Flexible Retirement policy and procedure April 2012 Policy control Reference Flexible Retirement Policy Date approved 19 April 2012 Approving Bodies HR Committee, Board Governors Implementation Date April 2012 Supersedes N/A Supporting policy N/A Review date January 2015 Author Bernadette Ovens Date of Impact assessment N/A
FLEXIBLE RETIREMENT POLICY AND PROCEDURE 1 Purpose and Scope 1.1 The recent abolishment of the default retirement age coupled with increased life expectancy has prompted the School to introduce a Flexible Retirement Policy and Procedure as a means of supporting staff in their extended working lives. 1.2 Many employees have gone from working their normal contracted hours to complete retirement representing a significant culture change. The introduction of this policy is to help staff make a more gradual transition from work to full-time retirement. 1.3 Flexible Retirement provides eligible staff with the opportunity to either draw their pension benefits whilst remaining in the employment of the School (either on reduced hours and/or in lower graded role) or to work reduced hours whilst maintaining the full retirement benefits had they continued to work their normal hours. 1.4 The advantages to the School include the ability to undertake long term succession planning, improved retention and retaining age balance and improving age diversity. 1.5 There is no automatic right to flexible retirement and each application will be considered on its individual merits in light of service delivery needs, the benefits to the School of the retirement and the overall costs to the School. Given that the financial costs to the School can be considerable, the School has ultimate discretion as to whether an application will be accepted. 1.6 The Flexible Retirement provisions will be subject to review in light of any further changes to the pension scheme arrangements/tax rules. 1.7 The School is an admitted body of the LGPS (Local Government Pension Scheme) which is administered by the Strathclyde Pension Fund Office (SPFO) and the STSS (Scottish Teachers Superannuation Scheme) which is administered by the Scottish Public Pensions Agency (SPPA). 1.8 Although both pension schemes have other retirement options available to members such as age retirement, early retirement, ill-health retirement, or retirement in the interests of efficiency of the service, this policy and procedure relates specifically to flexible retirement. If any member of staff is interested in finding out more about these other retirement options, they should contact either the HR Manager or Head of HR. 2 Flexible Retirement Options In order to qualify for flexible retirement staff will be required to reduce their income by at least 20%. Each pension scheme has its own rules. 2 P age
2.1 The LGPS 2.1.1 To be eligible for consideration for flexible retirement, you must have at least 2 years service within the LGPS and be between the ages of 55 and 75. Note: membership of the LGPS is permissible up to age 75. 2.1.2 The LGPS s flexible retirement option is dependent on members reducing their pay (grade), hours or both, which would require the consent of the School. 2.1.3 If you were to draw some or all of your benefits under flexible retirement before age 65 your benefits may be reduced to take account of being paid for longer. How much your benefits are reduced by depends on how early you draw them. 2.1.4 Benefits will be actuarially reduced unless you meet the 85 year rule (service + age = 85 years). The rules on deciding whether you have protection from a reduction to your benefits if you choose to draw them before age 65 under the 85 year rule, and the level of that protection are quite complex. If you are thinking of voluntarily retiring or asking for flexible retirement before age 65, it is advised that a quotation of the benefits payable is obtained from the SPFO first. It should be noted that the rule of 85 will be repealed on 31 March 2020. There are no strain on the fund costs where a member is over the age of 60 and meets the rule of 85. Illustrative Example (A): An LGPS member who meets the rule of 85 A 60-year old, full-time member of staff earning 28,000 per annum with 25 years service in the SPF makes a request for flexible retirement and to reduce their hours to 0.8FTE thereby decreases their gross annual income from GSA to 22,400. As this member of staff meets the rule of 85 (age: 60 + service: 25 = 85) their pension and lump sum is not actuarially reduced. Having accrued a pension of 9,100 and lump sum of 23,100 to that point, the member of staff can then choose to access a proportion of those benefits. If they chose to access 100% of the pension and lump sum they would increase their taxable income to 31,500 ( 22,400 + 9,100) and receive a tax free lump sum of 23,100. If the member chose instead to only access say, 50% of their pension and lump sum, the remaining 50% of their benefits would be accessed once the member of staff decided to enter full retirement and would be based on the full-time salary they were originally receiving and the service they had accrued before taking flexible retirement. 3 P age
