Press release

Teacher pension scheme member contribution changes for 2012-13

DfE has today published the outcome of the consultation for members’ contributions to the Teachers’ Pension Scheme (TPS) in financial year 2012-13. This is the first year of savings, which are being phased-in over a three year period.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

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The TPS next year will retain the existing index-linked, defined benefit scheme, with significant annual employer contributions worth 14.1 per cent of salaries.

But next year’s scheme will see the majority of TPS members asked to contribute more. These changes are part of the Government’s long-term reforms to control the increased costs of people living longer and re-balance the contributions paid by scheme members and taxpayers, while ensuring public service pensions remain among the very best available.

The changes, which will save £314 million from the TPS next year (2012-13), are part of the wider £2.8 billion savings from public sector pensions by 2014-15 which the Chancellor announced in the Spending Review 2010 - an average contribution rise of 3.2 percentage points (ppts) by that date.
Under the changes, new and lower paid teachers will be protected from the biggest contribution rises with higher earners contributing more - Lord Hutton’s independent review of pensions set out a clear rationale for contribution increases.

To date, all employees pay exactly the same proportion of their salary into the Teachers’ Pension Scheme regardless of salary.

But Lord Hutton showed that in a final salary scheme, higher earners get a much higher return on their pension contributions; that on average they live longer so benefit from pensions for a longer period; and that lower earners are less likely to join pension schemes so need greater incentive to participate.

Next year will see 116,000 teachers earning between £15,000 and £25,999 on a full time basis contributing 0.6 ppts more of their salary into the pension scheme. It means a classroom teacher earning £25,700 will pay around an additional £10 per month after tax relief.

A further 117,000 teachers earning between £26,000 and £31,999 on a full time basis will contribute 0.9 ppts more of their salary into the pension scheme. It means a classroom teacher earning £29,240 will pay around an additional £18 per month after tax relief.

And 505,400 members or around three-quarters of the TPS membership earning under £39,999 on a full time basis will pay up to 1.2 ppts more of their salary into the scheme.

The highest earners, those earning more than £112,000 on a full time basis, will pay an additional 2.4 ppts.

The proposed contribution increases for members of the TPS in 2012-13 are approximately the same amount that were set out in the Pre-Budget Report 2009 to be delivered under the ‘cap and share’ arrangements, which were agreed with unions as part of changes to the scheme in 2007.

The changes in full are below:

Lower

Salary

Higher

Salary

Contribution Rate

in 2012-13 (per cent)

Increase (per cent)

(against 6.4 per cent)

Membership

Percentage of

Membership

  14,999 6.4 0 1,400 0.2
15,000 25,999 7.0 0.6 116,000 17.1
26,000 31,999 7.3 0.9 117,000 17.2
32,000 39,999 7.6 1.2 271,000 39.6
40,000 74,999 8.0 1.6 172,000 25.2
75,000 111,999 8.4 2.0 4,000 0.6
112,000   8.8 2.4 600 0.1

Schools Minister Nick Gibb said:

Lord Hutton was clear that overall there needed to be a much fairer balance between the amount employees and the taxpayers contribute. And he was unambiguous that higher earners should contribute more to their pensions than the lower paid.

Our changes for next year are about keeping pensions affordable for future generations of teachers - while protecting new and low income staff from the biggest contribution increases over the next few years.

Looking at longer-term pension reforms, we’ve been clear that teachers will still have one of the very best pensions available - with index-linked, defined benefits; significant employer contributions; protection for those closest to retirement; and all accrued final salary rights protected.

Reforms to public sector pensions are necessary. The overall cost of public sector pensions has risen by a third to £32 billion in the last decade. The cost to the taxpayer of teacher pensions is already forecast to double from £5 billion in 2006 to £10 billion in 2016 and will carry on rising rapidly as life expectancy continues to improve.

We’ve listened carefully to teachers and heads. We’ve put forward an improved offer on the table and our discussions are continuing.

