were being overpaid.

This problem is not confined to the Teachers Pension Scheme, but has happened in many public sector schemes, including the Civil Service and the NHS.

What will happen to my pension? Public service schemes in England and Wales are taking a common approach. Your teachers’ pension will be recalculated and the correct, lower level of pension will be reinstated. You will continue to receive the appropriate payment through your state pension. The Teachers’ Pension Scheme will not seek to reclaim overpayments made in past years.

What does the Union think? The Union thinks this is a reasonable and proportionate solution to the problem, following its representations to make sure that teachers would not have to repay the overpayments.

In our negotiations with the Government, we expect that teachers get what they are entitled to under the scheme rules. We therefore cannot ask that teachers receive higher pensions than the rules allow.

Can my former pension be reinstated? No.

How many teachers have been affected? Approximately 32,000 teachers have been affected – 6 per cent of all teacher pensioners.

20,000 pensioners were identified as having been overpaid before Christmas. The re-calculated teachers’ pensions for this group were introduced from April

2 2009 at the same time as this year’s 5 per cent annual pension increase, in order to minimise the number of people who saw a cut in their pensions.

A second tranche of 12,000 pensioners were identified as overpaid in May. Their pensions will be adjusted in August 2009. The 5 per cent increase received in April should, in most cases, offset this reduction in August, but the reduction is more ‘visible’ for this group.

Will there be any more overpayments discovered? We have been assured that it is unlikely that there will be any more overpayments but we have asked the Department for Children, Schools and Families to keep us informed.

What financial support can I get? You will not be able to get support unless you are in financial hardship. Teachers experiencing financial hardship as a result of overpayment of pension should contact the Teacher Support Network on 0800 0562 561 (England) and 0800 0855 088 (Wales).

Where can I get more information? Teachers’ Pensions have set up a dedicated freephone helpline on 0800 141 2857. Further information, as it becomes available, will be given on the Teachers’ Pensions website www.teacherspensions.co.uk

SECTION 2: HOW DO TEACHERS’ PENSIONS RECALCULATE YOUR PENSION?

What letters do Teachers’ Pensions send out? Teachers’ Pensions send out an initial letter stating that an overpayment has been made. The recalculation letter follows this up, giving your restated pension along with a stylised example of how the pension recalculation is done.

You can request a detailed breakdown of your own recalculation by contacting the freephone helpline number 0800 141 2857.

Why do Teachers’ Pensions start with my pension from the date when the Guaranteed Minimum Pension came into payment? The overpayment problem stems from the wrong increases being applied after the GMP comes into payment, which is the date when you started to receive the state pension. The pension at the date the GMP comes into payment should therefore be correct and Teachers’ Pensions start the recalculation from there.

What happens next? Teachers’ Pensions apply the correct increases to the different elements of the pension from the date the GMP came into payment. If this is done properly, the pension that results in today must be correct.

3 What are the different elements of the pension? There are effectively three parts to the pension. From 1978 to 1997, schemes that contracted out of the State Earnings Related Pension Scheme (SERPS) had to guarantee that they would provide equivalent benefits to those in the state scheme. This guarantee was provided through the ‘Guaranteed Minimum Pension’ (GMP). Part of your pension is therefore GMP.

Due to legislative changes, the GMP is split into two parts - GMP accrued between 6 April 1978 and 5 April 1988, and GMP accrued between 6 April 1988 and 5 April 1997.

In most cases, the largest part of your pension is pension over and above the GMP, called gross ‘excess’ pension on the letters sent out by Teachers’ Pensions.

I thought I was getting a pension based on 80ths of my final salary? You are getting a pension based on 80ths. It is just that part of your pension is designed to replace benefits you would have received through the state. As a result, the Government pays you part of the increases in that element of your pension through state pensions, not the teacher’s pension. You paid lower National Insurance Contributions in your working life because the Teachers’ Pension Scheme was contracted out of SERPS.

Shouldn’t I get an inflation-linked increase on all parts of my pension? All parts of the pension should receive the standard Retail Price Index-linked increase. However, in some cases, part or all of this increase will be paid with your state pensions rather than by Teachers’ Pensions. The overall effect is the same and leads to your total pension being protected from inflation.

What increases should be applied to the different elements by Teachers’ Pensions? The pension in excess of the GMP (element A on the letters) should be increased by the standard RPI inflation-linked increase each year. For example, the April 2009 increase on this part should be 5 per cent.

Teachers’ Pensions present this as a table so you can work through the increases each year. Teachers who retired many years ago will obviously have a longer table to work through on their own recalculations than those who retired recently.

The GMP built up between 6 April 1988 and 5 April 1997 (element B on the letters) should be increased by Teachers’ Pensions in line with RPI up to 3 per cent. Any excess is paid by the government with your state pensions.

Again, this is presented as a table. As you can see, there are several years, for example 2005, and 2007-09 where the increase to the post 1988 GMP element is capped at 3 per cent. You will not be losing out, as the excess should be paid with your state pensions.

4 The GMP built up between 6 April 1978 and 5 April 1988 (element C on the letters) should not be increased by Teachers’ Pensions. The responsibility for paying increases on this part rests with the government.

What happens then? The different elements of the pension are added together and the result is the pension that you should be paid through Teachers’ Pensions.

Is there a GMP part of any pension built up after April 1997? No

Superannuation Section July 2009

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