Illustrative Example (A) Continued: An LGPS member who meets the rule of 85 Having re-joined the scheme on their new part-time (0.8FTE) contract, the member of staff will start to accrue a new period of pensionable service. However, their pension and lump sum would effectively be calculated on the reduced salary. If this member of staff had not taken flexible retirement but continued working to 65 their pension and lump would have been 13,066 and 25,200 respectively. Illustrative Example (B): An LGPS member who does not meet the rule of 85 A 59 year old, full-time member of staff earning 28,000 per annum with 12 years service in the SPF makes a request for flexible retirement and to reduce their hours to 0.8FTE thereby decreases their gross annual income from GSA to 22,400. In this scenario the member of staff s benefits would be actuarially reduced as they are under 60 years of age and do not meet the rule of 85. In this case, the pension accrued would be 3,412 with a lump sum of 8,316. The member of staff chooses to access 100% of these benefits thereby increasing their taxable income to 25,812 ( 22,400 + 3,412) with a tax free lump sum of 8,316. Again, if the member decided to only access a proportion of their pension and lump sum, the remaining portion would be accessed once the member of staff decided to enter full retirement and would be based on the full-time salary they were originally receiving and the service they had accrued before taking flexible retirement. Having re-joined the scheme on their new part-time (0.8FTE) contract, the member of staff will start to accrue a new period of pensionable service. However, their pension and lump sum would effectively be calculated on the reduced salary. If this member of staff had not taken flexible retirement but continued working to 65 their pension and lump would have been 7,350 and 9,450 respectively. 4 P age
2.1.5 LGPS membership from 31 March 2009 Benefits accrued up to 31 March 2009 are calculated at 1/80 th for the pension and 3/80ths for the lump sum. Membership after 31 March 2009 accrues benefits at 1/60 th for the pension with no automatic lump sum. A member can chose to exchange some of their annual pension for a one off tax free lump sum. For each 1 of pension that is given up it will be converted into 12 of a lump sum. 2.2 The STSS Members of the STSS can be considered for two forms of flexible retirement. 2.2.1 Phased Retirement An STSS member who has reached minimum pension age (MPA) of 55 can elect to access some of their benefits and continue working. They can do this on a second occasion but must not totally extinguish their entitlement to benefits prior to actual retirement. Further information on this option can be obtained from the SPPA website http://www.sppa.gov.uk. Illustrative Example (C): A STSS member over the age of 55 A 58 year old, full-time member of staff earning 40,000 per annum with 15 years service in the STSS makes a request to reduce their hours to 0.6FTE thereby decreases their gross annual income from GSA to 24,000. Having accrued a pension of 7,500 and lump sum of 22,500 the member of staff can then choose to access 50% of that pension and lump sum to increase their income to 27,750 ( 24,000 + 3,750) and receive a tax free lump sum of 11,250. Having re-joined the scheme on their new part-time (0.6FTE) contract, the member of staff will start to accrue a new period of pensionable service. However, their pension and lump sum would effectively be calculated on the reduced salary. If this member of staff had not taken flexible retirement but continued working to their Normal Pension Age (NPA) of 60 their pension and lump would have been as follows: - NPA = 60 (as this member joined the scheme before 1 April 2007) Pension: 8,500 and tax free lump sum of 25,500 Note: members who joined the scheme after 1 April 2007 will have a NPA of 65 5 P age
2.2.2 The Winding Down (WD) Scheme offers STSS members approaching their retirement age, the opportunity to continue in employment on a part-time basis whilst protecting their overall final retirement pension entitlement. Conditions of the WD scheme are as follows: You must be within 4 years of normal retirement age with a minimum of 25 years teaching service the 25-year period may include for qualifying purposes, a break or breaks in teaching service not exceeding 5 years in total the last 10 years must have been full-time service immediately prior to WD the WD employment must be equal to or more that 50% of full-time service each year served under the part-time contract counts as one full year when calculating benefits the final pensionable salary, for benefit calculation purposes, will be the salary received in the 365 days prior to entering WD employment revalued to date of retiral a return to full-time employment cancels the WD contract 2.2.2 If you are under the age of 60 benefits will be actuarially reduced. Illustrative Example (D): A STSS member eligible to enter the WD Scheme (based on the criteria outlined in 2.2.2 above) A 61 year old, full-time member of staff earning 40,000 per annum with 25 years service in the STSS who plans to retire on their 65 th Birthday makes a request to enter the Winding Down Scheme and to reduce their hours to 0.6FTE thereby decreasing their gross annual income from GSA to 24,000. The WD Scheme does not permit the member of staff to access the pension and lump sum that they have accrued to date. However, each year of service under their new part-time contract will count as one full year for pension benefit calculation purposes and the contributions paid by both the member of staff and the School will be based on the actual earnings paid for the part-time post. The final pensionable salary, for benefit calculation purposes, will be the salary the member of staff was earning in the 365 days immediately before entering the WD scheme. 3 Discretions 3.1 The early release of pension benefits could cause a financial strain on the pension fund which is required to be met by the School. Any such cost, which can often be considerable, will be carefully considered by the School within the context of any compensatory savings or other benefits. Every case will be decided on its individual merits. 6 P age
