History in the making

3rd June 2005 at 01:00
Henry III is thought to have started it all. Back in 1269, he paid what is considered Britain's first pension to one of his sergeants.

Across the Channel, Louis XIV, below, is credited with introducing pensions for naval officers, master mariners and administrators in 1673 - a version of a modern occupational pension, boosted by sales of the spoils of war.

Teachers had to wait longer. In 1846, the Committee of Council for Education introduced some provision for pensions to make retirement easier.

These were not laid down in law, just in the minutes of the committee's meetings. Subsequently, they were incorporated in the Code of Regulations for Public Elementary Schools, but the rules were so vague that the committee had almost total control over who got what.

During the 1890s, the Government began to think more seriously about teachers' pensions. In 1898, the Elementary School Teachers (Superannuation) Act was passed. This provided a pension at age 65, calculated at a fixed rate for each year of service, and an annuity payable from that age (purchased by annual contributions and awarded unconditionally).

By 1918, teachers were doing nicely. Their scheme was non-contributory, though they did need to work for 30 years to qualify, but in 1919, the first Burnham Committee raised and regularised teachers' wages. It also increased the cost of pensions.

In the post-war financial crisis, drastic economies were urged with the result that, by August 1922, teachers were setting aside 5 per cent of their salaries every year for their retirement. (Employees of the Co-op group have been luckier. The group preserved its non-contributory pensions until last year when a pound;140 million hole in its finances forced the end of the scheme.) Soon after 1922, the teachers' employers came under pressure to also pay up. By 1928, they were donating 5 per cent and both sets of contributions were invested in a "fund". But not a real fund.

The Government, in 1925, had decided not to invest contributions, but to spend them, while keeping track of all that was paid in and paid out. The Treasury argued that the size of its financial transactions meant that it could proceed in this pay-as-you-go manner. It pointed out that future generations would not have the burden of war debts, and that, thanks to a government guarantee, the teachers' pension rights were as safe as if their contributions were actually invested.

As an extra safeguard, actuaries were asked to check up on the "fund" every seven years to ensure that enough, but not too much, money was being paid in.

The Teachers' Pensions Scheme has grown considerably since then. It is the second largest public-sector scheme in England and Wales with 1.4 million members. In the year 20045 it will pay out pound;4.7 billion. And the scheme has been improved as the years have gone by. Qualifying periods for retirement benefits have been greatly reduced; a teacher currently needs to have completed only two years in order to qualify for a tax-free retirement lump sum and an annual index-linked pension.

The statutory provisions are constantly under review to ensure that the scheme follows common practice among the other major public-sector schemes.

And teachers and employers are welcome to suggest improvements.

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