Pensions Campaign

PENSIONS UPDATE:

AUTUMN TERM 2014

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Pensions Campaign

Pensions continues to be an integral part of our continuing campaign to protect teachers and defend education. The main campaign page is: www.teachers.org.uk/protect-teachers. Further pensions campaign information and resources can be found at http://www.teachers.org.uk/campaigns/protect-teachers/pensions.

Other pensions material can be found in the new Pensions section of Pay, Conditions and Pensions at www.teachers.org.uk/taxonomy/term/2230

Introduction of Career Average Scheme from April 2015

The regulations necessary to introduce the new Teachers’ Pension Scheme from April 2015 have passed through Parliament. The NUT continues to oppose these pension changes. We do not accept that teachers should potentially have to work until age 68, pay an average 9.6 per cent in pension contributions and get less in retirement.

The NUT’s pension increase calculator at www.teachers.org.uk/pensionscalc has been updated to reflect current contribution rates and shows teachers how much the new scheme will cost them both before and after they retire. It is important that teachers are aware of the new pension scheme, whether or not they have transitional protection. The Teachers’ Pension Scheme has introduced its own calculator but this does not include inflation (unlike our calculator which expresses the outcome in today’s money). The TPS calculator also does not compare the outcomes under the old and new pension schemes. Members should continue to use the NUT calculator.

Teachers who are switched to career average will have to keep evidence (such as payslips and P60s) to challenge errors in their records. Most teachers will get a statement every year showing the earnings information provided to Teachers’ Pensions by your employer. Teachers registered with Teachers’ Pensions’ MyPensionOnline service will be informed that the relevant information is online. It’s vital that teachers check this information and correct it if necessary. Otherwise it will be assumed to be correct and will be harder to correct at a later date.

Teachers’ Pension Scheme Valuation 2012

The TPS valuation correct as at 31 March 2012 has been published by the Government.

The report confirmed that the Employer contribution rate in the TPS will rise from the current 14.1 per cent to 16.4 per cent from September 2015. No additional funding is being provided to employers to cover the increase. The total contribution rate under the new valuation of 26 per cent (16.4 per cent employer, 9.6 per cent employee) is higher than the 20.5 per cent (14.1 per cent employer, 6.4 per cent employee) payable under the 2004 valuation.

The cost of the scheme has risen for employers and employees despite members’ benefits being cut. The primary reasons for this are a big increase in the notional past service deficit (£15bn in 2012 vs £1.8bn in 2004) and the Government’s decision to cut the discount rate (the rate of return on scheme assets) from RPI+3.5 per cent to CPI+3 per cent. The NUT thinks it is bizarre that employers and employees will end up having to pay more for a worse scheme.

Budget 2014 pensions measures

In the recent Budget, the Chancellor announced proposals that will have a major impact on pensions if enacted. The Treasury subsequently issued a consultation document to which the NUT issued a response which can be found at www.teachers.org.uk/node/21672 . A Taxation of Pensions Bill and Pension Schemes Bill are being drafted and the intention is that the proposals will be implemented from April 2015. The major proposals are as follows:

Changes to defined contribution pensions

Defined contribution (DC) pensions are pensions where money is paid into a fund, which is primarily used at retirement to generate an income.

DC scheme members will have the option to take their whole pension ‘pot’ as a lump sum. In line with current rules, 25 per cent can be taken tax-free. The remainder can be taken as cash, either in one lump or over a period of years, at the member’s marginal tax rate.

This change in rules would not apply to the Teachers’ Pension Scheme or other notionally funded public sector schemes. Members of public sector schemes will be forbidden to transfer their pension rights into DC schemes from April 2015. Members will not be able to take all of their TPS pension as a lump sum (excepting the existing exemption in terminal ill health cases).

The change does potentially apply to members of the Local Government Pension Scheme (LGPS) as the LGPS is a funded scheme. Members of the LGPS should however think extremely carefully before transferring their pension as in the majority of cases it will not be in their long-term financial interest. Defined benefit pensions such as the LGPS or the Teachers’ Pension Scheme offer a level of security and guaranteed indexation that DC pensions do not. The government intends to make it a statutory requirement for all individuals who are considering transferring out to take advice from a professional financial adviser who is independent from the defined benefit scheme and authorised by the Financial Conduct Authority before transferring.

The Prudential Additional Voluntary Contribution (AVC) is a defined contribution pension and the logic of the Government’s action is that AVCs could be taken fully in cash after April 2015, though this has yet to be confirmed and will require regulation changes in the Teachers’ Pension Scheme.

Minimum age to claim pension

The minimum age to access a pension (excluding ill health cases) is currently 55. The Pensions Tax Bill contains proposals to increase this to 57 in 2028, 10 years below the state pension age by 2028.

This measure would affect pensions from the Teachers’ Pension Scheme if enacted by increasing the age at which members could take an actuarially reduced or premature retirement. The Government subsequently intends to maintain a 10-year gap between state pension age and the minimum age at which an occupational or personal pension can be drawn. The increase in state pension age to 66 by 2020 will not mean the minimum age to access a pension will rise to 56 in 2020.

NUT Advice, Policy and Campaigns Department

September 2014