Teaching is an ageing profession. Almost half of the teachers currently in service in primary and secondary schools are 45 or over; a quarter are over 50. It is also a tiring profession: many older teachers speak of stress or "burn-out" - at best, of a sense that their best years in the classroom are behind them; at worst, of disillusionment and low morale.
Teachers have never had an automatic right to retire early. But many of today's older staff have vivid memories of former colleagues being actively encouraged to take this option in their early fifties, sometimes even with offers of enhanced pensions. "They made me an offer I couldn't refuse," they often said. "Why don't you come and join us?"
A surprising number did just that. In England and Wales, at the end of the 1980s, 8,000 teachers a year were taking premature retirement. Only 3,500 retired at 60 or later. The flood of retirements came in 1997, when 19,000 teachers left the profession.
What caused this stampede?
The figures must be seen in context. The premature retirement boom started at a time when school rolls were falling rapidly. Between 1974 and 1985 the number of primary school age children in England fell by 25 per cent. A comparable fall in secondary enrolment followed six years later. Local education authorities consequently had to reduce school staffing. Premature retirement, with pension incentives to encourage teachers to apply, was an effective and manageable way of doing this.
In the 1990s school rolls began to rise again, but by now other factors were involved - growing disillusionment, the new curriculum and testing regimes, league tables, centrally imposed targets and strategies and Ofsted pressures all made early retirement a tempting proposition.
Local management of schools (LMS) had the biggest impact. Now that schools controlled their own budgets, they stood to gain from early retirement. Older teachers on higher salaries could be replaced by younger, cheaper staff.
The 1997 regulations
A teacher surplus was turning into a teacher shortage; premature retirement was pushing up the cost of the Teachers' Pension Scheme (TPS) because those who took advantage of it drew pensions for longer (and contributed less) than those who retired at 60. Regulations announced in October 1996 and brought into effect in 1997 aimed to address these problems. Employers could still grant premature retirement, by reason of redundancy or in the interests of "the efficient discharge" of their functions, but now they had to pay their share of the cost.
What happens now if you are awarded premature retirement by your employer?
The TPS pays the pension and lump sum that your years of pensionable service entitle you to, but scales it down actuarially in respect of the future contributions that you will not now be making and the extra years over which the pension will now be paid. Under LMS, your school's governing body is responsible for deciding whether to award you early retirement; it bears the cost of making up the shortfall in your pension and lump sum (mandatory compensation) unless your LEA agrees to meet the cost. "Mandatory compensation" covers pension and lump sum. Governors are usually reluctant to pay for mandatory compensation, so invariably consult with the LEA first. Premature retirement is now very costly for employers, particularly for their younger teachers. For example, at age 50 the employer has to pay 42 per cent of your pension for life and 28.8 per cent of the lump sum.
If your employer offers enhancement, in the form of additional years of pensionable service, the employer (not the TPS) pays for it. Again the school has to meet the cost unless the LEA agrees to the enhancement.
The effect of the 1997 regulations was dramatic. The number of premature retirements dropped from just over 19,000 in 1997-98 to almost 3,000 in 1998-99. Since then it has risen again, but much more slowly: to an estimated 3,150 for 2000-2001. "Age retirements" - at 60 or later - now account for about 46 per cent of all retirements compared with about 22 per cent 10 years ago.
Premature retirement is not an entitlement, but it may still be an option for those over 50 (under Inland Revenue rules, employees cannot receive an income from a pension scheme before the age of 50 - with some exceptions, such as professional athletes and members of the armed forces). Depending on your age, and completion of a minimum period of pensionable service, four possibilities may be open to you.
* Premature retirement with mandatory compensation - you must be aged 50 to 60, with at least two years' pensionable service, and a full or part-time contract (not fixed-term). You must have persuaded your employer to allow you to retire, because of redundancy or on the grounds of the efficient discharge of your employer's functions - for example, your subject may have disappeared from the national curriculum. Remember that you have no automatic right to retire - it's the employer's consent that matters.
Given this consent, the TPS will fund the benefits due to you, but will make an actuarial deduction for the extra years it will have to pay them. The employer makes up the amount of that reduction to the pensions scheme, as "mandatory compensation". The benefits are paid in full, albeit from two sources.
* Premature retirement with discretionary compensation - same rules as above, but you need at least five years' pensionable service. Your employer allows you to retire, picks up his or her share of the cost, and agrees to enhance your pension entitlements by crediting you with extra years of pensionable service. The maximum period of enhancement that can be offered is the shortest of the following: 10 years, or the number of years that would bring your total pensionable service to 40 years, or to the age of 65, or to the equivalent of your existing service. Maximum enhancement, however, is rare. Premature retirement with discretionary compensation is expensive.
