How Pensions contribute to the funding crisis

13th June 2003 at 01:00
Some of this year's funding problems have been caused by a rise in the employers' contributions to teachers' pensions.

Widely reported as a 5 per cent increase, it was actually closer to 65 per cent. Employers' contributions increased from 8.35 per cent to 13.5 per cent of salary. Teachers continue to contribute 6 per cent of their salary to the scheme.

For an average salary of pound;30,000, the old employer's contribution would have been pound;2,505, but the new rate of 13.5 per cent pushed that to pound;4,050 - a 62 per cent increase.

The rise resulted from the five-yearly audit of the scheme by the government actuary. The actuary used different mortality statistics, which predicted that future pensioners will live longer - and cost the scheme more. Higher salaries have also affected the scheme because pensions pay-outs are linked to final salary.

Contrary to some reports, teachers' pensions are not invested: there is no fund. But the Treasury has added money to the pensions pot, mimicking the revenue that would have been earned if the cash had been invested.

From now on, employers will be responsible for the full expense of the scheme but the Government has put more than pound;600 million into education authority budgets this year to cover the cost.

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