The Teachers' Pension Scheme - do teachers have anything to fear?
Along with decent holidays, a generous pension scheme has always been considered one of the perks of teaching. "As things stand it's as good as anything out there," says Stuart Gayer, of the BBT Group, a specialist financial adviser.
But for how much longer? A review of public sector pension funds - of which the Teachers' Pension Scheme (TPS) is the second largest - is already under way, with changes possible as early as next spring.
The Government says it needs to cut costs. But while the number of retired teachers has risen in recent years, meaning a higher pension bill, teachers' unions feel that this review has more to do with political posturing than hard economics.
"Pensions were reviewed only a few years ago," says NUT pensions expert Andrew Morris, pointing to changes in 2007 that saw teachers' contributions rise and the standard retirement age raised from 60 to 65 for newcomers to the profession. "Those changes made the scheme affordable and sustainable."
From next April, changes to the way inflation is calculated will also reduce pensions, by linking them to the Consumer Price Index rather than the Retail Price Index. The latter includes housing-associated costs, such as council tax and mortgage-interest payments. This move could cost teachers more than pound;40,000 over the course of their retirement, according to Mr Morris.
Even so, there will continue to be a shortfall between pension contributions and payments, and it is the Government that will have to pick up the bill. But the view that the taxpayer is subsidising thousands of retired teachers is inaccurate.
"When the TPS was first set up, contributions were being paid in, but no pensions were being paid out," says Mr Morris. "The money the Government is paying out now is effectively the surplus built up in the early years. It was always intended to work like that."
So should teachers be worried by the latest review? "It's a case of wait and see," says Mr Gayer. "I had a headteacher contact me wondering if he should retire at the end of this year, to safeguard his pension. But that's an over-reaction. It's unlikely that benefits built up over many years will be suddenly taken away. The probability is that contributions will rise slightly, and that next spring teachers will look at their pay cheque, notice it's a little less than usual, shrug and forget about it."
Teachers contribute 6.4 per cent of their salary to their pension. One option is that this will rise by about 0.5 per cent, which would mean an extra pound;5-10 a month; another is a further rise in the retirement age for new recruits, to 66 or 67.
But that is the short-term picture. Looking ahead, there is still a risk that final-salary schemes, where pensions are linked to a teacher's pay at the time of retirement, will be replaced by investment pensions common in the private sector, where the value of the pension depends on the performance of the stock market. This would be more controversial, and it would hit teachers hard. The average teacher's annual pension is a modest- sounding pound;10,000, but to sustain that income from a private fund would require a pension pot of as much as pound;300,000. For teachers, that would mean paying in a sizeable chunk of their income during their career.
The good news is that a change of that nature would be phased in over many years. Mr Gayer's advice is not to panic - and make the most of the current scheme. "If you're worried about the future, you could always consider topping up your contributions," he says. "But for as long as the TPS remains a final-salary scheme, teachers should stick with it. The Government may ask you to contribute a little more, or make you wait a little longer - but you'll still be getting a good deal."
WHAT TO DO
- Remain within the TPS, but follow any changes closely.
- Consider making additional voluntary contributions: www.teacherspensions.co.uk
- The Teachers' Retirement Agency runs courses that can help you get the most from your pension
- The BBT group has financial advisers who specialise in helping teachers: www.bbtgroup.co.uk.