Calculating Scheme
Benefits
Can I exchange part of my pension as a lump sum?
Example of pension and lump sum option calculation for membership after 31 March 2009.What if I joined the Scheme
before 1 April 2009?
What if I want to take AVCs
as cash?
What pay is used to
calculate retirement benefits?
Your pension is based on your total membership in the Scheme and
the pensionable pay you receive in, normally, your final year of service. If
you are part-time, your Scheme membership will count at its part-time length
when working out your pension and your final pay is increased to what you would
have received had you been full-time.
If
you were employed as a classroom assistant with an Education and Library Board
between 1st January 1995 and 31st November 2007, or with
a Voluntary Grammar School or Grant Maintained Integrated School between 1st
January 1995 and 7th February 2009, the calculation of your benefits
between these dates may be slightly different. It will depend on whether or not
you signed up to a Collective Agreement which altered terms and conditions of
employment and changed whole-time equivalent hours from 32.5 per week to 36 per
week. The calculations are required to make sure that the Collective Agreement
does not affect classroom assistants’ benefits. Click here to view information and calculations if this applies to you.
The examples below show how benefits based on membership in the Scheme built up after 31 March 2009 are calculated. You receive an annual pension based on 1/60th of your final year’s pensionable pay for membership you build up after 31 March 2009.
You can exchange part of your annual
pension for a one off tax-free cash payment. You can take up to 25% of the
overall capital value of your pension benefits as a lump sum and you will
receive £12 lump sum for each £1 of pension given up, providing the total lump
sum does not exceed £450,000 (2010/11 figure) less the value of any other
pension rights you have in payment. The overall capital value of your pension
benefits is calculated as:
(Pension x 20) + lump sum + value of AVC
fund (if any).
However, it should be noted that this calculation is not as simple as it appears as it is the benefits after pension has been exchanged for lump sum which must be taken into account, i.e. the calculation must be repeated for the new lump sum and new reduced pension to ensure that the 25% limit is not exceeded. As the capital value of accrued rights and pension to lump sum conversion are interdependent, a reiterative calculation ensues. In the current climate of long life expectancies and low interest rates, members are reminded that the cash sum may not be sufficient to replace the pension surrendered. If you are considering this option, you are strongly recommended to contact an Independent Financial Advisor for advice.
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On retirement at age 65, a Scheme
member has 20 years total membership and has a final pay of £15,000.
£5,000 less £1,000 = £4,000
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If the same employee had worked
half-time (i.e. 20 years at half-time = 10).
£2,500 less £500 = £2,000
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Your benefits for membership built up
before 1 April 2009 are calculated differently. For each year you have built up
in the Scheme up to 31 March 2009 you will receive an annual pension based on
1/80th of your final year’s pensionable pay and an automatic tax-free lump sum
of three times your pension. You can also exchange part of your pre-April 2009
pension for extra lump sum as described above. Any benefits built up after 31
March 2009 are calculated as above.
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On retirement at age 65, a Scheme
member has 40 years total membership composed of 20 years pre 1 April 2009
membership and 20 years post 1 April 2009 membership. The final pay is
£15,000.
20 years x 3/80 x £15,000 = £11,250 |
The member could then choose to increase
the lump sum by commuting £1 pension for £12 lump sum up to 25% of his / her
fund value. The fund value is normally calculated as 20 times pension plus the
lump sum.
If you pay additional voluntary contributions (AVCs) via the Scheme you may elect to take up to 100% of the accumulated fund in your AVC account as a tax-free lump sum if you draw it at the same time as your Scheme pension benefits, provided when added to the Scheme lump sum it does not exceed 25% of the overall value of your Scheme benefits (including your AVC fund).
Your retirement benefits will normally be
calculated on your final year’s pensionable pay (if you are part-time, your
final pay is increased to what you would have received had you been full-time).
However, your benefits can be calculated on one of the two previous years’ pay
if better and, if you downgrade in your last ten years with your employer, you have
the option to have your benefits based on the average of any three consecutive
years in the last ten years (ending on a 31 March).
The Scheme provides statutory pension
increases. This means that if you retire on or after age 55, your pension will
be increased each year in line with inflation. If you retire
before age 55, the accumulated effect of inflation since you retired will be
added to your pension when you reach age 55. Tier 1 and Tier 2 ill-health pensions are increased each
year in line with inflation regardless of age. Deferred
members who have their pension brought into payment due to ill-health
will only receive pension increases before age 55 if an
independent registered
medical practitioner approved by NILGOSC certifies that the
deferred member is permanently incapable of all work.