MONEY MATTERS


With changes to public sector pensions set to leave teachers


worse off, SecEd this week looks at what the plans will mean. Dorothy Lepkowska reports


T


HE PUBLICATIONlast month of the Hutton Report into the future of public sector pensions has, not surprisingly, angered the teaching profession. The recommendations, if accepted


by the government, could mean that teachers and other public sector staff


may have to work for several years longer – possibly until they are 68 – and for lower pensions. Teachers’ pensions, for so long hailed as one of the


best schemes available and one of the chief benefits of the job, are suddenly under serious threat. Currently, retirement benefits from the Teachers’


Pensions Scheme (TPS) are based on “final salary” earnings using a formula linked to the length of service and the level of salary close to retirement age. However, Lord Hutton has recommended that this be changed with career average earnings forming the basis of benefits. The changes could come into force as early as 2015. At the same time, the age at which teachers could


retire may be increased to bring it in line with the State Pension Age, which could be as high as 68 years, and worker contributions would be increased by an average of three per cent to more than nine per cent. So teachers would be expected to pay more, and for a longer period of time, in order to receive lower pensionable benefits. This follows an announcement in the spending


review last October that the State Pension would increase in April 2011 by whichever is the highest out of average earning growth, price inflation and 2.5 per cent. For April 2011, price inflation will be based on the Retail Price Index (RPI), but in subsequent years this will be replaced by the lower Consumer Price Index (CPI). Some estimates, however, suggest that the


government is likely to have to pay out billions of pounds in pensions to teachers who retire in August to pre-empt Hutton’s proposals. The Association of Teachers and Lecturers (ATL) has claimed that if the 50,000 teachers who are aged over 55 decide to leave the TPS at the end of the current school year and take their pensions immediately, this will cost the government £2 billion in September. Simon Rake, national sales manager with Wesleyan


for Teachers, said: “If the Hutton recommendations are implemented then it will significantly affect teachers’ retirement plans, especially those who are planning to retire some way into the future.


What the changes will mean for teachers


What will happen to the benefits I have already built up? Pension contributions already earned under the existing TPS will be honoured in full, including ancillary benefits such as death and ill-health. Current members will maintain the final salary link, effectively ring-fencing the benefits built up to the date of change.


Will I be worse off at retirement? The report stresses that some members of the career average scheme may do as well as final salary scheme members, especially if their pay continues to increase modestly during the course of their career. However, most current contributors will be adversely affected, particularly among younger members who will have to work to the age of 68 and will spend most of their career paying into the scheme under the new arrangement. Those closer to retirement age will be less affected as they have enjoyed the lion’s share of their pensionable services under the current arrangements.


Do the changes mean I can’t retire at my present expected retirement age? It will still be possible to take your total benefit at your current retirement age of 60 or 65, however, any pension due under the new career average scheme would be reduced accordingly to take account of early payment.


When will the changes take place? Once the government has considered the proposals, it will have to consult with interested groups, including employees and their representatives, such as the unions. As a result, any changes to the benefits structure are still some way off, though the report claims that it should be possible to introduce the career average scheme before the end of this parliament in 2015. However, any increases to contributions are likely to be implemented earlier.


Do I need to take any action now? No. The proposals remain at a very early stage and will require consultation to take place. It would, therefore, be unwise to make any decision until further information is available.


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“While existing pension service will be protected, a


large part of a teacher’s pensionable service may only be taken in full at a later pension age, this will create a split in pension provision, which will have an impact on teachers’ retirement plans for the future. “Another fear will be if the increase in contributions


and retirement age is agreed this could discourage teachers early in their career from joining the TPS. “Even if a teacher has to pay more the TPS is a


valuable benefit, however. Retirement is often low down the priority list for a teacher when they start their career and there are many competing financial pressures at that time. It will be essential that they get the right financial education to ensure they are in a position to make an informed decision.” Lord Hutton said his recommendations would make


public sector pensions more affordable – a claim disputed by unions. Chris Keates, general secretary of the NASUWT,


said: “Lord Hutton has allowed himself to legitimise the intention that the coalition has had from the outset to raid public service pensions. “These proposals have set the wheels in motion


for an additional, unjustified tax on public service workers. Workers won’t be paying more into the pension schemes, they will be paying more into the Treasury’s coffers.” Dr Mary Bousted, general secretary of the ATL,


said: “If teachers’ pension contributions are increased by virtually 50 per cent, we predict a 10 per cent drop in scheme members. New teachers won’t be able to afford to join as they will be saddled with debts from


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their student loans and higher tuition fees. Teachers close to retirement will drop out and many will retire early to avoid having their pensions cut. And teachers switching to working part-time, to fit in with family commitments, may be unable to afford to contribute. A significant drop in the number of teachers in the Teachers’ Pension Scheme risks making it less viable.” Brian Lightman, general secretary of the Association


for School and College Leaders, said: “The government must understand just how angry and worried members are about this attack on what is a core part of their overall remuneration package.” Lord Hutton, who spent nine months looking at


the pension schemes of workers such as teachers, civil servants, NHS workers and the police and fire service,


among others, argued that “comprehensive reform” would make the schemes “sustainable and affordable in the future” at a time when people were living longer. He said: “These proposals aim to strike a balanced


deal between public service workers and the taxpayer.” But Brendan Barber, general secretary of the TUC,


warned of widespread strike action among public sector employees if the recommendations are implemented by the government. He said: “Imposing changes without agreement


could lead to real industrial tensions and getting the decisions wrong could leave future pensioners in poverty.”


SecEd • Dorothy Lepkowska is a freelance education journalist.


SecEd • April 14 2011


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