Danny Alexander's pensions negotiation deadline is premature when working longer, paying more, and getting less is simply not an option for most teachers
by Christine Blower, General Secretary, National Union of Teachers
The Government’s position continues to be that it expects teachers to work longer, pay more and get lower pensions when they retire. The outcome of discussions with the DfE thus far is that five of the eight teacher unions, representing the vast majority of the profession, have declared themselves unwilling to sign up to the Government's proposals.
The NUT’s fear is that imposing higher pension contributions at a time of real terms pay cuts will lead many teachers to opt out from the Teachers’ Pension Scheme (TPS) and threaten its viability; while requiring teachers to work to 68 or later for a full pension is simply not possible for most teachers.
Affordability of teachers’ pensions
The NUT remains concerned that the Government continues to say that public sector pensions are unaffordable but is yet to present conclusive evidence to support that position. Lord Hutton’s review of public sector pensions showed that the costs of pensions were set to fall from 1.9% of GDP now to 1.4% by 2060. The Government’s intransigence and repeated refusal to conduct a valuation of the TPS is deeply frustrating to teachers.
The NUT continues to call on Ministers to carry out the overdue 2008 valuation of the TPS that should have informed any changes to the Scheme. If the valuation had been carried out, demographic pressures might have added to scheme costs but the move to CPI inflation indexation might have compensated for this. The valuation quite probably would not have warranted the proposed increase in employee contributions which are in truth a thinly disguised tax on public sector workers.
NUT analysis shows that since the TPS was introduced in 1923, teachers have paid in £46.4bn more to the scheme in contributions than has been paid out in pensions, if the yearly surpluses / deficits are adjusted in line with GDP growth over time. In the absence of the latest valuation of the Scheme, teachers will continue to feel that the Government has had a long cheap loan from teachers, but now baulks at paying their pensions that are due.
Principal reasons for the NUT's Opposition
Set out below are the key reasons why the NUT opposes the Government’s proposals:
Starting this April the Government wants to increase every teacher’s pension contributions by more than 50 per cent – from 6.4% to an average 9.6% of pay by April 2014.
The proposals would mean that for each pound that a new teacher in 2014-15 earns above £21,000, we'd expect the following deductions to be made:
• Income tax: 20%
• National Insurance: 12%
• Student loan repayment: 9%
• Pension contribution: 8.5% (Inner London) or 7.9% (rest of country).
The new teacher would therefore lose either 48.9% or 49.5% of each pound earned above £21,000. The NUT is concerned that the 9% student loan repayment may encourage new teachers to recoup most of this by opting out of the TPS.
The NUT remains firmly of the view that most teachers will not be able to work successfully in the classroom to age 68. Most teachers will have no choice but to retire earlier than this on substantially reduced pensions. Those teachers that do retire from the classroom at age 68 can expect less than a decade of good health in retirement. The Office for National Statistics has found that men at 65 can expect to live for 9.9 years and women for 11.5 years in good or very good health. Increasing the normal pension age to 68 would thus cut into the length of time in retirement that will be spent in good or very good health.
Teachers will get less in retirement as a result of the Government’s plans. The Government plans to move from pensions based on final salary to pensions based on average salary throughout a whole career. This will cut pensions for most teachers.
Teachers won’t just lose out through career average. They also lose out because of the way pensions are increased in retirement.
In April 2011, the Government changed the inflation link for pension increases from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). RPI inflation is normally higher than CPI inflation – RPI includes council tax and housing costs which do not appear in the CPI, while the statistical method of calculating CPI means that it will generally be below RPI.
The NUT has calculated that a teacher retiring with a £10,000 pension will lose over £35,000 during the course of a 25 year retirement due to the switch.
The NUT will continue to participate in any further talks with Government in order to seek a negotiated settlement if at all possible. The Union believes that if a negotiated settlement is to be achieved the Government needs to accept that further discussions and additional funding are needed. Such negotiations would need to include the cost ceiling, the normal pension age and the future level of employee contributions.
The Government, however, is clearly keen to reach agreement soon. In a letter to the General Secretary of the TUC dated 15 February, Danny Alexander set an early March deadline for agreeing final scheme designs. No further meetings are planned at the DfE so the prospects for progress appear to be slim. The NUT regards the Government’s deadline as premature given the intended implementation date of April 2015.
The NUT is currently consulting members who are part of the Teachers’ Pension Scheme. Members are being asked whether or not they endorse the NUT’s decision not to agree to the Government’s “final” pension proposals and to continue to campaign against them.
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