A secure retirement? We just can't afford it

2nd January 2015 at 00:00
Teachers quit pension scheme as their financial worries mount

Thousands of cash-strapped teachers are opting out of pensions because of an increase in monthly contributions, while schools could be forced to cut staff to balance their books.

More than 2,500 teachers quit the Teachers' Pension Scheme (TPS) between April and August 2014, documents seen by TES reveal - a rise of 46 per cent in a year. Fifty-two per cent of those who left the scheme cited "personal financial reasons" for their decision - the profession has suffered a real-terms pay cut of more than 10 per cent in the past decade.

The figures have prompted concern about a longer-term trend of teachers eschewing the TPS for financial reasons. Meanwhile, it has emerged that headteachers could be forced to make savings in school budgets because of a "double whammy" of rising pension costs and National Insurance bills in the coming year.

As a result of changes to the TPS, the retirement age for teachers will gradually rise to 68 and pension pots will be based on a career average rather than final salary. The proposals were strongly opposed by teaching unions, who organised several strikes in protest.

Under the new scheme, teachers' contributions have increased by an average of 3.2 per cent of gross pay since 2011. Headteachers in the highest pay bracket now contribute almost twice as much as in 2011, up from 6.4 to 12.4 per cent.

Andrew Morris, head of pay and pensions at the NUT teaching union, said the rise in the number of teachers opting out of the scheme was a "worry".

"The main reason is that teachers are finding things very tight financially," he said. "Opting out of the TPS is the easiest thing to do."

Simon Stokes, a senior policy adviser at the ATL teaching union, said he was concerned that many teachers were leaving the scheme to make short-term savings but could end up in dire straits in later years.

"The pension contribution is the one deduction from their pay which teachers can choose not to make," he said. "They might be thinking, `I need to get on my feet first', `I need a new car', `I need to move house', and put off joining the TPS until next year. But something else always crops up; we need to get teachers in the habit of paying their pensions now."

Dave Mingay, a teacher at Richmond Hill School in Luton, said he knew of teachers who were opting out of the TPS because they needed the extra money.

"If you put the contributions up, people will leave, which will lead to the scheme being destabilised," he said. "Teachers and schools are seeing their contributions go up, but there's no extra money in the pot to pay for them. I'm only 36; will there still be a Teachers' Pension Scheme when I retire? It's a worry."

The reforms will also have a significant impact on school budgets. From September, schools' TPS contributions will increase by 2.4 per cent; National Insurance contributions will rise by 3.4 per cent the following year for all staff earning less than pound;40,040. For a teacher paid pound;35,000 a year, a school will incur extra costs of about pound;1,000 annually.

Sandy Woodcock, finance manager at Ribston Hall High School in Gloucester, said the additional bill for her school would be pound;125,000. There was "no other way" of reducing the bill than to cut staff numbers, she added.

Malcolm Trobe, deputy general secretary of the Association of School and College Leaders, said the changes would put schools in a difficult position, with the overall impact effectively reducing budgets by about 4 per cent.

"It is undoubtedly going to mean some pressure on staffing," he said. "There is no easy answer but it is going to have a significant impact on staffing levels. Schools will not be able to afford the same number of staff, either support staff, teaching staff or a combination."

Usman Gbajabiamila, pensions policy adviser for the ATL, said that the changes could affect pay negotiations and recruitment. "It is a double whammy for employers and we expect it to have an impact, although we can't predict what level of impact that will be," he added.

Independent schools will also be hit with an increase of about 3 per cent, according to Mike Lower, general secretary of the Independent Schools' Bursars Association. He said that the "vast majority" of private schools had staff in the TPS.

"It's not going to make it easy for schools to keep fee increases at a minimum," he added. "Schools will have to absorb it, pass it on to parents or look at whether they reduce the number of staff."

A spokeswoman for the Treasury told TES that teachers' pensions were "among the very best available".

"Although we are committed to ensuring that teachers continue to receive a fair income in retirement, we also have a responsibility to all taxpayers to ensure that the costs of this and other public sector pension schemes are sustainable and fair in the long term, which is why we have set out a package of reforms to these schemes," she added.

`There are scary times ahead for schools'

Sandy Woodcock, finance manager at Ribston Hall High School in Gloucester, says that the increase in pension contributions will cost her school about pound;50,000 a year, while National Insurance changes will add a further pound;75,000 to the wage bill. The combined figure of pound;125,000 will be equal to about 3 per cent of the school's budget.

Ms Woodcock says she spoke about increases to pension and National Insurance contributions at a staff meeting. "Everybody needs to be aware of what is on the horizon," she adds.

"We will have to look at making savings on staffing - there is no other way of making that sort of saving when 80-plus per cent of funding goes on staffing.

"It may not mean redundancies as such, but it may mean that we can't replace staff who leave between now and then. We have got to find that money from somewhere, and there are some difficult decisions and some scary times ahead for schools."

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