Flexible / Phased Retirement

Dear colleagues,

This guide explains options for staff who are eligible to take some of their pension whilst continuing to work.

What is Flexible/Phased retirement?

Both terms refer to an option whereby a member may take part (or in the case of LGPS, all) of their accrued pension benefits and continue to work for their employer on a reduced FTE basis or lower grade.

‘Flexible’ is the term used by the Local Government Pension Scheme.

‘Phased’ is the term used by Teachers Pension.

The main conditions are:

  • You must be aged 55 years or over
  • You must have the agreement of your employer
  • There will be a reduction in your hours or a move to a position on a lower grade
  • The benefits taken will be actuarially reduced for early payment

Please note:Requests for flexible / phased retirement or quotes of potential benefits can only be made via line managers using the attached form.

The scheme specific conditions are:

Teachers Pensions Scheme (TPS)

You must change the capacity in which you are working so that their pensionable salary is reduced by at least 20% compared to the average of the salary received during the preceding six months.

The reduction in salary must last for at least 12 months.

Example

  • You are over 55 years old.
  • Your benefits to date are:
  • Pension £20,000 per annum and Lump Sum £60,000.
  • You wish to take 40% of your benefits as phased retirement.
  • You would receive a pension of £8,000 and a lump sum of £24,000. However both would be actuarially reduced as they are being taken early.
  • The remainder of your pension would continue to accrue as previously and take into account any changes in salary.

Important: If your average salary in the preceding six months was £40,000.00 p.a., this must be reduced by at least 20% which in this case is the same (£8000.00) as the ‘phased’ pension. However the total of pension and remaining salary cannot be higher than the original salary

What happens if my salary goes above the 20% reduction in the first 12 months after my phased retirement?

Your application will be void and future pension payments will be suspended. There may also be an unauthorised payment charge from HM Revenue and Customs of 40% of the lump sum you have received.

Can I take more than one phased retirement?

Yes, you can take two phased retirements before final retirement. When you take your second phased retirement the amount you may receive is a maximum of 75% of your remaining service, which includes the service accrued following your first phased retirement.

Note:In the 2015 scheme, this will increase to three phased retirements but only two may be before age 60

What happens to the service that is not used in the phased retirement calculations?

Remaining service, which must be at least 25%, will be aggregated together with any subsequent service you accrue to be used in any future benefit calculations.

What happens if I become ill after taking phased retirement?

If you have taken phased retirement then you may apply to receive ill-health benefits based upon your remaining service in the TPS.

How willtaking phased retirement benefitsaffect payment ofthe death grant should I die in service?

If you die whilst in pensionable employment,the death grantwill be 3 times your average salary less any lump sums already paid.

Local Government Pension Scheme (LGPS)

You must have at least three months total membership or have brought a transfer value into the LGPS.

Staff must reduce their hours or move to a position on a lower grade and elect in writing to the LGPS to draw their pension benefits.

You may draw all or part of the pension benefits already accrued, whilst still drawing wages/salary from their job on the reduced hours or grade.

You can continue paying into the LGPS to build up further benefits in the Scheme.

Note on abatement:

If you are receiving payment of your benefits under the flexible retirement provisions your benefits will not be subject to reduction or suspension for re-employment whilst you continue in that employment or any subsequent employment with the employer that allowed you to take flexible retirement.

Example

  • You are over 55 years old.
  • Your current salary is £30,000 p.a.
  • Your benefits to date are:
  • Pension £20,000 per annum and Lump Sum £15,000
  • You take all of your accrued benefits (remember these will be reduced for early payment)
  • Your begin a new part time position at 60% of your previous salary (£18,000)

What happens to the % of any benefits not used in the flexible retirement calculations?

If some of your service is not put into payment upon flexible retirement, the remaining service is linked to/will be aggregated with any subsequent benefit you accrue.

What happens if I become ill after taking flexible retirement?

