Pension provision is way out of line with contemporary life, but it looks as if change is finally in the air, writes Barry Fawcett
Much of the current framework of occupational and state pension provision is still founded on the post-war experience of full employment and careers for life within the same organisation or service. The steady demise of the traditional family model is another change that has not yet been properly addressed.
Encouragingly, though, these developments in social and economic life are increasingly leading to a re-examination of the long-standing traditions of pension arrangements.
Occupational pension provision in the UK is among the highest in the world - almost 50 per cent of employees belong to an occupational scheme. It is particularly strong in the public sector. In teaching only about 2 or 3 per cent of full and regular part-time teachers eligible to join the Teachers' Pension Scheme (TPS) remain outside it.
Despite the changes on advanced corporation tax, occupational schemes still enjoy substantial tax benefits in respect of contributions and investment income. But in order to qualify for these benefits, occupational pension schemes must comply with Inland Revenue rules. Central to those rules is the requirement that only those who are employed can contribute to an occupational scheme.
If a woman teacher takes a career break to start a family her pension rights are reduced and she cannot do anything about restoring those lost years until she returns to teaching.
The pensions industry is now pressing the Government to allow people to continue to contribute to schemes when they take a career break. This would allow people to carry on paying into schemes from their savings andor partner's income. If similar tax relief was given on such contributions, it could result in useful savings for many people.
Gaps in teachers' pensionable service can be restored when they return to teaching. It can be done by purchase of past added years or by additional voluntary contributions through the in-house AVC scheme operated by Prudential or by a free-standing AVC with another provider. Tens of thousands of teachers make such arrangements.
This form of provision is, however, more costly than unbroken pensionable service. Pension benefits are financed by not just the employees' and the employers' contributions but also by the investment income earned on such monies. That loss of investment income has, therefore, to be met by the individuals when they restore that lost service by past added years or by AVCs.
Another fundamental feature of occupational schemes is also under review. At present, pensions cannot be paid before the normal retirement age, unless the employee retires early on grounds of ill health or redundancy, or interests of efficiency.
Earlier this year, the Inland Revenue issued a consultation document seeking views on a significant change to that longstanding rule - in particular, whether the rules should be changed to allow people to draw a proportion of their pension benefits before the normal retirement age (60 for TPS members). Such a change would help people to meet financial emergencies, or enable them to move to a less stressful job and to cushion the resulting reduction in income.
None of these possible changes obviates the need for the substantial improvements to the TPS which the teachers' associations are pursuing with the Government and employers through the present review of the scheme. They are, however, important evidence of a welcome willingness to start bringing pension provision more into line with contemporary social and economic life.
For the moment, however, all teachers would be well advised to take advice from their association on the facilities that do exist in the TPS for dealing with career breaks or changes in employment.
Barry Fawcett is assistant secretary (salaries and superannuation) of the National Union of Teachers