Today’s announcement follows a detailed public consultation over the summer. Contribution changes for 2013-14 and 2014-15 form part of the ongoing discussions with unions about long-term reform of the Teacher Pension Scheme.

Notes to Editors

The Department for Education’s consultation on changes to members’ contributions to the Teacher Pension Scheme was published on 28th July 2011 and closed on 20 October 2011. The final response to the consultation is published today.

The Government has announced plans to secure £2.8 billion savings per year by 2014-15 from public sector pension schemes by increasing public service employee pension contributions by an average of 3.2 percentage points (ppts) by 2014-15. The changes for 2012-13 represent around 40 per cent of the total contribution increases expected by 2014-15.

The Government announced that it will protect low earners, anyone earning less than £15,000 on a full time equivalent basis per year will see no increase, and those earning between £15,000 and £21,000 per year will see an increase of no more than 0.6 ppts in 2012-13, or 1.5 ppts by 2014/15.

The DfE’s proposals provided additional protection, with those earning up to £25,999 seeing an increase of no more than 0.6 ppts in 2012-13.

Examples of how the proposed changes would affect individual members include:

A Newly Qualified Classroom Teacher working full-time earning £21,000 a year

  • In 2012-13 you will contribute 7.0 per cent. Your employer will contribute 14.1 per cent.
  • Your contribution before tax relief will be £1,470 per year. (This is an increase of £126 per year on the current contribution rate.)
  • However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £103 per year.
  • Your employer will contribute £2,961 per year.

A Classroom Teacher working full-time earning £25,700 a year

  • In 2012-13 you will contribute 7.0 per cent. Your employer will contribute 14.1 per cent.
  • Your contribution before tax relief will be £1,799 per year. (This is an increase of £154 per year on the current contribution rate.)
  • However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £122 per year.
  • Your employer will contribute £3,624 per year.

An experienced classroom teacher earning £35,000 a year

  • In 2012-13 you will contribute 7.6 per cent. Your employer will contribute 14.1 per cent.
  • Your contribution before tax relief will be £2,660 per year. (This is an increase of £420 per year on the current contribution rate.)
  • However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £341 per year.
  • Your employer will contribute £4,935 per year.

A teacher in a senior leadership post earning £60,000 a year

  • In 2012-13 you will contribute 8.0 per cent. Your employer will contribute 14.1 per cent.
  • Your contribution before tax relief will be £4,800 per year. (This is an increase of £960 per year on the current contribution rate.)
  • However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £581 per year.
  • Your employer will contribute £8,460 per year.

A head teacher earning £100,000 a year

  • In 2012-13 you will contribute 8.4 per cent. Your employer will contribute 14.1 per cent.
  • Your contribution before tax relief will be £8,400 per year. (This is an increase of £2,000 per year on the current contribution rate.)
  • However, because pension contributions are taken before income tax is deducted the additional contribution you will be required to make is around £1,206 per year.
  • Your employer will contribute £14,100 per year.
Position

Full-time salary

(per year)

Contribution rate

for 2012-13 (per cent)

Contribution before

tax relief

Increase against current contribution rate

(before tax relief)

Increase against current contribution rate

(net of tax relief)

Employer contribution (14.1 per cent)
Newly Qualified Teacher £21,000 7.0 £1,470 £126 £103 £2,961
Classroom Teacher £25,700 7.0 £1,799 £154 £122 £3,624
Experienced Classroom Teacher £35,000 7.6 £2,660 £420 £341 £4,935

Senior Leadership Post

£60,000 8.0 £4,800 £960 £581 £8,460

Head Teacher

£100,000 8.4 £8,400 £2,000 £1,206 £14,100

Lord Hutton’s Independent Public Service Pensions Commission’s Interim Report was published in 2010. It recommended that differing characteristics of higher and lower earners should be addressed through tiered contribution rates.

DfE enquiries

Published 16 December 2011