Young teachers are opting out of their public sector defined benefit scheme as they can’t afford to make contributions.
According to a report published on Monday (July 22) by the School Teachers' Review Body, teachers have opted out of the Teachers’ Pension Scheme as they couldn’t afford contributions alongside rent and student loan repayments.
The government's teacher pay advisory body stated this was a particular issue in London and the South East.
For example, all of the newly qualified teachers the advisory body officials spoke to in Tower Hamlets said they had opted out, with one of the professionals saying this was because they “needed every penny” to afford to live in the area.
According to official data from the Teachers’ Pension Scheme, 5,629 members opted out in 2017/18, which compared with 3,669 individuals in 2011/12.
The number opting out was less than 1 per cent of overall membership but more than 10 per cent of the number of new entrants to the scheme.
According to the National Association of Schoolmasters Union of Women Teachers, quoted in the report, the level of teachers’ take-home pay had been reduced by increased pension contributions from 2012 and changes to national insurance contributions from 2016.
The advisory body expressed its concerns to officials of the Department for Education, which stated the number of teachers opting out of the pension scheme represented a small proportion of the overall workforce.
The officials also added that the increases in opt-outs were primarily driven by auto-enrolment – for example, a teacher who had previously opted out would be automatically re-enrolled after three years, if they moved schools or if their school converted into an academy, so would have to opt out again.
Sir Steve Webb, former pensions minister and director of policy at Royal London, said the opt out rate among younger teachers and others in public service was concerning.
He said: “Their take-home pay has been squeezed by higher pension contribution rates, repeated pay squeezes and higher NI contribution rates when contracting out was abolished in 2016.
“Whilst it is not surprising that lower paid teachers have prioritised cash now over long-term security, they are throwing away a very substantial employer contribution which they will never get back.”
Sir Steve noted that the Department for Education needs to look at a more flexible approach for the Teachers’ Pension Scheme, “such as allowing younger teachers to pay half contributions for half pension accrual, to reduce the impact of these trends”.
Neil Walsh, pensions officer at union Prospect, argued that increased levels of opting out from public service pension schemes was bad news for everyone.
He said: “The loss of the member contribution causes short-term fiscal problems for government. The longer term hit on future retirement incomes for teachers is even worse.
“There should be consideration of proposals to address opting out when the cost cap mechanisms are finally unsuspended and the resulting improvements to public service pension schemes are implemented.”
Due to a recent court case on pensions discrimination regarding the judges and firefighters pension schemes, which will be applied to all public pension funds, the government suspended the valuation of public pensions.
With the 2015 reforms, the government was to offer taxpayers and employees protection from unexpected changes in pension costs in the form of a cap.
The level of the cap is set as a percentage of pensionable payroll, which varies from scheme to scheme.
In September, the government announced there could be cost cap floor breaches in at least some of the schemes, which would imply an increase in benefits for the members of those pension funds.
maria.espadinha@ft.com
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