Yesterday’s pension story in the FT was about how the Government is putting up the cost of funding teaching staff to be in the teacher’s pension and the impact it will have on universities who use this scheme for staff not in USS.

English universities face £125mn hit from pension change

At 23.7% of salary, the Teacher’s pension doesn’t come cheap, unless of course you are bailed out as most state schools are – by a compensating increase in Government funding.

It looks like it will increase in cost to somewhere between 24.2% and 24.7% meaning many universities and private schools will have to pass on the increases through fees or , where this isn’t possible, cut jobs.

There’s nothing machiavellian about this, the Government have been open on it since  it announced the change in the SCAPE discount rate

“The Government is aware that the updated SCAPE discount rate will generally lead to higher employer contribution rates for most unfunded public service pension schemes resulting from the 2020 valuations.”

If you are teaching in the private sector , you may well find your employer withdrawing from the teacher’s pension altogether. This is not a good thing for you as you will almost certainly get a worse scheme in its place and you may well be asking why.

The reason contributions are going up and not down is because assumptions on economic growth are getting worse. This  means that the public purse is not going to stretch to the largesses of the past.

This is not about people living longer (at present they aren’t) nor is it about market volatility (the Teacher’s pension scheme is not invested but paid directly from the Treasury). This is simply a Government cut.

A cut in pay – a cut in pension?

It would be good were teachers to be given a choice on how their pension was paid and not be reliant on an all or nothing offer of the Teacher’s pension. It is not beyond the capacity of the Government Actuaries to offer and account for differing accrual rates and mark them gold , silver and bronze, depending on their generosity.

It’s not beyond the capacity of reward directors to offer a total reward package that allows teachers to flex up or down the rate at which they build up a pension.

It shouldn’t be a binary “close or continue” participation choice for employers.

Because whatever scheme is put in place of the Teacher’s pension will not have the efficiency of what came before and will be required to pay a bunch of intermediaries for the fund behind the scheme and the administration of that fund.

Of course this doesn’t matter much to the pensions industry

Other than a few actuarial firms prepared to advise small employers such as private schools on this matter, the fate of teachers and their pensions passes us by. We don’t have a fund to take a clip on , we don’t get an admin mandate and we don’t offer advice. These are matters for civil servants.

At last night’s Professional Pensions Awards, I saw no sign of public sector pensions other than the excellent Border to Coast investment partnership who represented the funded LGPS.

If we aren’t getting paid, we aren’t much interested, it would seem.

But organisations such as the  PLSA should care about pensions and pensioners – regardless of whether they are funded or not and if they don’t – they become the trade body for “funds” and not “pensions”.

Which is why, once again, we have to thank the FT for keeping these matters to the fore.

All or nothing?

There is of course a third way for employers to deal with the impending increase in the cost of pensions which is to pass on the increase in funding to employees through the contribution rate.

It seems crazy to me that employers want contributions to be paid out of salary and not exchanged for a lower salary, meaning a “non-contributory scheme” with lower salaries, part compensated by the national insurance savings.

There should be scope for innovation and for advice to employers on how to do these things.

But I am out of my depth here, like most in my line of business, this is not “core business”. But if you are a teacher, it is the very stuff of your future. I hope we will see more on this but suspect we will see nothing.