Schools and colleges in England will receive an extra £940 million for teachers’ pensions

Schools and colleges in England will receive an extra £940 million to ensure teachers’ pensions remain among the most generous in the country.

Education Secretary Damian Hinds today (Wednesday 10 April) confirmed that the Department for Education will fully-fund increased pension contributions that state-funded schools and colleges will have to make in 2019/20, following a public consultation on funding changes set out in a review of public sector pension schemes that takes place every four years.

The Teachers’ Pension Scheme is one of only eight guaranteed by the Government; provides additional benefits linked to salary; is inflation-proof to offer teachers a secure retirement; and offers the typical teacher around £7,000 in employer contributions every year.

This makes the scheme one of the most generous schemes on offer – in comparison, Work Place Pension rules require private sector employers to pay a minimum 3% contribution to an employee’s pension, which is around £900 a year for someone earning the same salary as a typical teacher.

Employees, employers and the government all contribute to the scheme – and the Education Secretary Damian Hinds has today underlined his belief that it is important that the Teachers’ Pension Scheme continues to offer excellent benefits to attract talented teachers.

Education Secretary Damian Hinds said:

“The Teachers’ Pension Scheme is, quite rightly, one of the most generous pension schemes in the country. It’s one of only eight guaranteed by the Government because we believe it is important that we continue to offer excellent benefits to attract talented teachers. We are providing an extra £940million to cover increased costs for 2019/20 so state-funded schools and colleges can focus their resources on providing the best education.

“To illustrate how this scheme compares to others available: a teacher who joins the pension scheme at 23 and follows a typical career path could expect to accrue a pensions product worth around £600,000 – that’s £30,000 a year – and the average classroom teacher will benefit from at least £7,000 a year in pension contributions from their employer on top of their salary.”

The Department for Education consultation calculated the additional costs to English higher education institutions of increased Teachers’ Pension Scheme contributions from between September 2019 and March 2020 to be £80 million.

However, the total annual cost to higher education employers in the UK of increased contributions to the Teachers’ Pension Scheme will be £142 million for the 2020-21 fiscal year.

The consultation response also assessed the funding changes for independent schools and higher education institutions that participate in the scheme. State-funded schools and FE colleges were prioritised to be funded.

Alistair Jarvis, Chief Executive of Universities UK said:

 “We are disappointed that government has decided not to provide any additional funding to universities in England to offset the costs of unplanned increases in employer contributions to the Teachers’ Pension Scheme.

“This is effectively a stealth tax to boost the Treasury’s coffers. It represents annual costs increases of an estimated £142 million for around 70 post-92 universities across the UK from this September.

“Ultimately, this will have to be paid for by diverting funding from other priorities. Today’s announcement in England is bad news for university students, staff and communities that benefit from universities.”

“In England, these significant increases in pensions costs come ahead of the imminent publication of funding review recommendations. It is imperative that this review does not lead to further cuts that would lessen the positive impact of universities on the economy and society.”

Dr David Llewellyn, Chair of GuildHE and Vice Chancellor, Harper Adams University, said: 

“This announcement will have a detrimental impact on the higher education sector and its students. The proposals will significantly increase pension costs for around 70 modern universities. 

The Government has committed to providing funding to deal with its decision for other parts of the education system and it should do the same for universities, particularly at a time of increased financial uncertainty arising from reviews of higher education funding that have yet to be concluded and the demographics facing the sector over the next few years.  

At a time when we must ensure that the UK has the skills it needs to deal with the new economic conditions that lie ahead, a decision that could result in money being taken away from front line teaching is deeply regrettable.”  

Helen Fairfoul, Chief Executive of UCEA said:

“UCEA is saddened by the announcement from the Department for Education that Higher Education, unlike other sectors, will not receive additional funding to meet these significant costs arising from HM Treasury’s announcement. Our member universities have been clear in their engagement with this consultation that an increase of over 7 percentage points (which equates to a 40% increase) in their contributions to the Teachers’ Pension Scheme, and with very little notice, will have a highly detrimental impact including on their provision for students.”

Today’s announcement commits to fully-funding the increases for state-funded schools and colleges in 2019/20 – the end of the current Spending Review period. Beyond that, with the exception of the NHS, all Government funding will be decided as part of the next Spending Review.

The £940 million will be provided to FE colleges based on their individual TPS costs, and to schools on a per-pupil basis with an accompanying Supplementary Fund, as outlined in the accompanying pensions grant documents also published today. This confirms that any school facing a shortfall from the formula grant of more than 0.05% of its overall budget can claim extra money to ensure schools are properly protected.

The average salary for all school teachers is £38,400 – teachers with 15 years’ experience not only earn more than the OECD average, but also more than their counterparts in European education systems, such as France, Italy and Sweden.

The Teachers’ Pension Scheme is one of the most generous pensions available: It provides benefits linked to salary, which are guaranteed by the Government and increase annually while in payment in line with inflation.

Employees, employers and the government all contribute to the scheme: From September 2019 employers will contribute 23.6% of a member’s salary. That’s the equivalent of £7,000 per year for a member earning an annual salary of £30,000. By way of comparison, the Work Place Pension rules require a private sector employer to pay a minimum of 3% contribution to an employee’s pension – £900 a year for an equivalent (£30,000) salary.

The TPS remains one of the best pension schemes available in the country, continuing to provide valuable retirement benefits for teachers throughout our education system. Teachers enjoy a generous defined-benefit scheme, giving them a guaranteed, inflation-proof retirement income based on what they earn over their careers.

Member contributions in the TPS range from 7.4% to 11.7%, increasing as salary increases. This progressive structure protects the lowest paid to ensure teachers can afford to participate in the scheme.

The Teachers’ Pension Scheme also offers extensive benefits on top of the very valuable pensions for all members, including:

• Insurance for family members – should a member of the TPS die while a serving teacher, the scheme will pay a tax-free lump sum worth three times the member’s salary to their beneficiary and provide a survivors pension to a surviving spouse, civil partner or qualifying unmarried partner for life. Should the member die after leaving teaching, a tax-free lump sum worth 2.25 times the value of the member’s annual pension and a pension for life is payable at a rate of 37.5% of the member’s pension. The scheme also provides a pension for dependent children up to the age of 17, or 23 where the child remains in full-time education.
• Flexible retirement – The TPS offers a number of options to help a teacher plan for their retirement, whether that be to retire early or to have a larger pension in retirement. Members of the career average section can pay additional contributions for extra pension, to build pension faster, or to reduce their retirement age. The scheme also offers the flexibility for teachers to phase into retirement by reducing their working hours or level of responsibility and receiving part of their pension to ensure their income does not need to reduce.
• Ill-health support – Should a member of the TPS become too ill to teach, their Teachers’ Pension will become payable immediately, without reduction, and be paid for life. If a teacher is too ill to undertake any form of employment, their pension may be enhanced to recognise that the member cannot gain any other form of income – again this is payable for life. There are also provisions to allow a member, who is seriously ill, to convert their entire pension into a tax-free lump sum for themselves, or to provide further for their dependants.