Teachers' Pension Scheme: Rollback Choices (Faster Accrual)

flexibilly

Thank you @hugheskevi for short and clear answers, as always.

Still, it doesn't seem reasonable that you alone should be answering this question for any teachers stumbling across this thread. I don't accept that the answer is clear from the TPS online documentation (as of the date of this post) - perhaps the answer is implied/hinted at, but it definitely isn't clear. So I also wrote and asked TPS: do compensation offers for refunds of flexibility payments made during the remedy period come with any tax liability? Here is the reply:

"

Thank you for your enquiry regarding Transitional Protection.

For the refund amount a deduction is made for tax relief received where applicable, based on your earnings for each year in which the contributions were paid. The tax deduction could vary depending on which year(s) the contributions for the election were paid in.  

Interest is then added to the net amount. Please note that the interest may be taxable but is paid gross.  

The refund is payable as compensation under the regulations, so no additional tax is payable.  

You can view the latest information via the Teachers Pensions website under Transitional Protection. 

If you have any further queries, please do not hesitate to ...

"

hugheskevi

flexibilly said:

Thank you @hugheskevi for short and clear answers, as always.

Still, it doesn't seem reasonable that you alone should be answering this question for any teachers stumbling across this thread. I don't accept that the answer is clear from the TPS online documentation (as of the date of this post) - perhaps the answer is implied/hinted at, but it definitely isn't clear. So I also wrote and asked TPS: do compensation offers for refunds of flexibility payments made during the remedy period come with any tax liability? Here is the reply:

"

Thank you for your enquiry regarding Transitional Protection.

For the refund amount a deduction is made for tax relief received where applicable, based on your earnings for each year in which the contributions were paid. The tax deduction could vary depending on which year(s) the contributions for the election were paid in.  

Interest is then added to the net amount. Please note that the interest may be taxable but is paid gross.  

The refund is payable as compensation under the regulations, so no additional tax is payable.  

You can view the latest information via the Teachers Pensions website under Transitional Protection. 

If you have any further queries, please do not hesitate to ...

"

They are incorrect in saying "Please note that the interest may be taxable but is paid gross." as interest on compensation is not taxable. They confirm in the next paragraph that the payment is compensation, so there is no doubt about the type of payment.

The reference for this is HMRC newsletter 156, which states:

Interest on compensation

Where interest is paid under a provision to pay compensation in the Public Service Pensions and Judicial Offices Act 2022, including interest on overpaid contributions, it is not taxable.

I suspect the reference to taxable but paid gross is just a standard sentence put into all interest communications, and they would place a lot of weight on the 'may' to argue that it isn't wrong (just misleading).

flexibilly

Ok, I think I've reached a conclusion then. If it's useful for anyone else reading to hear: I will write to TPS and accept the compensation offer.

Thank you again @hugheskevi in particular, who I wouldn't have managed to reach an informed decision without (even the issue of tax on the interest mattered...). Thanks also to others who have commented and strong encouragement to any other teachers to contribute between now and October 1st, if they find the thread. I think the TPS online guidance is poor and in that context I don't think there are any stupid questions.

I have gone back and added extra [EDIT: ...] text to some earlier posts to try and keep things as clear as possible for a new teacher arriving to the thread. Nothing deleted/changed. Just highlighting where I've gone wrong in my earlier thinking. I've also added similar text to the notebook for anyone who clicks through to it.

I won't be writing to TPS to ask what the exact method for interest calculation was (would the answer be correct even if it came?). I was able to figure out enough to conclude it was a "fairly generous" method, in my personal opinion. Others may disagree and I hope you'll post here if you do.

davepayl

flexibilly said:

Ok, I think I've reached a conclusion then. If it's useful for anyone else reading to hear: I will write to TPS and accept the compensation offer.

Thank you again @hugheskevi in particular, who I wouldn't have managed to reach an informed decision without (even the issue of tax on the interest mattered...). Thanks also to others who have commented and strong encouragement to any other teachers to contribute between now and October 1st, if they find the thread. I think the TPS online guidance is poor and in that context I don't think there are any stupid questions.

I have gone back and added extra [EDIT: ...] text to some earlier posts to try and keep things as clear as possible for a new teacher arriving to the thread. Nothing deleted/changed. Just highlighting where I've gone wrong in my earlier thinking. I've also added similar text to the notebook for anyone who clicks through to it.

I won't be writing to TPS to ask what the exact method for interest calculation was (would the answer be correct even if it came?). I was able to figure out enough to conclude it was a "fairly generous" method, in my personal opinion. Others may disagree and I hope you'll post here if you do.

Let us know how you get on - I think I will be doing the same. Thanks for the advice.

