It all adds up
"People used to only save for retirement when it was staring them in the face. This is no longer the case," said Steve Bee, head of pensions at the Prudential. "The message is getting through that the state is retreating and you will have to look after yourself in the future."
About 110,000 teachers, more than a fifth of the UK teaching force, are now contributing to the AVC scheme that the Prudential negotiated with the teachers' organisations, the employers and the Government. But proportional to their numbers, there are fewer women contributing than one would expect.
A few years ago, 10 per cent of the workforce would have been considered a very high rate of contributors, according to Mr Bee. And people are starting to make contributions earlier; almost three-quarters of the Prudential's teacher-customers saving with AVCs are aged between 35 and 54 while 40 per cent are aged between 25 and 44.
"In the past, people were happy to leave worries about their pensions to their employers or to the Government; now they want to take control themselves, " Mr Bee said.
He points out that the value of the state pension is reducing dramatically. In the 1960s, it was worth 20 per cent of average male earnings. Like the teachers' pension, increases are, however, now linked to rises in the Retail Price Index, rather than rises in the general level of earnings. Today the basic state pension is worth 14 per cent of average male earnings, and this is projected to dwindle to 7 per cent by the time today's 25-year-olds retire in 2030.
The Teachers' Superannuation Scheme compares very favourably to other occupational pensions, but the increase in the average lifespan means most people will have to plan carefully to enjoy a secure retirement. Actuaries are predicting that a woman's average lifespan will soon be nearer 86 than the current 78, for instance. Yet the Government has made it very clear that people will be expected to pay for their own long-term care in old age.
These are cogent reasons for teachers to take advantage of the "pensions greenhouse" which compound interest will yield over a long period. Since 1986 the Prudential AVC With-Profits Fund has grown by 11.5 per cent per annum, a performance that has been beaten by only four other funds which are now closed to investors.
Unfortunately, not all teachers are in a position to invest in AVCs. Prudential's statistics show that only 7 per cent of their AVC customers are divorced. Women teachers are also under-represented. While 64 per cent of the UK teaching force are women, only 52 per cent of AVC investors are female, even though women teachers' pensions are likely to be reduced by career breaks to bring up their families.
Susan Johnson, head of pensions at the Association of Teachers and Lecturers, believes that many women are still relying on their husbands' pensions to provide them with a comfortable old age. Any excess money in the family budget therefore tends to be used to boost the husband's pension.
"Women do not pay sufficient attention to their pension position," she said. "Regrettably, there seems to be a view among some women that they don't need to bother." Susan Johnson is often approached for advice by widowed or divorced women in their fifties who will lose out because they have failed to safeguard their own pensions. A widow is usually only entitled to half her husband's pension, which could amount to only a quarter of his salary or less, while a divorcee will have no rights to her former husband's pension until the new Family Law Bill comes into effect in 1998. This says that any pension rights accrued during the marriage should be split.
The benefits of retirement
Mr or Ms Smith, aged 30, and starting teaching now, retiring at age 60.
* Assumed current earnings = Pounds 17,400. Increased for 30 years at 6 per cent gives final salary of Pounds 99,937.
* Pension of 3080ths of final salary = Pounds 37,476 a year.
* Plus tax-free cash sum of Pounds 112,429.
* Mr or Ms Smith could top up their pensions to the maximum allowed by the Inland Revenue, which would be Pounds 49,968.50 a year, by making AVCs of: a) 6.9 per cent of annual salary for a man (Pounds 912 in the first year) b) 7.8 per cent of salary for a woman (Pounds 1,032 in the first year) * Alternatively, saving Pounds 100 a month could produce additional pensions of Pounds 12,000 a year for a man or Pounds 10,700 a year for a woman (because women live longer on average).