Government’s Offer on Public Sector Pensions

You will have seen the announcement from the UK Government today and their claim that this ‘new proposal’ answers all of our concerns. They even claim this new proposal is a good deal for teachers. To assist your deliberations the proposals are explained below:

• The Government refers to an improved accrual rate of 1/60th. This figure relates to the amount of salary converted into a pension pot every year under the average salary scheme. For example: a scheme member earning £34,200 at changeover will accrue a pension pot of £570 in year 1 of the average salary pension scheme.

• The figures stating that private sector employees would have to contribute a third of their salary to accrue similar benefits are based on the assumption that the performance of the markets over the employee’s full career will match the performance of financial markets over the last year but fund managers will be quick to point out that general fund performance is much better than this.

• Under the current arrangements a teacher who joined the scheme prior to the 2007 changes and now aged 60 with 38 years of service and a final salary of £34,200 will benefit from a pension of approximately £16,245 and a lump sum of £48,735. Should the teacher work for a further 5 years his pension would be £18,383.50 with a lump sum of £55,147.50A teacher who joined the scheme after the 2007 changes, with a final salary of £34,200 and accrues 43 years of service will benefit from a pension of approximately £24,510. If a lump sum is taken the pension would be reduced on the basis of £1 reduction for every £12 of lump sum.Under the new scheme the same teacher would benefit from a pension of approximately £13,697 at age 60 and £19,911 at age 65. If a lump sum was taken the pension would be reduced on the basis of £1 reduction for every £12 of lump sum.

• In addition the contribution rate will rise, beginning in April 2012, from 6.4% to 9.6% in 2015.

• The cost ceiling is the combined contribution from both employees and employers

Currently Teachers pay 6.4% Employers pay 14.2%

Proposals Teachers pay 9.6% Employers pay 12.1%

• We note the promise that there will be no further changes to pension over the next 25 years. What will then happen to the pensions of teachers in the amended scheme?

Ann Ballinger

General Secretary

03 November 2011