On the 16th December the Department for Education released the outcome of the consultation on Teachers Pension Contributions for the year 2012-13 and confirmed significant changes for its members.
These changes are part of the Government’s long-term reforms. They are aimed at controlling the increased costs of people living longer and re-balance the contributions paid by scheme members and taxpayers, balancing that with ensuring public service pensions remain among the best available.
On the 16th December the Department for Education released the outcome of the consultation on Teachers Pension Contributions for the year 2012-13 and confirmed significant changes for its members.
These changes are part of the Government’s long-term reforms. They are aimed at controlling the increased costs of people living longer and re-balance the contributions paid by scheme members and taxpayers, balancing that with ensuring public service pensions remain among the best available.
As you are probably aware the TPS will retain the existing index-linked, defined benefit scheme for 2012-13. And under the scheme the employer contributions will continue to be 14.1% of salary.
Historically, all employees have previously paid the same percentage of their salary into the TPS regardless of salary levels. However, changes to the TPS will see the majority of members asked to increase their level of contribution with a level of protection for new and lower paid teachers.
These changes are similar to those made to the Local Government Pension Scheme a few years back and will see staggered employee pension contributions dependent upon salary levels.
The new contributions and bandings are detailed in the following table
|
Lower Salary |
Higher Salary |
Contribution Rate in 2012-13 (per cent) |
Increase (per cent) (against 6.4 per cent) |
Membership |
Percentage of Membership |
|---|---|---|---|---|---|
| 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 |
The pension reforms are developed from Lord Hutton’s independent review of pensions and in that report he set out a clear rationale for contribution increases.
In his report Lord Hutton demostrated that in a final salary scheme, higher earners get a much higher return on their pension contributions; that on average they live longer so benefit from pensions for a longer period; and that lower earners are less likely to join pension schemes so need greater incentive to participate.
The changes to the TPS will save £314 million next year. However, this is a small part of the overall picture where the government has stated its aim is to save £2.8 billion per annum by 2014-15. That target would mean an average increase in an employees pension contributions of 3.2%.
The contributions for 2013-14 and 2014-15 are forming part of the ongoing negotiation and discussion with unions over the longer term reform of the TPS.
The proposed contribution increases for members of the TPS 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