A three-page special report by Elaine Williams on how new pension rules might wreck prospects for early retirement. Teacher unions and the headteacher associations have been besieged by anxious callers concerned that their route to early retirement is about to be cut off under Government proposals on teacher pensions.
The Secondary Heads Association says that this latest Government initiative has prompted more telephone calls from members, some of them reduced to tears, than any other crisis in recent years. At the Association of Teachers and Lecturers headquarters, five members of the pensions staff have been fielding a constant flow of enquiries.
The Government is proposing that the pensions costs of early retirement, currently borne through the Teachers' Superannuation Scheme (TSS), will be carried directly by the employer, that is the local education authority or individual college in the case of the FE sector.
Although LEAs and colleges currently pay out early retirement enhancements which boost the number of years' service and so increase the lump-sum and pension pay-outs, these are discretionary. A requirement to bear effectively the full cost of early retirement is being regarded as an almost impossible burden.
From next April authorities will have to pay part of both lump sum and basic pension, so that in the case of a teacher retiring at 55, the LEA would have to pay approximately 15 per cent of the lump sum and 25 per cent of the pension for the rest of that teacher's life. For a teacher retiring at 50 the employer would be required to shoulder nearly 44 per cent of the pension. This means that for a 56-year-old teacher with 32 years' service and a final salary of Pounds 23,000, the pension lump sum will be Pounds 27,600, of which Pounds 3,754 will be paid by the employer, and the pension will be Pounds 9,200, of which Pounds 2,080 will be paid by the employer for the rest of that teacher's life.
Schools are bracing themselves for a last-minute rush of applications from teachers eager to retire early before the current arrangements expire. Those teachers and heads who will be 50 after April, but who have secured agreement to retire next summer, and whose posts have already been filled in some cases, are now in a very uncertain position.
Only one in six primary and one in nine secondary teachers retire at the set age. More than 150,000 teachers have taken early retirement or resigned because of ill-health in the past 10 years - up by 68 per cent and three times the number who have left work at the normal retiring age.
In many respects early retirement has come to be an expectation, the very thing the Government is trying to change. Indeed teachers have been encouraged to plan for this by taking out top-up pensions through private schemes. The Prudential, for example, has an AVC (additional voluntary contributions) arrangement with the TSS.
Heads and teacher unions believe there are good reasons for not curtailing early retirement. With all the changes in education over the past 10 years, many teachers are exhausted and ready to go by their mid-50s. Moreover, early retirement has been useful to schools wishing to restructure or replace older teachers with younger, cheaper ones.
Peter Miller, SHA's president, felt the proposals would be profoundly damaging. He said: "There are teachers in their 50s who are no longer able to give of their best in the interests of the children. To make it more difficult for them to leave the profession with dignity is very, very damaging. I think this is a death sentence for quite a few people."
Giles Bird, the headteacher of Kingsmead School, a comprehensive in Enfield, north London, believed this was a huge issue for teachers. He said: "More than the issue of discipline or anything else, the prospect of not being able to retire early is all my teachers are talking about in the staffroom.
"The brutality of shutting the door in this way is staggering. A captive teaching force is a dispirited teaching force. There will be a growth in sickness and in people taking ill-health retirement."
In recent months, the Teachers' Pensions Agency, now known as Teachers' Pensions, the company which administers the TSS, has applied greater stringency in vetting requests for invalidity pension and the Government also plans to close two loopholes in the proposal concerning ill-health arrangements. Teachers on an ill-health pension will no longer be allowed to work as teachers, and those barred for misconduct will no longer be eligible for an ill-health retirement pension.
With four in 10 teachers in their 40s, with new entrants to teacher training in short supply and numbers of schoolchildren still rising, the Government now needs to stem the flow of teachers out at the top end. Indeed the older teacher seems suddenly to be the Government's friend. Andrew Wye, who heads the DFEE's School Teachers' Pay and Pensions Division, said: "We hear a lot about teachers being burnt out, but we have anecdotal evidence of teachers who are happy to carry on at school being eased out because the school wishes to find a younger teacher." However, Giles Bird believes the move will further discourage young people from entering the profession. He said: "Young people are encouraged by the fact that early retirement gives them the chance of gaining promotion quickly. But if everybody has to stay on until the death knell that will backfire on teacher training."
