Skip to main content

Is there a teacher pension timebomb in DfE's budget?

21 June 2018

As pension schemes go, the Teachers’ Pension Scheme (TPS) is one of the biggest in the country. One in every 30 people in England is either a member of the scheme, a pensioner or deferred (someone who isn’t a teacher anymore but will get a pension when they retire). The TPS pays more than £10 billion a year to retired teachers and collects in £6.3 billion in contributions from teachers and their employers. It’s these contributions that are potentially a small financial time bomb. The money that employers – colleges, schools and post-1992 universities – pay into TPS rose in 2015. Contributions may rise again in 2019.Or they might not.We don’t actually know.We’ve reached the longest day of the year and we’re waiting for the government actuary and the HM Treasury to finish their longish valuation of the teachers' scheme which started last summer and which is due to finish sometime soon. When it does, we’ll find out what the actuary thinks about the state of TPS and whether there need to be changes to the 16.48% employer contribution.This process doesn’t get a lot of attention in education but it’s important. Contributions rose to 16.48% in September 2015, which added 1% to the total costs of a typical college (or school). This is a problem for colleges because budgets are on a knife-edge as a result of years of funding pressure. There are published rules about how much institutions and staff pay via a carefully defined valuation process. The Government Actuary Department values all public sector schemes every four years on the basis of instructions (directions) from Treasury. There is more on the issue here. The 2014 valuation reported a 92% funding level and recommended an increase in what employers pay from 14.1% to 16.4% (on top of which DfE added a 0.07% levy). Contributions into TPS are on a rising trend. 20 years ago staff paid 6% and institutions 7%. Staff contributions now average 9.6% while the employer rate is heading inexorably up.We really don’t know what the actuary will say this time about TPS but there’s a new reason for concern. This weekend’s NHS funding settlement involves Treasury giving £1.25 billion to the NHS to pay for higher pension contributions. We know the NHS is under pressure and we know that the NHS pension scheme – valued like the TPS – was also in deficit in the last valuation (a 96% funding level). If the government actuary has decided NHS contributions need to rise, then it’s likely s/he will be coming to the same view on the TPS. The figures in the NHS imply an increase from the current level of 14.3% to something like 17% but this is my guess. We won’t know until the relevant officials share what they know.It really isn’t acceptable that this is all so late. TPS employer contributions may change in 2019 or they might not. Every percentage point works out at about £250 million across the education system (school, college and post-92 university budgets). If TPS rates go up 2%, that’s half a billion pounds. The Chancellor says there’s no more money. His officials may have defused this paritcular TPS timebomb. Or perhaps they haven’t.