If you have taken flexible retirement & subsequently suffer ill health whilst still a member of the scheme, (subject to current procedures), ill-health benefits could be payable on the new position (based on all post flexible retirement service plus any service that was not put into payment).

How willtaking flexible retirement benefitsaffect payment ofthe death grant should I die in service?

For death in service from 1 April 2014, the total death grant cannot exceed 3 x salary.

Example

Someone with a salary of £30k who took flexible retirement with pension of £5k and lump sum of £10k paid and now on reduced pay of £20k who died 1 year after flexible retirement. Payment would be the greater of:

The death grant on the initial pension which would be:

  • £5k x 10 (10 year guarantee) less £5k paid = £45K, or
  • Death grant on second employment £20k x 3 = £60k

Universities Superannuation Scheme (USS)

  • You must have a minimum of two years’ qualifying service.
  • You must agree to reduce your hours and therefore salary by at least 20%.
  • Your part-time service fraction should not increase within 12 months of the flex.

How many flexes could I take?

You can take part of your benefits on two occasions whilst continuing to work; on the third occasion you would have to fully retire, receive the remainder of your benefits and have ‘retired’ as defined in the USS rules.

You can draw between a maximum of 80% and a minimum of 20% of your benefits. However, if you flex 80% on the first flex then to draw further benefits you must fully retire.

If you flexed 50% on the first occasion, then on the second occasion you could flex up to 30% if you intended to remain in employment. Remember, at each flex you must reduceyour current working hours and salary by at least 20%.

Retirement means that your contract of employment has terminated due to retirement. Importantly, you would not be deemed to have retired if you intend to commence another post which gives an entitlement to USS membership. If however, after you have retired you are subsequently offered new employment that is pensionable in USS, your employer may have a duty to enrol you into a pension scheme. You will need to seek advice from your employer as to your eligibility and whether you are able to rejoin USS.

What happens if my role changes and my working hours legitimately increase?

The Trustee Company will be informed by your employer of the agreed reduction in working hours and salary; therefore if you have the minimum reduction of 20% of working hours, your part-time service fraction will be 80%. Upon retirement your benefits will be calculated basedupon a part-time service fraction of no more than 80%, and therefore your employment situation can change, however it will not affect your retirement benefits.

We understand that these rules are to be reviewed by USS during in October 2015

What happens to the service that is not used in the flexible retirement calculations?

As you have not drawn all of your benefits, the remaining proportion you have not taken will continue to be calculated by reference to your full-time equivalent pensionable pay based on the future part-time service you accrue leading up to your full retirement.

What happens if I become ill after taking flexible retirement?

The treatment of ill health retirement for a member who has flexibly retired is the same as for any part time member, as the benefits which are already in payment are unaffected. It is only the active benefits which are taken into account for the purposes of calculating any enhancement which may be due.

If a flexible retiree subsequently fully retires on the grounds of total incapacity then he or she will be entitled to a service enhancement based upon the service which would have accrued up to age 65.

What if I die in service after flexible retirement?

If you die during a period of flexible retirement, the death benefits payable are a combination of death in service and death after retirement benefits subject to an overall maximum limit.

Please note:Any requests for flexible / phased retirement or quotes can only be made via line managers using the attached form.( See Appendix A)

Further information is available on the Pension Schemes websites.

Application for Flexible/Phased Retirement - Appendix A
Name of Applicant:______
(Please print)
Job Title:______
Which Pension Scheme are you a member of? / Please tick
Teachers Pension
Local Government
USS
% of Pensions benefits to be taken:
% / (See attached guidance for limits)
% of reduction in working hours (NB for TP & USS members must be at least 20%)
%
Approved by Line Manager:
Name: / Signature: / Date:
______/ ______
Approved by EB member
Name / Signature / Date:
______/ ______
For Pensions use only:
Date request received:
Scheme:
Date Estimate applied for from Pension Scheme
By:
Name of Pensions Administrator