Summary
The calculation method for the ‘best consecutive three years in ten’ average salary only applies revaluation if the salary rate changes. This means a pay freeze leads to no revaluation of pension and potential losses for members.
The NEU believes that TPS scheme regulations should be changed so members get revaluation at all times. In the meantime, salaries should be increased by £1 in the 2021-22 academic year for at least one month to trigger it – the sooner the better. Ideally, the payment should be retrospective. The NEU produced a joint letter with other unions which was sent to employers in November 2021 to highlight the problem and the action needed.
A regulation change to prevent this issue happening in future is likely in 2023, but the DfE will not take action before 31 August 2022. It is necessary for progress to be made at Local Authority and MAT level.
Successes in securing a £1 rise for teachers should be reported to [email protected] .
Background
The final salary scheme uses two methods to work out average salary and the pension calculation then uses the best of those two:
Method A: The last 365 days of salary
Method B: The average of the best 3 consecutive years from the last 10 years where the salaries are revalued to account for inflation
TPS scheme regulations (specifically Regulation 37 (9) and (10) of the Teachers’ Pension Scheme Regulations 2010) mean for revaluation to be credited in Method B, the salary rate has to change. An increase in the salary rate triggers revaluation. Even a decrease in the salary rate triggers revaluation. The only circumstance which does not trigger revaluation is a salary freeze. The Department for Education accepts that this is the position.
Many years of below inflation pay rises mean that Method B determines pension for most teachers. Non-revaluation therefore cuts the pensions members get in retirement if a period of pay freeze is part of the ‘best consecutive three in ten’, and the member retires during the pay freeze period.
Career Average
This issue does not apply in the career average scheme. With career average, each year has built in revaluation at 1 April each year when the Treasury order is applied. Revaluation is then either at CPI (for deferred members) or CPI+1.6 per cent (for active members). All members are set to be put into career average from 1 April 2022.
However, the vast majority of teachers in the career average scheme also have past rights in the final salary scheme. These final salary rights will be affected by the pay freeze until 31 August 2022, and will be affected by any period of pay freeze in the future.
Next steps
The NEU is pursuing a regulation change so that revaluation is applied under the ‘best consecutive 3 in 10’ regardless of whether a change in salary occurs. The DfE produced a paper at the June Scheme Advisory Board which favoured a regulation change subject to analysis from the Government Actuary’s Department and approval from HM Treasury. Any regulation change will be in 2023 at the earliest. It is unclear at best whether a 2023 regulation change will have any retrospective effect on the 2021-2022 academic year.
The only way to be certain of triggering revaluation before 31 August 2022 is for the salary rate to change by at least £1 for at least one month. Indexation is triggered even if employers increase salary by £1 one month and then cut by £2 the next month before a £1 increase in month 3 to revert to the status quo ante.
Successes
The NEU is aware that some local authorities and multi-academy trusts have granted a £1 increase, whether for all staff or those potentially affected by the issue. Local authorities who we believe have made a £1 payment or have agreed to make it include: Barking and Dagenham; Camden (agreed in principle); Cumbria; East Sussex; Enfield; Essex; Haringey; Tower Hamlets; Wandsworth. MATs include Delta, E-ACT and United Learning.
Mythbusting
The NEU is also aware that some authorities and MATs are arguing that making a payment to some or all teachers may have unintended consequences that could make teachers worse off.
The arguments (in red) are as follows with our refutations:
- The £1 payment could place the teacher in a higher band for pension contribution. The NEU believes this was always doubtful – no exact examples were ever cited. The fact that the TPS contribution bands are rising 3.1 per cent in April while we have a pay freeze means this argument falls by the way.
- The £1 payment could place the teacher in a higher tax bracket. The NEU believes this is very doubtful. The higher rate threshold is £50,270 – how many teachers are earning exactly £50,270? It should also be noted that only the amount over the tax threshold would be taxed at the higher rate if this were the case.
- The £1 payment could affect entitlement to other benefits such as child benefit. The NEU believes a £1 rise for one month will not affect the overall calculation for those earning above £50,000.
In practice, these arguments were a way to justify doing nothing in the mistaken belief that the Government would take action to solve the problem before the end of August.