Teachers’ Pensions

EduFacts

  • 1The Government made changes to the Teachers’ Pension Scheme in 2015 that mean teachers are paying more towards their pensions, working longer and receiving a smaller pension when they retire. The NUT did not accept the 2015 pension changes and is still in dispute over pensions. We do not consider that the Government ever satisfactorily made the case for changing teachers’ pensions. The average employee contribution rate is now 9.6 per cent – an increase of 50 per cent since April 2012. This is a thinly disguised tax on teachers. The changes were made to the scheme to save on costs, not to improve the terms of teachers’ pensions.
  • From April 2015 most teachers have been moved into a new career average pension which is less generous than previous arrangements.
  • The Government has linked the age at which teachers can access their teachers’ pension in the new career average section to the state pension age (SPA) – for some teachers that will be at age 68! Most teachers will not be able to work successfully in the classroom to 68 so they will have to retire earlier on substantially reduced pensions. For those who do work to 68 this could mean less than a decade of good health in retirement. The Office for National Statistics most recent report  found 1 that men at 65 can expect to live for 9.9 years and women for 11.5 years in good or very good health.
  • Under the Pensions Act 2014, there must be a review of the state pension age at least every six years. The first review has been undertaken by Sir John Cridland, former Director—General of the CBI, and the Government must make recommendations by 7 May 2017. The NUT believes this will lead to further increases in the SPA, which feeds directly through to the TPS.
  • Ministers said  that the previous pension scheme cost too much but they have failed to prove that public sector pensions aren’t affordable. The 2011 Hutton Commission report found that the cost of the former  structure of public sector pensions would fall from 1.9 per cent of GDP in 2011 to 1.4 per cent by 2060. 2
  • Since the TPS was set up in 1923, over £56bn more in contributions has been paid into the scheme than has been paid out in pensions. The Government has had a long cheap loan from teachers, but now baulks at paying the pensions due.
  • The Government has changed annual pension indexation from Retail Prices Index (RPI) inflation to Consumer Prices Index (CPI) inflation. RPI inflation is normally higher - The NUT estimates that a teacher retiring with a £10,000 pension will lose over £30,000 during the course of a 25-year retirement.
  • Government changes to the discount rate (a rate of interest used to value the Teachers’ Pension Scheme) mean that even though the scheme benefits have been cut and employee contributions increased, employer contributions have risen from 14.1 per cent to 16.4 per cent.
  • National Insurance Contributions (NICs) have increased due to the abolition of ‘contracting out’. Previously teachers ‘contracted out’ of the state second pension, which meant they paid a lower rate of NICs but had no right to the state second pension. The basic state pension and state second pension were merged into a new ‘single tier’ pension from April 2016. As there is nothing to contract out from, teachers and employers now pay a higher rate of NICs.
  • Teachers pay an extra 1.4 per cent on earnings between the NI ‘primary threshold’ and upper earnings limit (broadly £8,000 to £45,000 from April 2017). Employers pay an extra 3.4 per cent on all earnings. The increase in employer pension contributions and employer NICs added around 4.8 per cent to the salaries bill, which is having a knock-on effect on pay and jobs.
  • The real pension problem is in the private sector. Employer contributions to newer “defined contribution” schemes are less than half those for final salary schemes. The cost of this is passed back to the state and future taxpayers. Cutting public sector pensions won’t help private sector workers – it will just make everyone poorer in retirement.

1 Office for National Statistics, ‘Pension Trends, Chapter 3: Life expectancy and healthy ageing’, 16 February 2012

2 http://webarchive.nationalarchives.gov.uk

Teachers Building Society