PROTECTING TEACHERS’
PENSIONS
NUT BRIEFING ON THE GOVERNMENT’S PROPOSALS
This briefing looks at the key issues in the Government's proposals for changes to
the Teachers’ Pension Scheme which will result in teachers paying more for their
pensions, working longer to receive their pensions and getting less in retirement.
For details of the NUT campaign against these proposals and Michael Gove’s
other attacks on teachers, please go to www.teachers.org.uk/campaigns/protectteachers
SUMMARY OF POST-2015 TPS CAREER AVERAGE PENSION
The key issues on teachers’ pensions are unchanged. The Government still wants teachers
to pay more – the average contribution for teachers is now 9.6 per cent – 50 per cent higher
than in March 2012. The Government still wants teachers to work longer - from 2015, the
“normal pension age” (when teachers can take their pension in full) will begin to rise,
eventually reaching 68 or perhaps even higher. And the Government still wants teachers to
get less, both when they retire, due to a move to 'career average' pensions, and during
retirement, due to lower annual pension increases.
These are the Government proposals for teachers’ pensions from April 2015 onwards:
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a career average basis for the scheme;
an increase in the normal pension age (the age at which pensions can be taken in full),
so that for future accrual the normal pension age would be equal to state pension age of
up to 68 or even higher;
an accrual rate of 1/57th of pay per year of service (up from 1/60);
accrued benefits for serving members of the scheme to be re-valued annually in line with
CPI inflation plus 1.6 per cent (down from national average earnings);
accrued pension rights (built up under the pre-2015 final salary scheme) will be
protected;
pensions in payment to be increased each year in line with CPI inflation;
slightly improved early retirement terms for those with pension ages beyond 65 who
retire between 65 and that age.
The Government has made these proposals to save on costs, not to improve the terms of
teachers’ pensions. The NUT believes the current Teachers’ Pension Scheme is affordable
and fair.
The NUT’s pension increase calculator at www.teachers.org.uk/pensionscalc has been
updated to reflect the most recent Government proposals and shows you how much the
proposals will cost you both before and after you retire.
PAY MORE
From April 2014, the average pension contribution for teachers is 9.6 per cent – a 50 per
cent increase on the 6.4 per cent pre-April 2012 contribution rate. Teachers’ contributions
will then remain at an average 9.6 per cent for April 2015 and beyond.
The contribution structure from April 2014 compared to the pre-April 2012 contribution level
is given in the table below:
Salary Band
Contribution rate in
2014-15
Up to £14,999
£15,000 to £25,999
£26,000 to £31,999
£32,000 to £39,999
£40,000 to £44,999
£45,000 to £74,999
£75,000 to £99,999
£100,000 to £150,999
6.4%
7.2%
8.3%
9.5%
9.9%
11.0%
11.6%
12.4%
Contribution
rate pre April
2012
6.4%
6.4%
6.4%
6.4%
6.4%
6.4%
6.4%
6.4%
Overall increase
versus pre-April
2012
0%
0.8%
1.9%
3.1%
3.5%
4.6%
5.2%
6%
Although teachers received a 1 per cent pay rise in September 2013, most or all of this was
clawed back on average by the April 2014 pension contribution rise.
From April 2014, an NQT on M1 in Inner London will be paying £35 a month more compared
to the pre-April 2012 contribution rate. A teacher on UPS3 in Inner London will be paying
£128 a month more (as s/he will be paying an 11 per cent contribution).
From April 2014, an NQT on M1 in England and Wales (excluding London and Fringe areas)
will be paying £12 a month more compared to the pre-April 2012 contribution rate. A teacher
on UPS3 will be paying £77 a month more.
Post-2015 Contributions
The Government is currently consulting on the exact tiering and contribution rates for April
2015. Teachers will, however, continue to pay an average 9.6 per cent contribution.
The current contribution structure has eight tiers, which builds a degree of progressivity into
the contribution structure. The Government plans a flatter contribution structure with fewer
tiers post-2015. This will mean that some, especially lower earners, face paying even more
after April 2015.
Employer Contributions
The Government has announced that the employer contribution rate for the post 2015
scheme is likely to be 16.4 per cent, payable from September 2015.
