PROPOSED TEACHERS’ PENSIONS SCHEME CONTRIBUTIONS INCREASE 2013-14 SERVICE PENSIONS BILL:
NUT Commentary
November 2012
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The Department for Education has issued a consultation document on its proposed employee contribution increase from April 2013. The proposed increase versus the current 2012-13 contribution and the pre-April 2012 contribution level is given in the table below:
Salary Band / Contribution rate in 2013-14 / Increase (against 2012-13) / Increase (against pre April 2012)Up to £14,999 / 6.4% / 0.0% / 0.0%
£15,000 to £25,999 / 7.0% / 0.0% / 0.6%
£26,000 to £31,999 / 7.9% / 0.6% / 1.5%
£32,000 to £39,999 / 8.8% / 1.2% / 2.4%
£40,000 to £44,999 / 9.2% / 1.2% / 2.8%
£45,000 to £74,999 / 10.1% / 2.1% / 3.7%
£75,000 to £99,999 / 10.6% / 2.2% / 4.2%
£100,000 to £150,999 / 11.2% / 2.4% / 4.8%
The DfE’s proposals maintain a banded contribution structure. A teacher would pay the same contribution rate on their whole salary rather than 6.4 per cent on the portion up to £14,999, 7 per cent on the portion between £15,000 and £25,999 etc.
The contribution tier into which teachers fall will be determined by their full-time equivalent salary. A part-time teacher working 0.5 earning £18,000 would therefore pay an 8.8 per cent contribution rate in a post with a FTE salary of £36,000. The DfE’s rationale is that it is a member’s FTE salary that is used to calculate their final pension entitlement and therefore contributions should be decided on the same basis.
The DfE is not planning to simply roll forward the contribution increase pattern applied in April 2012 to 2013-14. Instead the plan is for teachers earning less than £26,000 to see no further increase in their contributions beyond the 0.6 per cent rise applied in April 2012.
The proposals also introduce a new tier from £40,000 to £44,999. This was created partly because the previous tier from £40,000 to £74,999 was deemed to be too broad, taking in classroom scale teachers and the vast majority of leadership scale teachers. There is also interaction with 40 per cent rate tax relief, which means that teachers in the £40,000 to £44,999 range faced a greater impact on their take-home pay than those just above this threshold.
The planned contribution increase in 2013-14 translates into the following contribution level for teachers on the classroom scales:
Pay Band / England and Wales / Fringe Area / Outer London / Inner LondonM1 / 7% / 7% / 7% / 7.9%
M2 / 7% / 7% / 7.9% / 7.9%
M3 / 7% / 7.9% / 7.9% / 7.9%
M4 / 7.9% / 7.9% / 7.9% / 7.9%
M5 / 7.9% / 7.9% / 8.8% / 8.8%
M6 / 7.9% / 8.8% / 8.8% / 8.8%
UPS1 / 8.8% / 8.8% / 8.8% / 9.2%
UPS2 / 8.8% / 8.8% / 8.8% / 9.2%
UPS3 / 8.8% / 8.8% / 9.2% / 10.1%
The proposed contributions increase is the second part of a three-year plan to increase Government revenue even before the proposed changes to scheme design in 2015. A further contributions increase is expected in April 2014, though the Government has not indicated whether its intention is to roll forward the pattern of the proposed 2013 increase in 2014.By 2014, teachers will be paying an average contribution rate of 9.6 per cent – 50 per cent more than before contribution increases began in April 2012.
The Union opposes this proposed contribution increase and will be responding to the DfE’s consultation. Our continuing view is that the proposed contributions increase is simply an unjustified tax on teachers to pay for the costs of the recession. The contributions increase has not been justified by an actuarial valuation of the scheme. The Government’s consultation document says that there is ‘no need to carry out the current suspended TPS actuarial review or cap and share processes’, because of their proposals to introduce new career average schemes in 2015. The Union disagrees with this assessment.The real reason why the Government refuses to carry out the actuarial valuation is because it knows that the contributions increase would not have been justified.