Tuesday, 3 January 2012

Pensions Campaign: Briefing on current Government proposal

This briefing sets out details of the Government's proposed ‘heads of agreement’ for changes to the Teachers' Pension Scheme (TPS); the progress of negotiations in December which led to their publication by Government; and the NUT's position on the Government's proposals and future discussions.

Despite our lengthy discussions with the Government over the last few days, the Government's current proposals still do not address most of the NUT's central concerns.

The Government still wants you to work longer, pay more and get less. In particular:

  • all teachers would still have to pay an average of 50 per cent more for their pension;

  • most teachers would still have to work longer for their pension, with the TPS normal pension age rising to 68 for those aged 33 or under;

  • most teachers' pensions would still be lower due to ‘career average’ pensions; and

  • all teachers would still receive less in retirement due to the switch of pension indexation to lower CPI inflation instead of RPI inflation.

Under these circumstances, the NUT has not been able to sign up to the Government's proposals. We will keep you fully informed of how the Government’s proposals will impact on your pension entitlements. The NUT Executive will be meeting in January to consider future campaign steps to seek to improve the position.

The Government has not agreed to provide any additional money for the TPS since its improved offer on 2 November or the strike on 30 November. Its proposals remain within the cost ceiling set by the Government on 2 November, requiring contributions of 12.1 per cent from employers and an average 9.6 per cent from employees, compared to the current TPS contributions of 13.25 per cent from employers and 6.4 per cent from employees (excluding the past service element of the employer contribution). The NUT has consistently said that it is very difficult to envisage agreement within this cost ceiling. The Government also decided at a late stage in the negotiations to withdraw a DfE proposal for a normal pension age of 65 for all, a further disruption to negotiations which have always been difficult due to inconsistent and difficult Government negotiating positions.

The core elements of the revised TPS as set out in the Government's proposals are:

  • a career average basis for the scheme;

  • an increase in the TPS normal pension age (the age at which pensions can be taken in full), so that for future accrual the normal pension age would be equal to state pension age of up to 68 or even higher;

  • an accrual rate of 1/57th of pay per year of service;

  • accrued benefits for serving members of the scheme to be revalued annually in line with CPI inflation plus 1.6 per cent;

  • deferred benefits for those who have left the scheme prior to retirement to be re-valued annually in line with CPI inflation;

  • pensions in payment to be increased each year in line with CPI inflation;

  • continuation of current provisions on optional lump sum commutation, spouses/partners pensions and death in service and ill-health benefits;

  • a limited facility for non-actuarially reduced early retirement with pension reduction factors of 3 per cent per year for a maximum of 3 years for those retiring early, with other early/late retirement factors on an actuarially cost-neutral basis.

Transitional protection would allow all those within 10 years of their normal pension as at 1 April 2012 to remain on their existing pension arrangements until their eventual retirement. This means that anyone on the NPA 60 scheme who is 50 or over as at 1 April 2012 would be unaffected by many changes to the scheme - but they would still pay more for their pension and receive lower pension increases in retirement. Further ‘tapered’ protection would apply to those up to 3.5 years younger than the qualifying age for full protection.

Normal pension ages would rise to 68 for those aged 33 or under in 2015, to 67 for those aged 34 to 42, and 66 for those aged over 42 (although those aged over 50 would be subject to full transitional protection and those aged over 46.5 would receive some limited period of protection).

The Government has also said that it proposes a long term employer ‘cost cap’ which would limit the extent to which the employer contribution could increase if scheme costs rise. Increased longevity costs could therefore lead to higher employee contributions or, of course, an increase in pension age if the state pension age increases.

There will be further discussions on the balance between the accrual rate and the revaluation factor for accrued pensions. The Government says that these discussions must be within the limits of the Government’s cost ceiling. The NUT is clear that discussions must also continue on wider issues, including the extent of any need for change and the NUT view that further money must be found to finance the future TPS and improve on the above proposals.

Discussions will also continue on employee contributions. The Government continues to insist that average employee contributions should rise to 9.6 per cent with ‘some protection’ to be provided for lower paid teachers. The exact nature of that protection and any tiering of contributions would be discussed early in 2012. The Government, however, continues to reject our arguments relating to the affordability of higher contributions and their likely impact on ‘opt-outs’ from the scheme.

Finally, the Government has still to confirm whether or not independent school teachers will still be allowed to be part of the TPS, despite its agreement to continuing the Fair Deal arrangements for public sector workers transferred to private sector employers.

The NUT will continue to represent your interests in the discussions as well as continuing to pursue our legal challenge to the RPI/CPI change. The NUT National Executive will meet in January to take a view on progress in the negotiations so far and next steps in the NUT campaign, including any further proposals on industrial action.

You can see the Heads of Agreement document here. The NUT has not signed this document. The NUT executive will consider the document and further steps to protect teacher pensions in the New Year.

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