Something better to look forward to

9th February 2001 at 00:00
HUGE improvements in teachers' pensions are likely following a recent review of the Civil Service pensions scheme.

Civil servants' new benefits include pension increases of up to 33 per cent, survivors' pensions for single-sex and unmarried partners, and the chance to opt for additional pension rather than a tax-free cash lump sum.

Teaching unions will now be seeking a comparable deal.

"Teachers' pensions normally get improvements on the back of the Civil Service scheme, so teaching unions will be putting in a claim for something similar," said Susan Johnson, head of pensions at the Association of Teachers and Lecturers.

The increase in Civil Service pensions is being achieved by a different method of calculating benefits. Instead of taking 180th of someone's average salary over the three years before retirement and multiplying it by the number of years they have worked, the scheme will be based on 160th of the average salary.

This will bring the Civil Service into line with private-sector pensions, where 85 per cent of such schemes are based on 160th of average salary.

Civil servants will no longer be obliged to convert some of their pension fund into a tax-free lump sum. Those who choose the cash will find their pension increased by 12 per cent, as opposed to a 33 per cent pension increase if they waive it.

Another important innovation could be lifelong pensions for surviving spouses. Previously, a teacher's widow or widower who remarried would lose their pension.

Death-in-service grants could also go up; civil servants' beneficiaries will now receive a grant of three times the employee's highest salary during their last three years. However, to pay for the improved benefits, teachers' contributions are also likely to rise.

Civil servants will pay an extra 2 per cent of their salary towards their pensions, bringing their contributions up to 3.5 per cent. Those who do not wish to contribute more canremain in the current scheme. But pensions experts predict that many teachers will be prepared to pay extra for better benefits. Many already top up their pensions through Additional Voluntary Contributions.

A more severe disadvantage to a new pensions scheme could be a two-tier ill-health retirement package. Currently, civil servants and teachers who take ill-health retirement have their pension "enhanced"; someone who has worked for 10 years, for instance, will receive the same pension as an employee who has put in 20 years. In future, civil servants who sign up for improved benefits will only be eligible for ill-health retirement on an "enhanced" pension, if they are permanently unfit for any employment.

Those considered capable of taking on work outside the Civil Service will not receive much more than the pension they have already accrued.

TEACHERS v PRIVATE SECTOR

Forty-six per cent of private companies offer a pension with defined benefits based on final salary, like the teachers' scheme. Of these, 85 per cent base the pension on 160th of final pensionable pay; teachers' pensions are based on 180th of final pensionable pay.

On average, a private-sector employee contributes 4.5 per cent of pensionable pay to the company scheme.

Private companies pay an average of 10.4 per cent towards employees' pensions. Teachers pay 6 per cent, while their employers pay 7.4 per cent.

Forty-nine per cent of private companies offer a death-in-service grant of four times annual pay, with a further 27 per cent giving three times annual pay. Currently, the Teachers' Pensions Scheme provides a death-in-service grant of just twice annual salary.

The normal retirement age in 81 per cent of private companies is 65 for men and women, although 55 per cent allow employees to retire at 60 with no loss of pension. All teachers can retire at 60 on a full pension and they can take an actuarially-reduced pension from 55.


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