4 Implications for Employment Conditions 4.1 Individuals will be required to sign new contracts of employment to reflect the agreed reduction in hours/grade and any revised duties or working arrangements. 4.2 Apart from the general pay award and incremental progression (if appropriate), no additional payments can be made to the member of staff. This means that no payment will be paid for any additional hours worked (including overtime) or additional duties undertaken (honoraria/acting up). Any additional hours worked by an individual by agreement with their Head of Department will be required to be taken as compensatory time off in lieu (TOIL). 4.3 Continuity of service will be preserved for entitlement to annual leave, sick leave etc. but will be calculated on the reduced working hours/pay as appropriate. 4.4 The School s other employment procedures and practices will continue to apply as normal. 4.5 Should a member of staff wish to retire from the School s service completely they are required to give the School notice in writing. The length of the notice period will be stipulated in your contract of employment. 5. Re-joining the pension schemes 5.1 Staff who are granted flexible retirement can continue in the relevant pension scheme (but this is treated as re-joining ) and build up further pension benefits based on their reduced hours/salary. This means that when you cease work altogether you will start to receive a second pension based on your subsequent period of service. (LGPS members can elect to opt out and not rejoin the pension scheme). 6 Process - How to Apply for Flexible Retirement 6.1 A member of staff who is interested in being considered for flexible retirement should make a request for an estimate of pension benefits from the relevant Pension Office via the HR Department in the first instance. Normally it takes a few weeks for requests to be processed by the relevant Pension Office therefore pending receipt of the figures the member of staff should feel free to discuss the matter in principle with their line manager. 6.2 The Pension Office sends the estimate of benefits directly to the HR Department as often flexible retirement can incur significant costs to the School. HR will forward the estimate of benefits to the member of staff immediately upon receipt. 6.3 Should the member of staff then wish to proceed with their request, they can make a formal application by completing the Application for Flexible Retirement form (Appendix II) and submit it to HR no later than 6 months before the requested implementation date. This is to allow sufficient time for 7 P age
the application to be fully considered and, if approved, for contractual changes to be made and pensions implemented (note: both pension schemes normally require 3 months notice to process benefits). 6.4 HR will acknowledge receipt of the application in writing. 6.5 HR will then notify the line manager that a formal request has been submitted and will be asked to comment on whether or not the application should be favourably considered. The line manager will also be required to confirm how operational needs would be affected and what would be done to minimise disruption to service delivery and colleagues. 6.6 In considering the request, the line manager must be satisfied that: There will be clear benefits to the Department and School from the flexible retirement There will be no detrimental effect on service delivery, e.g. the role can be covered by the individual on reduced hours, the gap can be filled by a colleague increasing their hours or by recruiting a new part-time member of staff. There will be no detrimental effect on budgets. Note: any strain on the fund costs would normally be met by the relevant department. The arrangement proposed is fair and equitable to other team members If appropriate, that there are suitable job(s) available within the department at a lower grade. 6.7 The line manager may meet with the member of staff, if necessary, to discuss their request in more detail. 6.8 If the line manager is able to support the application then the completed form should be submitted, along with recommendations to their Head of Department or Head of School for consideration. The Head of Department or Head of School can then discuss the application with an appropriate senior member of the HR Department. The form should then be submitted via HR to the Director of Finance and Resources for approval. 6.9 The Director of Finance and Resources is ultimately responsible for deciding the outcome of the request. No action should be taken by the individual to progress the flexible retirement, for example via the relevant Pension Office, until approval has been received from the School. A decision will normally be made within 10 working days. 6.10 If the line manger or Head of Department/ School is unable to support the application then the member of staff will be informed accordingly in writing with the reasons. 6.11 In the case of declined applications, employees may reapply for flexible retirement after a period of 12 months from the date their application was declined. 6.12 If the application for flexible retirement is approved by the Director of Finance and Resources then HR will notify the individual in writing and a new contract of employment will be issued for the employee s signature. HR 8 P age
