Rising life expectancy is a miracle of the modern age. The average 60-year-old in this country is now living 10 years longer than 30 years ago. And people over the age of 60 are staying healthy for longer, too. Both advances are to be celebrated.
But these dramatic demographic and social changes, coupled with the turbulent economic times, present enormous challenges for the long-term provision of pensions. Across the world, countries are debating how best to support an ageing population.
The latest offer on public-sector pensions made by the UK Government is a good one. A better accrual rate will mean that a teacher retiring on a salary of pound;37,800 will receive an inflation-proof pension of pound;25,200. And no one currently within a decade of retirement will see any difference at all. These proposals are fair for teachers, fair for the taxpayer and can be sustained for years to come.
The Government is offering a good deal for teachers. Following representations from teachers and their unions, we are now proposing a better offer than the original package. We are ready to continue open and honest discussions about what a reformed teachers’ pension scheme might look like.
On one hand, we must reward public-service workers for their years of dedicated service. Teachers and lecturers are fundamental to the strength of our nation and the Government is determined to ensure that the profession is recognised and valued through good pay, good pensions and good conditions. On the other hand, we cannot avoid the costs that arise from people living longer and the need to bring public finances under control if we are to get our economy back on track and deliver growth.
Doing nothing is not an option. Expenditure on teachers’ pensions in England and Wales is projected to double from the pound;5 billion a year it cost in 2005-06 to almost pound;10 billion in 2015-16, while the overall public-sector pension bill has risen by a third in the past decade to pound;32 billion - and will continue to rise. This is simply not sustainable without eating into other areas of public spending such as schools and hospitals. Already, more than two-thirds of each teacher’s and lecturer’s pension is met by the taxpayer, rather than employee contributions.
Former Labour cabinet minister Lord Hutton’s report earlier this year was clear that public-sector pensions need more fundamental, lasting changes. We’ve already had to make the hard decision to ask staff to contribute more to their pensions from next April, as part of the Government’s plans to save pound;2.8 billion from public-sector pensions between 2012 and 2015.
But the Hutton report found that we need a firmer grip on long-term costs to the taxpayer. That means changing the structure of the scheme, recognising increases in life expectancy through changes to the retirement age and spreading the costs more evenly between employees and employers.
We also need to make pensions fairer because, as Lord Hutton showed, lower-paid staff do not get as good a deal for their pension contributions as their higher-earning colleagues. Our starting point has always been that public-sector pension schemes such as the teachers’ pension scheme will remain among the best available.
The Government will honour teachers’ and lecturers’ existing accrued pensions in full. No one will lose a penny of the final-salary pension they have already built up - and that final salary will be the final salary at the time of retirement. We will continue to provide a guaranteed amount in retirement, calculated as a proportion of staff’s salary and not dependent on whether the stock market goes up or down.
But it is important for teachers to understand how their pensions compare with other professions, including people in the private sector. Most private-sector pensions in this country have already undergone big changes as businesses reassess their costs both now and in the future. A diminishing number of private-sector employees have a company pension. The number enjoying final-salary or defined-benefit schemes is even smaller. But public-sector workers will still be sheltered from this uncertainty.
Employers will continue to make significant contributions to the teachers’ pension scheme, while the scheme strikes a fairer balance between high earners and others. We want to secure the very best outcome for teachers, which will ensure that the scheme continues to provide good-quality pensions for teachers, but is fairer to the taxpayer and sustainable for the future. Our job over the coming weeks is to work through the detail with the unions to reach the decisions that are right for the profession.
The previous government made big changes to the teachers’ pension scheme for new staff joining the profession from 2007, but Lord Hutton concluded that further reform is necessary. A good deal, agreed by all, will also mean that teachers continue to have one of the best retirement deals available to any profession.
Nick Gibb MP is Minister of State for schools in England. This article appeared in TES.