Employers are currently paying 14.1 per cent, so this means a 2.3 per cent increase in
employer costs. The Treasury are not planning to fund this increase in employer costs, so it
means a further squeeze on pay and jobs.
It is remarkable that a set of public service pension ‘reforms’ designed to save money will
apparently lead to costs going up. Part of the reason for this cost of the increase is an
increase in the deficit for “past service” costs of the TPS. The main reason, however, is the
Government’s unnecessary decision to cut the ‘discount rate’ – the assumed rate of return
on the notional pension fund assets – from RPI + 3.5 per cent to CPI + 3 per cent. This has
increased the apparent cost of pensions despite the significant cut in future benefit for
teachers.
The anticipated long-term cost of pensions being accrued under the new career average
scheme is 18.6 per cent of salaries. Given that members are to pay 9.6 per cent on average,
this means that younger teachers are going to be paying more towards their pensions than
their employers.
WORK LONGER
The Government wants to link the TPS normal pension age (the age at which teachers can
get their teachers’ pension in full) to the State pension age. All pension rights accrued in
future could only be taken in full at this new higher normal pension age. Retiring earlier
would only be possible on a reduced pension. Subject to transitional protection
arrangements (see below) this means that:
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All teachers currently aged under 37 would have to work until age 68 for a full pension.
Anyone aged 37 to 53 would have to work to 67
Anyone aged 54 to 57 would have to work to 66
If the State pension age rises in future, the age at which teachers can get their teachers’
pension in full will rise too. The Chancellor has already signalled that this will rise to 69 for
those retiring in the late 2040s.
The Pensions Act 2014 will provide for a review of the State pension age every five years.
The first review would take place by May 2017. Younger teachers will not know in future
precisely when they will be able to retire.
The NUT does not believe the majority of teachers can work efficiently until age 68. More
importantly, teachers don’t believe they can work to 68. An NUT survey in November 2011
showed that 65 per cent of respondents thought that fewer than 10 per cent of teachers
could work full-time until age 68.
Office of National Statistics figures show that women aged 65 have a life expectancy of 20.4
years – but only 11.6 years in good or very good general health. Men have life expectancy of
17.8 years, but only 10.1 years in good or very good general health. By making teachers
work beyond age 65, the Government is cutting into the time in retirement when teachers are
in good health.
GET LESS
There are two parts to this – the switch to career average pensions and the switch from
Retail Prices Index (RPI) to Consumer Prices Index (CPI) for pensions in payment.
Career average
Under the post 2015 TPS, teachers will accrue pensions based on their rate of pay during
each and every year of service, rather than on their total service and their final salary at
retirement. This switch from pensions based on final salary to pensions based on average
salary throughout a career will cut pensions for most teachers.
The NUT’s previous strike action secured improvements in this area. The Government
increased the proposed pension accrual rate from an initial accrual rate of 1/65th to 1/60th
and finally 1/57th of annual salary. This was, however, offset to some extent by the
accompanying reduction in the revaluation rate. The amount of pension accrued each year
will be revalued each year until retirement in line with Consumer Prices Index inflation + 1.6
per cent. This is expected to be below national average earnings increases.
It should be noted that the accrued pension built up under the pre-2015 final salary scheme
will be protected. That part of the pension will still be linked to the final salary at the eventual
date of retirement.
RPI to CPI
The Government switched the basis of pensions indexation from the Retail Prices Index
(RPI) to the Consumer Prices Index (CPI) from April 2011.
Teachers are already losing out. Anyone retiring on 1 April 2010 with a £10,000 State
second pension or public service pension will have a pension from April 2013 of £11,384
with CPI-linked increases. If the link to RPI had been preserved, the pension would be
£11,696 – a gap of £312 this year.
This will affect all existing and future pensioners. The RPI has been on average 0.7 per cent
higher than the CPI. The move to lower CPI indexation will cost a teacher retiring on a
£10,000 pension over £30,000 cumulatively during a 25-year retirement.