will also send the member of staff the relevant form which will require completion in order to notify the Pension Office. The new flexible retirement will not be implemented until all the necessary documents have been completed by the employee and returned to the School i.e. contract of employment, pension form. 7 Review 7.1 In the interest of fairness, where an application has been declined, the member of staff may choose to have their application reviewed by the Deputy Director. In the event that the Deputy Director has already considered the request, for example, in their capacity as line manager, the review will be undertaken by the Director. This will be a paper review of the documentation, including the individual s submission, the line manager s recommendation and the Head of Department/School s comments. The reasons for the Director of Finance and Resources decision will also be taken into consideration. 7.2 In order for the review to be undertaken, the individual will be required to forward a copy of the completed application form with the necessary comments to the HR Manager who will arrange for the application to be submitted to relevant member of the Directorate. This documentation will be required to be submitted within 10 working days from when the individual was advised of the outcome of their original request. The employee may provide additional written information if he/she wishes. The individual will be notified in writing of the decision within 10 working days. The decision made at this review stage is final. 8 Monitoring 8.1 The number and profile of staff making requests for flexible retirement will be monitored by the HR Department. The outcomes of the monitoring process will be presented along with other Performance Indicators to relevant committees within the School including the HR Committee (which has representation from each recognised TU) and the Equity and Diversity Group. 9 Illustrative Examples 9.1 The examples included in this policy are purely for illustrative purposes. The figures cited are estimated and should only be used as a very rough guide. Members of staff interested in flexible retirement should ensure they are in receipt of an estimate of benefits from their relevant pension scheme, via HR, before making an application under this policy. 9 P age
APPENDIX I 10 P age
APPENDIX II FLEXIBLE RETIREMENT APPLICATION FORM (Page 1) This form should be completed by anyone who wishes to be considered for flexible retirement and who meets the eligibility criteria outlined as follows: - I am a member of the Scottish Teachers Superannuation Scheme (STSS) or the Local Government Pension Scheme (LGPS) I am aged 55 or more I am in receipt of a recently calculated estimate of pension benefits from either the STSS or the LGPS EMPLOYEE Name: Employee Number: Date of Birth: Job Title & Department: Line Manager: Proposed Flexible Retirement implementation date: 1. Describe your current working pattern (days/hours/times worked) and salary grade: 2. Describe the salary grade and/or working pattern you would like to have/work in future (days/hours/times worked): Please note that there should be no expectation that your request will be accepted. 3. Impact of new working pattern: I think this change in my working pattern and/or role will affect the Department and colleagues as follows: 4. Accommodating the new working pattern and/or role: I think the effect and the colleagues can be dealt with as follows: 5. Employee Confirmation I would like to request flexible retirement from (insert date): Employee s signature: Date: WHEN THE FORM HAS BEEN COMPLETED UP TO SECTION 4 AND SIGNED AT 5 PLEASE FORWARD TO HR 11 P age
FLEXIBLE RETIREMENT APPLICATION FORM (Page 2) HR DEPARTMENT USE Date form received: Date Line manager notified: Request for benefits and costs requested from relevant Pension Office: / / Comments: / / Comments: / / Comments: Line Manager Recommendation Have operational needs been considered? Yes No Comments: I confirm that I do/do not* support the above named employee s request for flexible retirement. * delete as appropriate Name : Job title :. Date : Please be aware that if you do not endorse the request then the reasons for this must be discussed with Human Resources before the member of staff is advised of your decision. Head of Department/School Recommendation Have operational needs been considered? Yes No Comments: I confirm that I do/do not* support the above named employee s request for flexible retirement. * delete as appropriate Name : Job title :. Date : Please be aware that if you do not endorse the request then the reasons for this must be discussed with Human Resources before the member of staff is advised of your decision. 12 P age
FLEXIBLE RETIREMENT APPLICATION FORM (Page 3) Director of Finance and Resources Decision Is the request approved? Yes No Comments: Name: Eliot Leviten (signed)... Job title: Director of Finance and Resources Date: : HR will notify the relevant line manager/head of Department and Head of School (where appropriate) of the decision of the Director of Finance and Resources before the individual is notified. 13 P age