* Actuarially reduced benefits (ARBs) - if you are aged 55 to 60 with at least two years' service, you can retire with your employer's permission (although consent cannot be withheld for more than six months) and draw your pension and lump sum - but, again, it will be actuarially reduced. The reduction in your entitlement, which is permanent, will be between 1 per cent and 25 per cent, depending how near you are to 60 or 55 respectively.
A slightly smaller reduction will be applied to your lump sum. For example, if you are 57, your pension will be reduced by 16.7 per cent and your lump sum by 9.8 per cent. At 59, the figures would be 6 per cent and 3.4 per cent. Teachers who left the profession after March 30, 2000, but before reaching the age of 55, can claim actuarially reduced benefits at any time after 55. The actuarial reduction will depend on how old they are when they claim the benefits.
* Ill-health retirement - if you have completed two years' pensionable service (and you are under 60) you may be eligible for ill-health retirement benefits. These are based on your pensionable service, automatically enhanced. The enhancement provisions are complicated, but most teachers receive six years and eight months enhancement, provided they could have completed this period if they had continued teaching until they reached 60. The decision to grant ill-health retirement is made by the TPS, not your employer, and must be based on medical evidence that you are permanently incapacitated from working efficiently in any form of full or part-time teaching.
Applying for ill-health retirement, in other words, is not to be taken lightly. If you are considering it, though, you may need to do so now. The current Treasury review of ill-health retirement could recommend a further tightening of the guidelines, although union spokesmen don't yet know how.
If you are awarded ill-health retirement you will not be allowed to undertake any teaching or other work in the maintained sector that involves regular contact with children or young people under the age of 19.
A case study may help...
It is possibly easiest to use an example of what would happen under each option. Elizabeth Johnson is a head of history in an English all-girls' school. She is on the upper pay spine point one, plus three management points. She was born on August 25, 1947, and wants to retire on August 31 this year, when she is 55 (and seven days). She will have 30 years of reckonable service by this time. Her salary from September 1 last year to August 31 this year is pound;32,767.84. If she were to take premature retirement without enhancement, her annual pension would be pound;12,287.94 (30Z80 of her salary); her lump sum, pound;36,863.82 (90Z80 of her salary or three times her pension). TPS pays 74.2 per cent of her pension (pound;9,117.65); her employer pays 25.8 per cent (pound;3,170.29). The TPS then pays 84.3 per cent of her pound;36,863.82 lump sum (pound;31,076.20); her employer 25.8 per cent (pound;5,787.62).
If she were to take premature retirement with one year's enhancement, she would get an annual pension of pound;12,409.60 with a lump sum of pound;38,092.61. This breaks down in the same way as her first option, but includes a pound;409.60 enhancement paid by her employer on her pension, and pound;1,228.79 on her lump sum. Actuarially reduced benefits would reduce her annual pension to pound;9,117.65 (74.2 per cent of pound;12,287.94) and her lump sum to pound;31,076.20 (84.3 per cent of pound;36,863.82).
She would be best off with ill-health retirement, which would leave her with an annual pension of pound;14,328.08 and a lump sum of pound;42,984.22. The figures are higher because she gets four years and 358 days enhancement - the extra time she would have worked if she'd stayed in teaching until 60.
So what are the chances of my retiring early?
Remember: except for premature retirement with actuarially reduced benefits, there is no automatic right to retirement before the age of 60. Because employers approving premature retirement with mandatory compensation now pay a substantial slice of the future pension cost (as we've said before, as much as 42 per cent for a 50-year-old) they apply the guidelines tightly. But from an employer's point of view, 42 per cent of a typical pound;10,000 pension is not unaffordable, even over 30 years, if it is set against the cost of paying an upper pay spine or leadership salary for the next 10 years or so. That is why the possibility of redundancy needs to be looked at carefully.
The other criterion is the efficiency of the service. Again, this often boils down to cost - but where an LEA has a failing school to turn around or wants to reorganise some of its schools to make efficiency savings, redundancy andor premature retirement will be an option. Remember, though, that being made redundant after 50 does not automatically entitle you to immediate pension benefits over and above your redundancy payment. You need to find out what your employer is offering - expert advice is essential.
Inevitably, there is an element of postcode lottery in the way the efficiency criterion is applied. Each LEA decides its own policy. In adjacent London boroughs, for example, one may release 12 teachers a year, while the other releases none. The same is true of other sectors. It is difficult, for example, for a sixth-form college to fund a premature retirement because the college itself is the teacher's employer; there is no LEA to fall back on. Further education colleges and independent schools are in the same position.
You can, of course, (provided you are over 55 and meet the minimum requirements) consider immediate retirement under the actuarially reduced benefit option. About 800 teachers a year have chosen this route since it was introduced in 1999-2000. But remember that this option means your pension will be reduced for life (see Elizabeth Johnson case study). It's certainly not an option the teacher unions like. They recommend you avoid it if you can.
But there are other options
It is possible to resign your post and work outside teaching, in which case your pension entitlement will be calculated in the usual way and preserved at that level (plus retail price index adjustment) until you are 60, when you begin to draw it.
