Sum wait for nothin';Personal Finance

1st May 1998 at 01:00
Ken Barley questions the fairness of basing pensions on final salary and years of service

This is a story about six colleagues who all started teaching in 1963 and who are going to retire this summer. There are some remarkable similarities about their careers, and some significant differences in their pension expectations. Let's call the six, in true maths textbook style, Alf, Bert, Carol, Dai, Eric and Freda.

For the purpose of this exercise the effects of pay rises and inflation over the years have been assumed to cancel each other out, and the salaries used are those in effect from April 1, 1998. This is not strictly true, but the comparison will still be valid.

The six started, like almost all good honours graduates, on point 2 of the pay spine, and progressed up the spine, a point a year, for five years. Then in 1968 Bert, Carol, Dai, Eric and Freda were all given two responsibility points. Alf spent all his days with no responsibility allowance whatsoever - he got to point 9 in seven years, and stopped there for a further 28 years, thinking only of his students. Bert spent the rest of his career with two responsibility points, thus spending 28 years on point 11.

But in 1973, Carol, Dai, Eric and Freda were appointed faculty or year heads and rewarded with four responsibility points. Carol remained a head of faculty and spent 25 years on point 13, helping many a colleague along the way. However, in 1978, Dai, Eric and Freda were made senior teachers, on five responsibility points.

Five years later Eric and Freda were promoted to deputy heads, and both were paid on point 22 of the heads and deputies pay spine. Finally, in 1988, Freda alone made it to head, and has spent the past 10 years on point 40.

Dai stayed on for 20 years on point 14, a pillar of strength in the school, and Eric has been a deputy head (point 22), with qualities very similar to those of Dai, for 15 years.

Having all decided that 1998 is the time to put away the red Biro, they each wanted to know what pension they could expect.

Alf's calculation is fairly simple. He has contributed 6 per cent of his salary, every month for 35 years to the Teachers' Superannuation Scheme. This works out at pound;44,363. He can expect an annual pension which is 3580ths of his final salary of pound;22,023 - that is pound;9,635. This pension works out at 21.7 per cent of what he has paid into the fund.

The figures for all six are given in the table below. Well done Freda! Not only has she had the advantage of a much larger - and well-deserved - salary, but her pension is determined by her final salary (and number of years served). This means she gets a significantly larger percentage of the amount she has paid, each year, than her colleagues. And comparisons of the lump sums, which are also based on final salary, show the same picture.

It does not seem fair that Freda should have a pension of more than 30 per cent of her total contribution each year, while the others receive less than 25 per cent, and Alf, who never got anywhere at all, gets less than 22 per cent.

I believe there is a case for teachers' pensions to be based on more than final salary and years served. Our present system is biased considerably in favour of those who earn most at the end of their careers. What do other people think?

Name Contribution Pension Percentage

Alf pound;44,363 pound;9,635 21.7

Bert pound;49,300 pound;l0,840 22.0

Carol pound;54,943 pound;12,486 22.7

Dai pound;57,675 pound;13,482 23.4

Eric pound;61,504 pound;l5,343 24.9

Freda pound;69,062 pound;20,854 30.2

Ken Barley is deputy head of Montagu School, Kettering

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