Monday, 19 December 2011

Teachers Pensions: A Teacher's Perspective

Changes to next year's teacher pensions have recently been announced by the government against very strong opposition from teachers unions such as the NUT and NASUWT. As a young teacher with 40+ years of service left, these changes are going to have a big effect on my teaching career - as the unions say, I'm going to have to work longer, pay more and get less at the end of it.

We are living in a difficult economic period, with people losing jobs and facing big pay cuts, including both private and public sector workers. The question is, are these changes fair for all? I'm no expert, but hope that someone may find my thoughts on the topic useful.

How do teacher's pensions work?
As a teacher, I currently pay in 6.4% of my salary every month into a pension. My employer, pays in 14.1%. Assuming I was earning £25,000 - that's £1,600 from me plus £3,525 from my employer, or if I was earning £35,000 it would be £2,240 from me and £4,935 from my employer.

These get put into a pension 'pot' and when I choose to retire, I get a monthly payout. If I had joined the scheme before 1st January 2007, I would get a lump sum when I retired. If I had joined after that date, it would be an option at the expense of a proportion of the monthly income. 

The payouts are based on the final salary of the teacher concerned. Teachers are paid a pension of 1/60 for teachers who joined in or after 2007 or 1/80 for teacher who joined before 2007 for every year of service. 

For example, if i was paid £35,000 in my last year of service and worked for 20 years, I'd get £11,667 per year if I joined in or after 2007, or £8,750 per year with a lump sum of £26,250 if I had joined afterwards.

The new proposals
The government has proposed some major changes to these pensions;
  • Raising the pension age to 68 (from 65 for those who joined in or after 2007 and 60 for those who joined before)
  • Increasing the contributions for teachers by an average of 3.2%
  • A move to a career-average scheme
These proposals have obviously upset teachers and the Government seems willing to make few concessions, although they have agreed to protect the pensions of those workers retiring within 10 years, and keep the accrual rate of 1/60.

The question is, what is the difference between the two?

In terms of money
To really understand this, we need an example. In this, I'll assume that the average salary is 80% of the final salary, so for example a teacher retiring at £35,000 would have a career average salary of £28,000. I'm also assuming the teacher has worked for 20 years and is retiring at 60.

This graph shows that someone retiring at 60 with 20 years service would get around 70% of the pension they would have got under an old scheme. It's only an illustrative example, but it gives you an idea of the difference.

Remember that for this, teachers will be expected to pay an average of 3.2% more into their pension. (Using the £35,000 example, they will be paying £3,600 per year or £280 a month, compared to £2,240 or £186 a month at the moment). £100 less a month is going to be a big concern for most teachers.

Lets say I live to 80 and retired at 60. I've worked for 20 years as a teacher with an average salary of £28,000. I'll have personally paid in £53,760 and my employer will have paid in £78,960 to my pension over this time (total £132,720) and received £125,440 back. I'm not really sure where that £7,280 goes!

The pension age
Of the changes, for me this is the one that's most concerning. I cannot imagine working until 68 as a teacher - it's a scary thought. I also don't think that having lots of older teachers in the profession is a good thing - you need a good balance. New teachers bring in new, innovative and exciting ideas. Without these, education in this country could become very stale indeed.

Deal or no deal
Any teacher is going to argue against these changes - just as any private sector worker would argue against a pay cut, regardless of how long or hard they work. Over 40 years, I'm going to end up paying in an extra £50,000 and getting 70% of the pension I would have had before the changes.

The teacher's pension has never been 'gold plated', however even with the reforms they will still be well worth having. The main issue for me is that this isn't the deal I signed up for in the first place. I don't like the idea that the government can simply change the rules when it wants - there's no guarantee that this is the last change 'for a generation'. Remember, this is against a back drop of years of real-term pay cuts.

Teachers will be be feeling undervalued and underpaid at the moment. We do a very difficult job and I don't feel there's always an understanding of what it involves from people outside of the profession. Everybody has their part to play in society and regardless of whose fault the credit crunch was, that does include us. I'm quite sure if teachers were well supported and well paid, we'd be in a position to accept changes to our pensions, but I really don't feel we are either. Unfortunately, the pension reforms where the last straw for many after years of tough times.

Any calculations and figures above are ignoring inflation. Figures used for calculations are taken from the teacher's pensions website. I found some interesting discussions here.

1 comment:

  1. Ben this is a fabulous post and really highlights the issues to those that do not seem to understand what we are facing...thankyou!