Department for Education
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Consultation on reforms to the Teachers’ Pension Scheme
The Department for Education has yesterday launched a consultation on proposed changes to the contribution rate for employees in the Teachers’ Pension Scheme.
The plans form part of the Government’s response to Lord Hutton’s proposals to ensure all public pension schemes are fair, affordable and sustainable for current and future generations of public sector workers.
The consultation document published yesterday sets out proposals for increased employee contributions to the Teachers’ Pension Scheme in 2012/13 only. This represents around 40 per cent of the total contribution increases expected by 2014/15. Proposals for increasing rates in 2013/14 and 2014/15 and the wider Hutton agenda will be subject of further discussion with trade unions.
The Government has already announced plans to secure £2.8 billion savings per year by 2014/15 by increasing public service employee pension contributions by an average of 3.2 percentage points (ppts) by 2014/15. The Government has already set out its intention to protect low earners with proposals that anyone earning less than £15,000 per year will see no increase, and those earning between £15,000 and £21,000 per year will see an increase of no more than 0.6 ppts in 2012-13, or 1.5 ppts by 2014/15. This will save around £300 million a year from the teachers’ scheme from 2012-13.
The Department for Education is proposing to go further than this to reflect the structure of its workforce and is consulting on extending the £21,000 threshold to £26,000, meaning that 117,000 teachers in the early stage of their careers would pay an increase of no more than 0.6 ppts in 2012/13. Contributions increases would be greater for the highest paid, capped at 2.4 ppts in 2012/13 or 6 ppts by 2014/15.
The full range of proposed changes for 2012-13 are below:
| Lower Salary | Higher Salary | Contribution Rate in 2012-13 | Increase (against 6.4%) | Membership | % of member-ship |
|---|---|---|---|---|---|
| 14,999 | 6.4% | 0% | 1,400 | 0.2% | |
| 15,000 | 25,999 | 7.0% | 0.6% | 116,000 | 17.1% |
| 26,000 | 31,999 | 7.3% | 0.9% | 117,000 | 17.2% |
| 32,000 | 39,999 | 7.6% | 1.2% | 271,000 | 39.6% |
| 40,000 | 74,999 | 8.0% | 1.6% | 172,000 | 25.2% |
| 75,000 | 111,999 | 8.4% | 2.0% | 4,000 | 0.6% |
| 112,000 | 8.8% | 2.4% | 600 |
0.1% |
Schools Minister Nick Gibb said:
We are determined to provide a fair and sustainable pension for the teaching profession. Pensions are an important part of a teacher’s remuneration package and ministers are clear that a defined pension scheme will be maintained along with the pensions they have already earned so none of the rights people have accrued will be affected. And the Teachers’ Pension Scheme will remain one of the very best available in the public sector.
However, people are living longer and this makes pensions more expensive. Lord Hutton made it clear that there needs to be a fairer balance between what employees and taxpayers contribute towards public service pensions. It is right that we ask public sector employees to pay more towards their pension to ensure they are affordable for future generations of teachers.
But it’s vital that new or lower paid teachers are protected from the increases. That’s why we are proposing to go beyond the commitment of capping the increase for those earning less than £21,000 and extending that cap up to £26,000. This will mean 117,000 teachers seeing an increase of just 0.6 per cent next April, and a teacher earning £25,000 will pay around an additional £10 per month after tax relief.
The proposed increases in 2012/13 are approximately the same amount that were set out in the Pre-Budget report 2009 to be delivered under the ‘cap and share’ arrangements, which were agreed with unions as part of changes to the scheme in 2007.
The proposal to increase pension contributions comes as part of a wider package of reform designed to deal with increased costs of people living longer, while ensuring public service pensions remain among the very best available.
It follows a report by former Work and Pensions Secretary Lord Hutton which recommended ‘comprehensive reform’, including a move to career average, rather than final salary pensions, and linking retirement age to State Pension Age.
Increases for 2013-14 and 2014-15 and the longer term reform of the teachers’ scheme will be the subject of further discussions between the Department and trade unions, which will feed into the central discussions on public service pensions reform taking place between TUC and the Chief Secretary to the Treasury.
Notes to editors
1. Further details on the Chief Secretary to the Treasury’s statement.
2. The consultation can be found on the Department's consultation website.
3. Examples of how the proposed changes would affect individual members include:
A Newly Qualified Classroom Teacher working full-time earning £21,000 a year
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In 2012-13 you will contribute 7.0%. Your employer will contribute 14.1%.
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Your contribution before tax relief will be £1,470 per year. (This is an increase of £126 per year on the current contribution rate.)
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However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £103 per year.
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Your employer will contribute £2,961 per year.
A Classroom Teacher working full-time earning £25,700 a year
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In 2012-13 you will contribute 7.0%. Your employer will contribute 14.1%.
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Your contribution before tax relief will be £1,799 per year. (This is an increase of £154 per year on the current contribution rate.)
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However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £122 per year.
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Your employer will contribute £3,624 per year.
An experienced classroom teacher earning £35,000 a year
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In 2012-13 you will contribute 7.6%. Your employer will contribute 14.1%.
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Your contribution before tax relief will be £2,660 per year. (This is an increase of £420 per year on the current contribution rate.)
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However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £341 per year.
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Your employer will contribute £4,935 per year.
A teacher in a senior leadership post earning £60,000 a year
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In 2012-13 you will contribute 8.0%. Your employer will contribute 14.1%.
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Your contribution before tax relief will be £4,800 per year. (This is an increase of £960 per year on the current contribution rate.)
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However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £581 per year.
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Your employer will contribute £8,460 per year.
A head teacher earning £100,000 a year
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In 2012-13 you will contribute 8.4%. Your employer will contribute 14.1%.
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Your contribution before tax relief will be £8,400 per year. (This is an increase of £2,000 per year on the current contribution rate.)
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However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £1,206 per year.
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Your employer will contribute £14,100 per year.
|
Position | Full-time salary (per year) | Cont. rate for 2012-13 | Cont. before tax relief | Increase against current cont. rate (before tax relief) | Increase against current cont. rate (net of tax relief) | Employer cont. (14.1%) |
|---|---|---|---|---|---|---|
| Newly qualified Teacher | £21,000 | 7.0% | £1,470 | £126 | £103 | £2,961 |
| Classroom Teachererer er | £25,700 | 7.0% | £1,799 | £154 | £122 | £3,624 |
| Experienced Classroom Teacher | £35,000 | 7.6% | £2,660 | £420 | £341 | £4,935 |
| Senior Leadership post | £60,000 | 8.0% | £4,800 | £960 | £581 | £8,460 |
| Head teacher | £100,000 | 8.4% | £8,400 | £2,000 | £1,206 | £14,100 |
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