Created on: 16 Nov 2011 | Last modified: 11 Nov 2015
UK Discussions
The Government has set out a "reference scheme” around which any scheme changes should be formulated. In October, the Government also set out cost ceilings for each scheme. The cost ceiling for the Teachers’ Pension Scheme was set at 20.1% with an employer ceiling of 10.5%. The "reference scheme” set out an accrual rate of 1/65.
The "reference scheme” also proposed that schemes should be based on benefits arrived at by career averaging and that retirement should be based on the state pension age which applies on the date of retirement. The Government indicated that scheme discussions could lead to variations from aspects of the reference scheme but could not exceed the cost envelope.
The Government’s position has moved. The changes to the accrual rate and cost ceiling changes are welcome. The transitional arrangements may be helpful but much work requires to be undertaken within each scheme to understand how this proposal could work in practice.
In 2007, when the previous scheme reforms were agreed, it was based on projections up to 2050 and the view at that time was that the reforms were fair and affordable to that date. The present Government has proposed that there would be no further pensions reforms for the next 25 years. However, no government can tie the hands of its successors in this way. Further, we do not believe that any government will disregard future cost pressures that may arise from scheme valuations.
While the Government has made some movement in discussions it has, to date, steadfastly stuck to its view that contributions should rise from 6.4% to an average of 9.6%, spread over three years, from 1 April 2012, thereby imposing out a 50% increase in contributions.
The Government has also set its face against looking again at the indexation used for pensions in payment. The move from the Retail Price Index (RPI) to the (usually lower) Consumer Price Index (CPI) will mean that pensions paid in retirement will be poorer.
The Government, while offering some transitional protection to 50-year olds, still intends to link the Normal Pension Age in schemes to the State Pension Age. In other words, younger teachers who face the biggest changes to their pensions, are not offered any protection.
The Position in Scotland