2020 Teachers’ Pension Scheme (TPS) Valuation
The TPS valuation 2020 was finally published in October 2023. The level of the employer contribution will rise by 5 per cent from 23.6 per cent to 28.6 per cent from April 2024.
This increase in the employer contribution does not affect employee contributions or the design of the TPS. Scheme contribution rates remain a tiered system with an average 9.6 per cent contribution rate. The scheme retains its career average design with a 1/57 accrual rate per year, with CPI+1.6 per cent indexation for serving teachers.
The Government has committed to funding increases in employer contribution rates resulting from the 2020 valuations for employers whose employment costs are centrally funded through departmental expenditure for 2024-25. This includes mainstream 5-16 schools; high needs settings; post 16 and further education settings; and eligible early years providers.
Teachers’ Pension increase April 2024
The 2024 increase for TPS pensions in payment is expected to be 6.7 per cent, in line with the September 2023 increase in the Consumer Prices Index. The increase would have been 8.9 per cent had the previous link with the Retail Prices Index been maintained.
Indexation of career average rights April 2024
All serving teachers are now in the career average section of the Teachers’ Pension Scheme. They build up 1/57 of their pensionable earnings as pension each year. These pension rights are then increased each year until retirement at CPI inflation + 1.6 per cent for teachers who stay in teaching.
The April 2024 increase will be based on the CPI figure from September 2023 - which is 6.7 per cent. The NEU is awaiting confirmation from the Treasury but is therefore expecting an indexation figure of 8.3 per cent to be used in April 2024. The indexation for teachers who have left teaching is CPI only – so a 6.7 per cent increase in April 2024. The 6.7 per cent increase also applies to deferred pension rights in the final salary scheme.
State pension increase
The basic State pension is usually indexed to the higher of CPI inflation, average earnings increases or 2.5 per cent – known as the ‘triple lock’. This has operated since 2010 and the Conservative Party promised at the last General Election to keep the triple lock for this Parliament. The Government abandoned the triple lock for 2022 but restored it for the 2023 and 2024 increase. The NEU believes the triple lock should be maintained.
The increase in the basic State pension for those who reached state pension age before April 2016 will be 8.5 per cent in line with the increase in average earnings. Therefore the maximum basic State pension will increase to £169.50 a week from April 2024. Increases in the state additional pension under the old state pension system are linked to the CPI increase, so these increase by 6.7 per cent.
Pensioners on the single-tier state pension who have reached the state pension age since April 2016 will also get an 8.5 per cent increase. The maximum weekly payment will increase to £221.20 a week in April 2024.
Teachers’ Pension Scheme Age Discrimination Cases (McCloud) - summary
Transitional protections meant older members of the TPS remained in the Final Salary Scheme or delayed joining the Career Average Revalued Earnings (CARE) scheme whereas younger members were immediately transferred into the CARE Scheme as soon as it was implemented in April 2015. The Courts determined in the ‘McCloud’ judgement that this was discriminatory against younger members and ordered the government to rectify the situation.
Eligible scheme members will choose between final salary or career average scheme benefits for the period 2015 to 2022 when they take benefits from the scheme – effectively getting the better of the two schemes. The choice will for most people be made at the point of retirement. Members can find out whether they are affected through a handy decision tree on the Teachers’ Pension Scheme website.
Compensation arrangements for members in the Local Government Pension Scheme will be slightly different. All LGPS members joined the career average scheme in 2014, but some older members had the benefit of a final salary ‘underpin’ meaning they would not get less than they would have received if they’d stayed in the previous final salary scheme. This underpin will now be extended to all members until 31 March 2022.
Members who have taken retirement benefits before 1 October 2023 will be provided with their choice as soon as practicable after 1 October 2023. There is nothing which members can do proactively to speed the process up. If you are affected you will be contacted in due course.
McCloud – Remediable Service Statements
Retired members and others who have taken benefits from the TPS will soon be in a position to make a choice on final salary or career average benefits for the April 2015 to March 2022 period.
The Public Service Pensions and Judicial Offices Act 2022 provides that members should receive a ‘Remediable Service Statement’ (RSS) within 18 months of 1 October 2023. The RSS will include details of remedy period benefits calculated under final salary and career average rules to allow members to make an informed choice.
Active members must subsequently receive an RSS every year annually. Deferred members can request an RSS each year. When members apply for retirement benefits, they will receive an RSS which includes their final benefit calculations. They will have 12 months from the RSS to make a choice. If no choice is made then the pension cannot be processed. A member can change their choice at any point before their application for retirement benefits has been processed.
Eligible retired members will be provided with an RSS within 18 months of 1 October 2023 and will then have 12 months from the date of issue to confirm their decision between final salary and career average benefits for the 1 April 2015 to 31 March 2022 period. If they do not make a decision the regulations allow the scheme manager to ‘deem’ an election for career average benefits if that would have a higher monetary value, otherwise final salary benefits will be paid.
McCloud - Transfers
Members usually have 12 months to move funds from other pension schemes into the TPS. The movement of tapered (who had some transitional protection) and unprotected (who were moved into the career average scheme on 1 April 2015) members back into career average from 1 April 2022 restarts the clock for transfers. As legislation was not brought into place until 1 October 2023, the 12-month clock runs from that date until 30 September 2024. Members seeking to transfer other pension funds into the TPS should seek independent financial advice.
McCloud – Actuarial reduction buy-out
The CARE scheme regulations allow members of that scheme to make an election to buy-out the actuarial reduction between age 65 and 68. A member has 6 months from entering the CARE scheme to elect for this option. As all members have now entered the career average scheme from 1 April 2022, members should have had this opportunity. As the provisions of the Public Service Pensions and Judicial Offices Act 2022 did not come into force until 1 October 2023, the statutory regulations have a provision to create a new buy-out window election for eligible members to allow 6 months from 1 October 2023 for an application, so a deadline of 31 March 2024 to apply. Members considering this course of action should take independent financial advice.
Check your pension records
The NEU receives many reports of pension records being incorrect. The growing fragmentation of the school system means a growing number of small employers, and more changes of employer for teachers over their careers. These are perfect conditions for mistakes to be made.
Members should sign up with the Teachers’ Pension Scheme’s ‘MyPensionOnline’ service to check that their pension is correct. Teachers can register here and will need their national insurance number and an email address.
All members should check their salary details and that their contract and days out of service are correct. It is much simpler to deal with errors as they arise rather than shortly before retirement. It is therefore important to keep payslips and other salary records (like P60s).
The NEU recommends that you check your pension records and pension data at least once a term. You should raise any issues with your pension records immediately with Teachers’ Pensions.