Teacher Pensions are changing (again). For a scheme that has its foundations in the 19th Century and 2 million members it is remarkably flexible , responding to the changing needs of members , participating employers and the ultimate sponsor- the Treasury.
But these changes need to be understood and digested by everyone. This blog explains the changes from member and employer viewpoints.
There are actually three ways of calculating benefits in the Teacher’s Pension. If you joined before 2007 you get an automatic lump sum and a pension based on your final salary, after 2007 you have to elect to have a tax free sum, and if you do not have final salary “protection” you will find yours benefits calculated on the basis of your career average earnings (CARE), rather than your final salary (details below).
Parts of the teaching profession are still coming to terms with the increase in contributions required in 2019 (see footnote).
For members, the impact will be felt over time, but the big change for payroll today, will be onboarding new software and reconciling member contributions in readiness for big changes that come in with the new financial year.
A quick recap!
Currently, you (if you’re a member) fall into one of four categories which outline exactly what kind of contributions you and your employer will make. Depending on which category you fall into, your pension may be based on your final salary or your career average earnings – the latter of which is typically less generous. These categories are:
- ‘Protected’ scheme members: You’ll be in the final salary scheme if you were an active member before 2012 and were 10 years or less from your pension age. All protected members will be pensioners by April.
- ‘Tapered’ members: You were a member before 2012 and were less than 13 and a half years before your pensions age. You and 30,000 others, are about to be moved to the CARE scheme
- ‘Transition’ members: You were more than 13 and a half years from your retirement age before 1st April 2012. You were moved to the CARE scheme in 2015
- ‘New’ members: Joined the scheme on or after the 1st April 2015 who are only entitled to career average benefits.
From 1 April 2022, the changes will mean:
- Your last day of service in the final salary scheme will be 31 March 2022
- All members will be in the career average scheme from 1 April 2022 (meaning 30,000 will come across to CARE)
- The salary link will still apply for those with service in the final salary scheme (unless you have a break of more than five years)
- All service will be built up in the career average scheme and you’ll have the opportunity to enhance your pension through pension flexibilities
- All overtime will be pensionable from 1 April 2022
- Once moved to the career average scheme, you’ll have a normal pension age of either your state pension age or age 65, whichever is the later date
- All teaching employment contracts will be pensionable in the Teachers’ Pension Scheme – if you had an additional part-time position (on top of a full-time position) you can have both contracts in the Scheme. The part-time position is no longer pensionable in the Local Government Pension Scheme because it will be eligible in the Teachers’ Pension Scheme.
And then there’s McCloud!
If you’re planning to retire before 1 April 2022 you’re invited to retire as normal, as the choice for the remedy period service will be provided retrospectively. The remedy period is the period of service affected, which is between 1 April 2015 and 31 March 2022.
At this time, the Teacher’s pension can’t provide you with specific details on your individual circumstances as they’re still awaiting government legislation to be finalised and put in place. They are saying they are continuing to share information as and when they know it to ensure you’re kept up to date.
To help you further understand if you’re affected by the changes, you can follow their simple flowchart.
So much for the members….
So what does this mean for the 14,000 employers participating in the Teachers Pension Scheme?
This focusses on how change is implemented through Member Contributions Reconciliation (MCR) . Two thirds of employers are looking for onboarding of these changes in a short window between February and April and the Teachers Pension Scheme recognises that this is too intense a concertina and is looking to spread the onboarding beyond April.
The Teachers Pension Scheme are asking for a two way dialogue with employers, confirming where employers are, how automated they will be and when they expect to come onboard.
The MCR solutions are being developed by independent software houses ; many employers are complaining that the additional resources needed to run the software as delivered, are not available. The software providers complain that employers don’t all do things the same way and that Teachers Pension has many eccentricities that means a “push button- fully automated” solution will not arrive.
Many employers are therefore saying that they don’t know when Sap, Zenith, Oracle. Trent of any other software provider – will have come up with an acceptable solution.
For a brilliant debate on the changes , including the MCR, watch this video provided by the CIPP and Shaun Tetley, following last week’s CIPP conference for the public sector.
Footnote; trouble at independent schools
A growing number of private schools are leaving the Teacher’s Pension Scheme after the Government raised the rate of employers’ contributions by 43% in 2019. This has meant an increase from 16.48% to 23.68% of teachers’ salaries.
State schools were covered for the increase but private schools were not. For the most part private school teachers have accepted that their pension promises will be changing or that the impact of the increase will feed through into pay.
But one of the teacher’s unions – the National Educational Union has now organised teachers within the Girls’ Day School Trust (GDST) to go on strike against plans to switch to a defined contribution of 20% of teacher’s salaries.
That it has taken three years for the GDST to put these proposals forward shows the long lag between the implementation of change and its impact to be fully realised.
While contributions impact the pocket today, changes in accrual last a lifetime.
The impact of the changes to the Teacher’s Pension Scheme in April 2022, will take much longer to be realised.