The search for a win-win situation

3rd June 2005 at 01:00
Government proposals to 'modernise' teachers' pensions have caused tension. Barry Fawcett explains

So long the preserve of the grey-haired and anxious, teachers' pensions have shot up the agenda of the profession's trade unions. The cause has been the Government's proposal to raise to 65 the age at which teachers and other public-sector workers can draw their full pension.

The Government's announcement last summer was not well received and it has never really got off the back foot since. Many teachers are still confused about what was suggested.

First, we need to distinguish between normal pension age and the minimum age at which teachers can retire normally and claim their benefits without penalty. The Government proposed that for new teachers the new normal pensions age of 65 would apply from September 2006. Existing teachers have until September 2013. All pensionable service up to that date would be protected and would be payable in full from age 60. Retirement after that date would not affect pension benefit earned up to August 2013, but any benefits earned after then would be tied to the new normal pension age of 65 and be reduced if drawn before then.

The Government is being driven by several factors. First, people are living longer, a trend which should continue. Interestingly, those retiring at age 65 had a slightly higher life expectancy. Men retiring at 65 this year should reach about 87, with women getting to 90. This is because genetic inheritance and lifestyles are more important determinants of longevity generally than the age of retirement.

Second, this increase in life expectancy, though it tends to vary with social class, has, together with the Government's withdrawal of valuable tax benefits from occupational pension funds, led to the closure of large numbers of final-salary schemes in the private sector.

Their demise was hastened by Chancellor Gordon Brown's first budget in 1997 which withdrew valuable tax relief from funded occupational pension schemes. Thanks to the persistence of a Liberal Democrat peer, Lord Oakshott, the Government was forced to admit that this had deprived occupational pension funds of about pound;5 billion a year since 1997.

Lastly, the population of the UK is ageing and young people are staying in education longer. The Government has calculated that the percentage of the British population aged 65 and over will increase from 27 per cent in 2004 to 48 per cent in 2050. The cost of state pensions and most public-sector pensions are met by today's workers. Fewer workers and more retired people will, therefore, be a real problem.

The demographic pressures, the increase in the cost of public-service pensions and pressure from the private sector led the Government to conclude that its changes were essential if defined benefit schemes were to remain politically acceptable.

To soften the blow, the Government did accept that the money saved from increasing teachers' normal pension age to 65 would be shared with the profession to improve their scheme. One suggestion was to increase the rate at which teachers' pensions accrue from the current 180th of salary for each year worked (and 380th for the tax-free lump sum) to 160th with the option to exchange up to 25 per cent of the pension for a tax-free lump sum and a reduced pension.

From September 1, 2006, this means that new entrants will get the same level of benefits at age 62.5 as is now payable at 60. Existing teachers will continue on the old basis, with the normal pension age of 60, until September 1, 2013. Other improvements included pensions for gay partners, pension for life for widows and widowers and possibly an increased death in service lump sum, of three times salary.

The Government, however, also wanted to change ill-health benefits to give more to teachers who could never work again, but less to those whose health did not prevent them from getting a job outside teaching.

The first report of the independent Pension Commission, published last autumn, gave further ammunition to the Government but significantly failed to persuade teachers and other public-sector workers that their pension schemes should be worsened.

Teachers remained unconvinced that the huge mental and physical demands of teaching can be reconciled with retirement at 65. Few now continue beyond or much beyond the age of 60. There has been a steady increase in the numbers opting to go early with reduced pensions and around 2,500 teachers retire on ill-health grounds each year. Such retirement ages are only granted on independent medical judgement that the teacher's health is such that he or she is permanently unable to continue to teach.

The Government's refusal to negotiate on the raising of the normal pension age in the public sector angered the unions. They responded to what they saw as the Government's diktat by launching, in the run-up to Easter, a series of ballots across the public sector.

Faced with the prospect of widespread industrial action shortly before the election announcement, the Government backed down. Alan Johnson, the then works and pensions secretary, wrote to Brendan Barber, the TUC general secretary, in March, to say that the Prime Minister "has tasked me with making a fresh start on discussions with the trade unions". He went on to say: "I am very clear that in those talks, all aspects of the Government's proposals will be open to discussion and negotiation."

The unions agreed to call off the action or ballots, but the Easter conferences of the main teacher unions reaffirmed their determination to oppose a normal pension age of 65 backed, in varying degrees, by the threat of industrial action if Labour did not deliver. So while the Government's change of heart was clearly, therefore, welcome, ministers and the unions now face a major challenge to find a mutually acceptable solution. It is clear that unless the Government makes some significant moves the dispute will continue.

Barry Fawcett is head of pensions at the National Union of Teachers and lead negotiator for the teacher unions

Back to the drawing board?

The Government says its pension proposals are open to negotiation again. It had hoped to reach agreement by September 2006:

* raising pension age to 65 for new staff from 2006, for existing staff from 2013;

* changing ill-health retirement rules to distinguish between those unable to work at all and those able to work outside teaching;

* calculating pension on basis of 160th of salary, rather than 180th, with option of a bigger tax-free lump sum;

* greater flexibility to encourage winding down to retirement;

* dependants' benefits for unmarried, including same-sex, partners;

* enhanced benefits for those working after the normal retirement age.

Full list on

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