Profession on edge over pension pots decision

15th October 2010 at 01:00
Increase of 2% across public sector anticipated along with the end of final salary schemes

Teachers are bracing themselves for an announcement next week that they will have to pay more into their pension pots.

In a statement on Wednesday outlining the outcome of his comprehensive spending review, Chancellor George Osborne is expected to confirm that pension contributions for the six million staff in the UK public sector will have to rise to tackle the pound;1 trillion pensions liability.

An increase of 2 per cent across the public sector, a widely-quoted prospect, would save the Treasury pound;3 billion.

Mr Osborne will be responding to last week's interim report on public pensions by Lord Hutton, the UK Work and Pensions Secretary in the previous Labour Government. It recommended later retirements, a rise in contributions and the end of final salary schemes such as those enjoyed by teachers.

The Chancellor, who welcomed the Hutton report warmly as "impressive and substantial", is also expected to endorse pensions based on career-average earnings rather than final salaries - although he will not give full details until he responds to Lord Hutton's final report next year.

A move to base pensions on average pay throughout a career will allow the Westminster Coalition Government to claim that, not only will the cost of public pension schemes be reduced, but it will also hit high-flyers and those promoted in their 40s and 50s who will no longer gain disproportionately generous pensions. But lower-paid staff would also lose out by having to pay extra into their pension fund.

So far, Scottish teacher unions have not threatened strike action in protest at what they see as a pay cut, given that salaries are likely to be frozen for the next two to three years.

The Educational Institute of Scotland is content for now to march under the banner of the STUC, which it will do a week on Saturday in a demonstration by all the unions to protest against public sector cuts.

Ed Miliband, Labour's new UK leader, has lost no time in warning that he would not support public sector strikes over pension changes.

The teaching unions are aggrieved, however, that changes are being forced on the public sector in response to the waning value of private sector pensions, which has nothing to do with them.

They point out that reforms in 2007 have already seen the teachers' contribution to their super-annuation scheme increase to 6.4 per cent of salary, a normal pension age for new entrants set at 65, and future costs for the employer's contribution capped at 14 per cent.

The Pensions Policy Institute in 2008 estimated that the impact of these reforms would reduce the value of benefits from 22 per cent to 19 per cent of salary.

Drew Morrice, assistant secretary of the EIS, says: "The removal of pension rights potentially condemns public sector pensioners to straitened finances from retirement to death."

The one comfort for teachers from the Hutton report is its acknowledgment that public sector pensions are not "gold-plated," as has been alleged. While many thousands of public sector staff can have annual pensions of pound;67,000, mostly in the NHS, the average in the sector is pound;6,000 a year; teachers can expect to collect around pound;10,000 per annum.

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