Pension Carnage  4th April 2011

The current attack on teachers’ pensions is part of the Government’s plans to slash spending on all public sector pensions. These cuts cannot be justified by any analysis of affordability.  The teachers’ scheme is designed to ensure that payments in, from teachers and their employers, balance payments out, to retired teachers. To make sure this happens, the scheme is subject to ‘actuarial review’ where experts consider trends like life expectancy and balance income and expenditure over the medium and long term.  This was last done in 2005 after which significant changes were made in 2007 to ensure affordability.  The next actuarial review was due in 2010 but the Government have delayed it until AFTER they have imposed the changes they want.  They do not want evidence to get in the way of imposing an ‘extra tax’ on teachers and other public sector workers.

The motivation behind the cuts is a desire to slash public spending to reduce debt.  We are told there is no alternative but this graph shows the levels of national debt since 1900.

Public debt has been higher than now for most of the last 100 years.  Indeed, the NHS and the welfare state were founded when the debt was at it’s highest after WW2.  The other myth is that unless we cut the debt quickly our national credit rating will be downgraded and we will have to pay higher interest on our loans. journalist Johann Hari writes:

‘That’s not what the bond markets say. Not at all. Professor Paul Krugman, the Nobel Prize-winning economist whose predictions have consistently proved right through this crisis, says Cameron is conjuring up “invisible bond vigilantes” who “don’t exist.” Who is the bond market really punishing? It’s the countries that cut too fast, and so kill their economic growth. The last two nations to be down-graded were Ireland and Spain, who followed Cameron’s script to the letter.’

What will the pension changes mean for you?

Teachers’ Pensions currently go up each year in line with increases in the Retail Price Index. From April the Government wants them to increase in line with the Consumer Price Index. On average it measures inflation at 0.7% less per year. Over the average lifetime this knocks £70,000 off the value of a £20,000 per annum pension.

Osborne had already a assumed a 3.5% contribution increase phased in from 2012 as part of his Budget package to reduce public spending

Effect of 3.5% extra

• £61 per month for NQ teachers

• £102 per month for UPS3 teachers

Normal Pension Age will be 65 for future service for all teachers as soon as the scheme can be changed. After which, the Normal Pension Age in the new scheme will rise so that it is in line with their State Pension Age”  i.e.:

• 66 by 2020 or earlier (for teachers who are 56/57 now)

• 67 by 2036 or earlier (for teachers who are 40/41 now)

• 68 by 2046 or earlier (for teachers who are 30/31 now)

You will get less.  A lot less.

• Indexation - RPI to CPI

– breaches “accrued rights” promise

– reduces the total value of your pension by 13-14% over an average lifetime

• Raising Normal Pension Age

– If you are 50 year now on UPS3 and in the scheme before 2007 then retiring at 60 you would lose £1500 per year

• “Career average” not “final salary” pension

– Further reduces the value of the pension of any promoted teacher. Each year’s salary re-valued in line with average earnings

To calculate what you will lose go to the NUT’s ‘Pension Loss’ Calculator at :

http://www.teachers.org.uk/pensions

Scroll down to find out what the pension changes will mean for you.