Many acknowledge that something needs to be done about spiralling early retirement costs. It is one of the consequences of local management of schools that governors make the decisions on early retirement while the LEAs and the TSS pick up the tab. Peter Miller said: "It is understandable that while one body decides and another pays something needs to be done about that."
But "moving the goalposts so abruptly" was not the way forward. He suggested there should be some referral point beyond the governing body and that guidelines and criteria should be laid down.
Heads are also asking that any changes should be phased in, but are faced with Ministers' determination to make immediate savings. The Department for Education and Employment has calculated that the average cost of early retirement is Pounds 37,000 and as 13,055 teachers and lecturers retired early in 1995-6 "that implies a cost to the scheme of Pounds 480 million" (including the cost of index-linking).
Ministers felt compelled to act after Sir John Bourn, the Controller and Auditor General, expressed concern at the strains being placed on the TSS - Pounds 1.5 billion in debt by March 1996 - by the rise in early retirements. But instead of raising employers' contributions as Sir John recommended the Government is proposing to cut them by 0.85 per cent. The rationale behind this is that some employers, who grant more early retirements than others, should bear the costs.
Under the proposals the Government expects employers to make a net saving during 1997-2000 as the number of early retirements is set to fall by nearly half over the next three years. The Government has also stipulated that Education Standard Spending will be "adjusted" to take account of net savings.
Moreover, as employers' contributions will rise in 2001, as the TSS will be made to bear the cost of index-linking, currently carried by the Treasury, any alleged savings would only be short term.
As cash-strapped councils are likely to be extremely reluctant to commit themselves to long-term pay-outs the effect will be to choke-off the spate of premature retirements. Under the 1988 Education Act councils have a right to return the cost of early retirement not met by the TSS to the school, if the school has made a decision that conflicts with council policy.
The Government has increased discretionary severance pay, in line with that received by LEA officers in the hope that this will be used as an alternative to premature retirement, so that a 50-year-old teacher with 20 years' service who receives Pounds 8,800 for 22 weeks' severance may receive Pounds 20, 800 for 52 weeks under the new scheme. Pensions may then by frozen until the normal retirement age.
Examples of pensions under the new arrangements
Schoolteacher with 26 years' service, a final salary of Pounds 22,000 and aged 55 years 6 months at retirement. The relevant actuarial factors* are 0. 751 for the annual pension, and 0.846 for the lump sum.
Benefit Lump Sum Annual Pension Source From the TSS 3 x 26 x 22,000 x 0. 846 1 x 26 x 22,000 x 0.751 80 80 = Pounds 18,147 = Pounds 5,370 From the 3 x 26 x 22,000 x 0.154 1 x 26 x 22,000 x 0.249 ex-employer 80 80 = Pounds 3,303 = Pounds 1,780 If the same teacher were awarded 2 years' enhancement, he would receive a further lump sum of Pounds 1,650 and an annual pension of Pounds 550.
FE lecturer with 28 years' service, a final salary of Pounds 24,000 and aged 57 years 10 months at retirement. The relevant actuarial factors are 0. 924 for the lump sum, and 0.868 for the annual pension.
Benefit Lump Sum Annual Pension Source From the TSS 3 x 28 x 24,000 x 0.924 1 x 28 x 24,000 x 0.868 80 80 = Pounds 23,285 = Pounds 7,291 From the 3 x 28 x 24,000 x 0.076 1 x 28 x 24,000 x 0.132 ex-employer 80 80 = Pounds 1,915 = Pounds 1,109 If the same lecturer were awarded three years' enhancement, he would receive a further lump sum of Pounds 2,700 and an annual pension of Pounds 900.
* An actuarial factor is the multiple used to calculate the lifetime cost ofthe early retirement
Employers' share of retirement costs
Age Pensions (%) Lump sums (%)
50 43.9 30.5 51 41.2 27.9 52 38.2 25.3 53 34.9 22.5 54 31.3 19.7 55 27. 2 16.7 56 22.6 13.6 57 17.7 10.4 58 12.3 7.1 59 6.4 3.6 The precise percentages are dependent on the teacher's age in years and months eg the employers' share of the lump sum paid to a teacher aged 50 years and 6 months would amount to 29.2 per cent.