You can also "step down": in other words, move to a less demanding post on a lower salary scale. Two options may be open to you:
* Paying contributions on your former higher salary - if you are over 50 and have been on a higher point than your new salary for at least five years, you may elect to pay contributions on your former higher salary - which will be increased to take account of rises in the cost of living. You do not need your employer's consent (unless you are changing employers, in which case your former employer has to confirm that your service was "satisfactory").
If you use this provision you pay your normal 6 per cent contribution on your new salary, plus the employee's and employer's contributions on the difference between your new and old salaries. You will then preserve the pension you would have earned had you stayed in the more demanding post. But remember that your old salary will only increase by the rise in the cost of living, which usually rises at a slower rate than salaries. If your new salary overtakes your former salary (as increased) you will have paid the contributions for no benefit. You need expert adviceif you are considering using this arrangement - particularly if you apply to go through a further stage of the threshold.
The same applies if you move to part-time teaching - but in this case the topped-up contributions are calculated as if you had been working part-time in your former post too.
* Transferring to a post of less responsibility - you can do this at any age, and you are not required to have completed any specific period of service. But your transfer must be in the efficient discharge of your employer's functions.
Your pension benefits will be calculated in two parts. The first will be based on your service and salary up to the date of your reduction in salary (pensions increases, if applicable, will be applied to your pension and lump sum from that date). The second part will be based on your subsequent service and final average salary. The two sets of pension benefits will be added together and if they provide a better pension and lump sum than a normal (based on final salary and total service) award, this will be the one which will be paid.
Your "final salary" for pension calculation purposes is defined as your best salary in the final three years of service. If you intend to retire within two years of stepping down, this may be the right option. Again, get the advice of your union.
Can I return to work after taking early retirement?
Yes - and if you are self-employed, or your new job is outside teaching or is with an employer that is not a member of the TPS, your pension will be unaffected. You can also do private tuition or work for one of the supply teacher agencies, with no fear that you may be reaching your earnings limit.
But if you go back to teaching in a maintained school, or with any other school or college that participates in the TPS, your pension might be affected. There is no problem as long as your earnings and your pension do not exceed your salary at retirement, as adjusted for inflation. If in any one year they do, your pension will stop when you reach your earnings limit for the tax year and will not be reinstated until the start of the next tax year. When you stop working, or if your earnings fall again, your pension is reinstated.
By the same token, you can (if you are working for a TPS employer) rejoin the scheme. Provided you complete one more year of pensionable service (full or part-time), you will earn a further lump sum and pension, and this will be added to the pension you drew on your retirement. It is worth doing this: if for some reason you do not complete the year, you can still reclaim the payments.
And if you "retired" without drawing your pension entitlement (in other words, you simply left teaching) and your circumstances have since changed so that an immediate pension is essential, you can still apply for actuarially reduced benefits (ARBs).
Thanks to Susan Johnson and Marion Bird of the Association of Teachers and Lecturers
Main text: Michael Duffy. Pictures: Getty. Next week: teenage pregnancy
Did you know?
* Premature retirement reached a peak in 1997, when about 19,000 teachers in England and Wales left the profession
* The exodus followed a fall in school rolls - and an announcement of impending curbs on early retirement. But by the Nineties, a teacher surplus had turned into a teacher shortage - hence the curbs
* You cannot receive an income from a pension scheme before the age of 50 - unless you've been a professional athlete or in the armed forces
Teachers' Pensions Online (www.teacherspensions.co.uk) contains a short guide to the categories of premature retirement and includes an on-line ARBpremature retirement benefits calculator.
A more detailed guide is available in leaflets 194 (Age, Premature and ARB Retirement); 192 (Returning to Work after Premature Retirement); TR22 (Election to Pay Contributions on a Former Higher Salary); and 910 (A Guide to 'Stepping Down'), all at Teachers' Pensions Online or from Teachers' Pensions, Mowden Hall, Darlington DL3 9EE. Tel: 01325 745 746
* The Recommendations of the Treasury's Review of Ill-Health Retirement may be read online at: www.dfes.gov.ukconsultations
* Expert advice is available from the pensions departments of the teacher and headteacher associations. Comprehensive factsheets are usually available at a small charge to non-members. Understanding the Teachers' Pension Scheme, published by the ATL, covers the whole field in 17 short pamphlets, and costs pound;16 to non-members (free for members), including pamp;p. (Association of Teachers and Lecturers, 7 Northumberland Street, London WC2N 5RD. Tel: 020 7930 6441)
* The Teachers' Pension Scheme covers England and Wales. The Scottish Teachers Superannuation Scheme is similar to the English and Welsh scheme for those retiring early, but with some important differences - for example, the Scottish scheme is only now about to introduce actuarially reduced pensions. Northern Ireland's scheme is again similar, although it has no provision for actuarially reduced pensions - and none is planned.