The following information is an extract from a briefing paper by the National Union of Students.
Post 92 Universities and FE Colleges - Teachers' Pension Scheme
What is TPC
The Teachers' Pension Scheme (TPS) is the 2nd largest Public Sector Pension Scheme in England & Wales with over 1.4 million members. The TPS is a defined benefit final salary scheme.
How does TPS work currently?
All members of the scheme currently pay 6.4 per cent of their gross salary in pension contributions. What people get, and what they can retire on a full pension depends on when you joined the scheme.
People who joined on or after 1 January 2007 get a pension of 1/60 of their final salary per year of reckonable service. There is no automatic tax free lump sum, although part of the pension can be exchanged for a lump sum. This pension can be taken in full at age 65.
People who joined on or before 31 December 2006 get a pension based on 1/80 of their final salary per year of reckonable service + 3x this as tax free lump sum. This pension can be taken in full at age 60.
What is the government proposing?
Lord Hutton’s final report into public sector pensions was published in March 2011 and recommended:
• that employees should pay more for their pensions
• that they should work longer and that normal pensionable age should be tied to the state pension age.
• that public sector pensions should cease to be final salary and should instead be based on a ‘career average’ structure.
• Lord Hutton recommended that the government should set the accrual rate but advised that it should be increased in line with average earnings
• Lord Hutton also recommended changes to the governance of public sector pension schemes.
The government had decided to impose higher contributions even before Hutton’s final report. The government claims that ‘the public sector pension bill is unsustainable’
(George Osborne, Andrew Marr Show, 20 June 2010).
The government has made clear in its budget statement of 22 June that it will be moving its indexation of pension increases from the Retail Price Index (RPI) to the lower Consumer Price Index (CPI).
In the Comprehensive Spending Review it also made clear that it will be looking to save £1.8 billion from public sector pensions by introducing a phased increase in employee contributions of around 3% between 2012 and 2014/15.
On 7 January 2011, the Department of Education confirmed that it wishes to increase employee contributions from 6.4% to either 9.5% or 9.8% by 2014/15. The Treasury wants these changes to be in place ahead of the annual valuation of TPS, in contravention of the agreed mechanisms for reviewing the scheme.
What will be the impact of the government’s proposals?
SWITCH FROM RPI TO CPI
The switch to indexing yearly pension rises to CPI will have a huge impact on pensions.
The Retail Price Index is a higher inflation measure than the CPI so that future pension increases would be lower.
• An FE lecturer with a £10,000 pension would lose £36,000 or more over the average 25-year retirement.
• An HE lecturer with an £18,000 pension would lose £65,000 or more over the average 25-year retirement.
RAISING CONTRIBUTION RATES
The government is now proposing to deliver the savings from TPS by raising the contribution rate by 3.1-3.5%, which is a rise of around 50%. This would mean members’ contributions rising from 6.4% as currently, to 9.5-9.8% by 2014-15.
• For an FE lecturer, the effect of an extra 3% on the current contribution rate would be an extra £88 per month taken from the pay of a top-of-scale lecturer (or over £95 in Inner London).
• For an HE lecturer, the effect of an extra 3.4% on the current contribution rate would be an extra £104 per month taken from the pay of a new full-time lecturer.
RAISING THE RETIREMENT AGE
The effect of any move to a normal pension age of 65 or higher would depend on your current age.
• A 50-year-old further education lecturer on the top of the scale and intend to retire at 60, this change would cut £1,450 per year from their pension if they went ahead and retired at 60, due to the reduction applied to the pension people accrue between 50 and 60.
• A 50-year-old university lecturer on the top of the scale and intend to retire at 60, this change would cut £1,805 per year from their pension if they went ahead and retired at 60, due to the reduction applied to the pension people accrue between 50 and 60.
POSSIBLE ABOLITION OF FINAL SALARY PENSION BENEFITS
In addition, the Hutton report also indicated that public sector final salary schemes are unfair and recommended that the government examine replacing it with career average pay. It is unclear what this would mean, but most moves towards career average schemes entail inferior pension benefits.
What does UCU want?
UCU do not believe that the government’s proposals are necessary. They believe that they are part of a politically motivated attack on the public sector. In reality, the indications are that the government’s public sector pension liabilities will fall. UCU is clear that any changes to the TPS should only come about as a result of the valuation of the TPS and the existing cost sharing agreement.
What is NUS Position?
At NUS National Conference 2011 policy was passed in support of UCU action over this issue. We are maintaining regular dialogue with UCU and will updating students’ unions throughout the year about the dispute and any forthcoming industrial action.
However we remain concerned about action that may impact on student’s assessment process and we are unlikely to support action that could have a damaging effect on the assessment and grading of students – especially where this will impact on their progression or graduation. We will be monitoring this and taking ongoing feedback from students’ unions.