Written statement to Parliament

Written Ministerial Statement by Michael Gove on teachers' pensions

Education Secretary Michael Gove has issued a Written Ministerial Statement on teachers' pensions

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

The Rt Hon Michael Gove MP

Following today’s statement from the Chief Secretary to the Treasury, the Department for Education has set out more detail to Parliament on reforming the Teacher Pension Scheme.

A DfE spokesperson said:

This is a fair deal for teachers and affordable for the taxpayer. We’ve listened carefully to the unions’ arguments and we’ve struck the right balance - addressing teachers’ concerns without putting any new money on the table.

The Teachers’ Pension Scheme will remain one of the best available but it will also be affordable for taxpayers. The deal guarantees all existing rights; gives a defined benefit, index-linked pension; and protects those closest to retirement now from any major changes.

It also is a much better deal for the taxpayer and keeps the future rising costs of pensions firmly under control. Teachers will contribute more to their own pensions. The scheme will switch from being based on final salaries to a career average scheme. And over time, the normal pension age for teachers will move to 68 - although teachers will have the choice to retire earlier.

Reforms to public sector pensions are essential - the status quo has never been an option. The cost to the taxpayer of teacher pensions is already forecast to double from £5billion in 2006 to £10billion in 2016 and will carry on rising rapidly as life expectancy continues to improve. This deal will control those costs.

The Education Secretary has issued a Written Ministerial Statement on reforms to the Teachers’ Pension Scheme.

Secretary of State for Education (Rt Hon Michael Gove MP)

On 2 November the Chief Secretary to the Treasury made a Statement to the House setting out an improved offer on public service pensions to public sector workers (Cm 8214). This offer provided a more generous cost ceiling for scheme-specific discussions to work within, and protected all those within ten years of their pension age from any further change. This generous offer was conditional on the Government and trades unions reaching agreement by the end of the year, including in the Teachers’ Pension Scheme, bringing to a conclusion talks that have lasted since February 2011.

Since 2 November I have been engaged in detailed and intensive talks with the teacher and lecturer trades unions and employer representatives. I can now report to the House on the heads of agreement on the scheme design for the Teachers’ Pension Scheme to be introduced in 2015, on which talks have concluded. The government have made clear this sets out their final position on the main elements of scheme design, which unions have agreed to take to their Executives as the outcome of negotiations on the main elements of scheme design. This includes a commitment to seek Executives’ agreement to the suspension of any industrial action on pension reform while the final details are being resolved. Further detailed work will take place in the New Year and Executives will consult members as appropriate.

The agreement includes changes to the Government’s reference scheme to reflect the priorities of the teaching profession in relation to early retirement and other issues, consistent with the need to remain within the Government’s overall cost ceiling.

The agreement reached allows for further discussions on variations to the balance between the accrual rate and the CARE revaluation factor within the limits of the Government’s cost ceiling.

The core parameters of the new scheme are set out below:

a. A pension scheme design based on career average;

b. A provisional accrual rate of 1/57th of pensionable earnings each year, and the resolution of outstanding issues not covered by this agreement.

c. Revaluation of active members’ benefits in line with CPI + 1.6% .

d. Normal Pension Age equal to State Pension Age, which applies both to active members and deferred members (new scheme service only);

e. Pensions in payment to increase in line with Prices Index (currently CPI);

f. Benefits earned in deferment to increase in line with CPI;

g. Average member contributions of 9.6%, with some protection for the lowest paid;

h. Optional lump sum commutation at a rate of 12:1, in accordance with HMRC limits and regulations;

i. Spouses/Partner pension in accordance with current provisions;

j. Lump-sum on death in service of 3 times FTE salary;

k. Ill-health benefits the same as those in the current open scheme;

l. Actuarially fair early/late retirement factors on a cost-neutral basis except for those with a NPA above age 65, who will have early retirement factors of 3% per year for a maximum of 3 years in respect of the period from age 65 to their NPA; and

m. An employer cost cap to provide backstop protection to the taxpayer against unforeseen costs and risks.

The Government Actuary’s Department has confirmed that this scheme design does not exceed the cost ceiling set by the Government on 2 November. Copies of the heads of agreement and GAD verification have been deposited in the Libraries of both Houses.

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Published 20 December 2011