TRANSITIONAL PROTECTION
Transitional protection will allow all those within 10 years of their normal pension age as at
April 2012 to stay on their existing final salary pension scheme provisions until their eventual
retirement.
Further ‘tapered’ protection will apply to those up to 3.5 years younger than the qualifying
age for full protection and will delay the date on which they move to the post 2015 career
average pension scheme provisions.
Age at April 2012
50
49.5
49
48.5
48
47.5
47
46.5
NPA60 scheme member
Age when moving to new CA scheme
Stays in FS scheme
58.5
57
55.5
54
52.5
51
49 years 6 months – no protection
Teachers with transitional protection will, however, still pay higher contributions and will still
have their pension increased by CPI in retirement.
TEACHERS OPTING OUT
Although the NUT will still advise teachers that generally they will be best advised to join the
TPS, there is an obvious risk that the Government’s changes to the Teachers’ Pension
Scheme will lead to more teachers opting out.
Young teachers joining the profession from 2016 onwards are likely to have paid £9,000 a
year in tuition fees which they will have to pay back at 9% for earnings above £21,000.
For each extra pound they earn, young teachers on M1 could lose 49p in deductions:
Income tax:
National Insurance:
Student loan repayment:
Pension contribution:
Total:
20 per cent
12 per cent
9 per cent
7.2 per cent (8.3 per cent in Inner London)
48.2 per cent (49.3 per cent in Inner London)
The only element that can be avoided is the pension contribution, which could therefore lead
to an increase in opt-outs. DfE statistics indicate that after a fall in opt-outs in recent years,
opt-out numbers are starting to rise.
THE PROPOSALS IN CONTEXT
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There are over 1.7 million members of the Teachers’ Pension Scheme in England &
Wales, either as current members (630,000), pensioners (618,000 including
dependents), or former members with deferred rights in the scheme (460,000).
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Change was not necessary. The Teachers’ Pension Schemes in the UK had already
been reformed to contain costs. The November 2006 Agreement with the Government
and local authorities had already led to a higher employee contribution rate of 6.4 per
cent for all teachers and a higher pension age of 65 for new starters. It also provided
arrangements to deal with future increases in the cost of the scheme – with an absolute
14 per cent limit on employer contributions.
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The Hutton report confirmed that these measures (together with the introduction of CPI
indexation of pensions) would bring down costs from 1.9 per cent of GDP now to 1.4 per
cent by 2060. The decision to cut public sector pensions was political not economic.
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The National Audit Office’s December 2010 study ‘The impact of the 2007-08 changes to
public service pensions’ comments that (excluding the impact of the switch to CPI):
“As a result of the changes, which are on course to deliver substantial savings, long-term
costs are projected to stabilise around their current levels as a proportion of GDP. The
changes are also set to manage one of the most significant risks to those costs, by
transferring from taxpayers to employees additional costs arising if pensioners live longer
than is currently projected.”
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Changes to the Teachers’ Pension Schemes should only be decided through the TPS
actuarial valuation processes. The 2008 valuation was abandoned by the Government in
violation of the 2006 agreement because it knew that the results would not justify its
pension changes. The 2015 scheme valuation has been distorted by the unnecessary
change in the discount rate. This valuation should be completed in line with the actuarial
parameters which would have applied at the time.
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The planned cuts in teachers’ pensions will have the greatest impact on women
pensioners who have lower average earnings and build-up of service during working life.
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Many people come into teaching in their late 20s and 30s and bring real world
experience into the classroom. A good pension scheme is an effective recruitment and
retention tool for this group.
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NUT analysis shows that since the Teachers’ Pension Scheme was introduced in 1923,
over £40bn more in contributions has been paid in to the scheme than has been paid out
in pensions (yearly surpluses / deficits adjusted in line with GDP growth over time). The
Government has had a long cheap loan from teachers, but now baulks at paying the
pensions that are due.
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The real problem in UK pensions is inadequate private sector pension provision. Over 80
per cent of final salary schemes have been closed to new members. The average
employer contribution to money purchase schemes is less than half that to final salary
schemes. Cutting public sector pension schemes will not improve pensions for private
sector workers – it will just lead to low pensions for everyone.
National Union of Teachers
April 2014