Teachers’ Pensions – A perspective from the NUT

14 February 2014 By Nick Kirby, Principal Officer – Pensions, NUT Protecting pensions is a key part of the NUT’s continuing campaign to stand up for education.

Commentary icon14 Feb 2014|Comment

14 February 2014

By Nick Kirby, Principal Officer – Pensions, NUT

Protecting pensions is a key part of the NUT’s continuing campaign to stand up for education.

The NUT has previously led the fight over pensions with two extremely well supported national strikes and regional action. Taking action has achieved results. The Government’s improved offer in November 2011 was 8 per cent better than their initial proposals. A teacher on course for a £10,000 pension under the Government’s original proposals will get an extra £800 a year for life.

The NUT has not, however, accepted the Government’s ‘Proposed Final Agreement’ on teachers’ pensions. The Government is still asking teachers to pay more, work longer and get less. To fight this, and Michael Gove’s attacks on pay and conditions, the NUT has announced a national strike across England and Wales on 26 March.

Pay More

Teachers will be paying an average 9.6 per cent towards their pensions from April 2014 compared to 6.4 per cent prior to April 2012. A teacher at the top of the upper classroom pay scale in Inner London will be paying £138 a month more than in March 2012.

These contribution increases have nothing to do with the funding of the Teachers’ Pension Scheme (TPS). The NUT agreed a cost-sharing mechanism in 2006 where contributions would have risen if costs had increased due to demographic changes – as proven through an actuarial valuation. The Government cancelled the 2008 TPS actuarial valuation rather than put this mechanism to the test.

Contribution rises are just a tax on teachers to pay for the costs of the recession.

Work longer

The Government wants to tie the normal pension age (the age at which teachers can get their teachers’ pension in full) in the TPS to the State pension age. Retiring earlier would only be possible on a reduced pension.

If the State pension age rises in future, the age at which teachers can get their teachers’ pension will rise too. This means all teachers currently aged under 37 would have to work until age 68 for a full pension. Anyone aged 37 to 52 would have to work to 67.

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. From an NUT survey in November 2011 with over 6,700 responses, 65 per cent of respondents thought that fewer than 10 per cent of teachers could work full-time until age 68.

The Pensions Bill includes provision for a mandatory review of the state pension age every five years. The first review would take place in the next Parliament by 7 May 2017.

Teachers could be chasing a moving target. This is unacceptable – teachers should know when they can retire.

Get less

The Government’s proposed TPS design involves a switch from a final salary to a career average basis. The NUT does not object to career average pensions, but the Government’s intent here is to cut pensions for most teachers.

The scheme design has an accrual rate of 1/57 of salary. On the face of it this looks fine, and is higher than the 1/60 final salary accrual for current new joiners – teachers build up more pension each year.

But this 1/57 of salary is revalued to retirement at CPI +1.6 per cent. This is below historic national average earnings increases, so the total amount expected to be paid out is lower.

Teachers will also lose out through the switch in indexation from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). The RPI has been on average 0.7 per cent higher than the CPI. This would cost a teacher retiring on a £10,000 pension over £30,000 during a 25-year retirement.

Future threats

The NUT is not convinced that the Government knows the full consequences of setting up a career average system. Career average puts a great strain on accurate pensions administration. Every payslip a teacher ever gets will count towards their pension. The increasing fragmentation of the school system means a growing number of small employers and more changes of employer for teachers over their careers. These are perfect conditions for mistakes to be made.

Contracting out is set to be abolished from April 2016. Employer NICs are set to rise by 3.4 per cent. This does not threaten the TPS if we believe the Government’s guarantees, but raises the prospect of wage freezes or job cuts in other areas.

Dr Nick Kirby

Principal Officer – Pensions, NUT