22225

Thank you for this thread. I also bought additional pension and faster accrual during the remedy period. They've told me that as those things werent really available during the final salary time I cant habevthem but they will be contacting me on how to sort it out in the future.

As I am 20 odd years off retirement, am I right in thinking I won't be hearing from them for decades?!

I do spend time on the TPS online portal but it's not clear. Is it because they've got so much to deal with? Ice spoken to them on the phone before and on separate occasions they have told me completely wrong stuff eg that my Normal Pension Age will not ever increase etc.

hugheskevi

22225 said:

Thank you for this thread. I also bought additional pension and faster accrual during the remedy period. They've told me that as those things werent really available during the final salary time I cant habevthem but they will be contacting me on how to sort it out in the future.

As I am 20 odd years off retirement, am I right in thinking I won't be hearing from them for decades?!

I do spend time on the TPS online portal but it's not clear. Is it because they've got so much to deal with? Ice spoken to them on the phone before and on separate occasions they have told me completely wrong stuff eg that my Normal Pension Age will not ever increase etc.

What happens with Added Pension and Faster Accrual is set out on this page. Under the alternative 2015 Remedy option, these benefits will be converted into legacy scheme Added Pension.

You will be sent a Remedial Service Statement at some point before 31st March 2025 which will set out details of your entitlement under both options.

Everything associated with Remedy is difficult, as whole new sets of pension and tax rules have been introduced. There is no precedent upon which to rely, and approaches constantly have to be revised. 

It is best avoiding phoning any organisation with anything beyond a mundane issue such as changing address. The lowest qualified staff will be on phones for the most part. You will receive better answers from electronic communication as queries can be directed to the appropriate area and level of expertise. This applies well beyond public service pensions, eg, HMRC is the same. 

22225

Thank you Hugheskevi. That is really good advice.

Btw as you seem knowledgable, please can you clarify something. I have 17 years in Final Salary. Whilst I am still working, does it go up by indexing eg cpi? Or are the only increases in my final salary pension raising from when my salary goes up, either through promotions and government pay awards? In comparison to CARE scheme where it's like cpi plus 1.6.

Many thanks 

hugheskevi

22225 said:

I have 17 years in Final Salary. Whilst I am still working, does it go up by indexing eg cpi? Or are the only increases in my final salary pension raising from when my salary goes up, either through promotions and government pay awards? In comparison to CARE scheme where it's like cpi plus 1.6.

Final salary is based on your pensionable earnings over the last 12 months prior to leaving the scheme (either to start receiving the pension, leaving employment, or opting out of the pension scheme), or if higher, it is based on:

Your average salary across the best three consecutive years salaries (revalued to take inflation into account) during the ten years prior to leaving service

Depending on past promotions, you may find that your final pensionable earnings could be falling each year if they are based on the earliest of the 10-year look back and the oldest years are being replaced with lower figures from more recent years as they drop-out of the 10 year look-back period, given pay freezes, pauses, restraints, etc.

Once you have left the scheme the pension increases by CPI, with a floor of zero (ie it would not decline if there is deflation).

22225

Thank you very much

flexibilly

Here is the TPS reply to me accepting the compensation payment (the bolding is theirs):

"

We’ve received your Rollback Choices form, which requested we refund your remedy period 

Faster Accrual Elections as compensation.  

The total of £10,842.47 will be refunded to the bank account details you provided. This amount 

is made up of: 

Compensation: £8,556.91 

Interest: £2,285.56 

In calculating the compensation amount, we’ve deducted the tax relief that you’d have 

benefited from when making these contributions.  

Please note that the interest may be taxable but is paid gross. This should be declared to 

your tax office, so that they can adjust your tax code accordingly.  

For further information on how we calculate the tax adjustment and apply interest when 

issuing compensation payments please visit our website.

"

I'm still thinking about it, and keen as ever to hear @hugheskevi thoughts (presumably that the idea of declaring anything to the tax office is incorrect/misguided?). But the first thing that interests me is that it is only once you have made the "irrevocable" decision that you get the compensation/interest breakdown... Hopefully it's obvious from this whole thread... but, personally, I think they should be stating that breakdown up front. It's critical for people trying to make an informed judgement (even better would be the details of exactly how it's calculated). And exactly the same for the fact you may or may not(?) need to pay tax on the interest component (that, remember, you don't know the value of at the point of making the decision). I found out about this possibility by writing to them (see earlier posts), but why aren't they making this clear to teachers up front? Again, it's critical for people trying to make an informed judgement (e.g., for me, hovering just below the higher tax rate band with my current earnings/pension contributions, almost all of that 2,285.56 is taxable at 40%, in principle, if I understand it).

Regardless, seeing their reply to me hopefully helps others get the decision right...