Skip to content

Teacher’s Pension Scheme Indexation

Published
16.03.2022

The Department for Education (DfE) has responded to the Teacher’s Pension Scheme Indexation issue. This matter is currently being discussed between the TPS team within DfE and teacher unions to consider whether the current policy that was introduced in 2007 remains appropriate.

Background

Where teachers have membership in the final salary pension scheme, the average salary of the best consecutive 3 years in the previous 10 years prior to retirement is used to calculate pension benefits, where this is more favourable than the salary in the year prior to retirement. For this calculation, salaries are revalued to account for inflation.

The DfE is aware that in the event of a pay freeze, the average of the best three years in the last ten calculation may be impacted because indexation will not be applied for the relevant year(s). This may affect a small number of members who have service in the Final Salary scheme, have a pay freeze in the last 10 years of their pensionable service and will rely on the average salary calculation rather than their current salary at retirement.

This matter is currently being discussed between the TPS team within DfE and teacher unions to consider whether the current policy that was introduced in 2007 remains appropriate. As the regulations are working as intended there is no further advice that the pensions team can provide until the review of the policy position is completed.”

 

Who will potentially be impacted?

The following small group of people who meet the below criteria may be affected:

  1. Joined the Teachers’ Pension Scheme (TPS) before 1st April 2015 (if you joined after this date, you will have membership in the Career Average Scheme which is not impacted) AND
  2. are within 10 years of retirement (as the exact date of retirement is likely to be unknown, this should be deemed to be age 55 – the first point at which a teacher may access their pension benefits i.e., any teacher aged 45 and one day on 1 September 2021) AND
  3. have had a ‘pay freeze’ at some point in the last 10 years of their pensionable service e.g., received no increase or decrease to their full-time equivalent pay at all in the 2021/22 academic year. (An incremental rise / additional allowance / move to a promoted post will trigger a change of pay and their pension will be revalued. NB a change of hours would not count)
  4. would rely on the average salary calculation to provide higher benefits than their current salary at retirement.

 

Remedial Action

The DfE position is that given the limited number of staff affected, the appropriate action would be to consider a notional increase for only those teachers affected. The Local Authority supports this approach for Maintained Schools and recommends for academies.

However, decisions on pay are the responsibility of Governing Bodies/Academy Trusts and we explain below how this might be dealt with and outline next steps.  

The recommendation is to award a £12 annual increase to any teacher affected. This would trigger the required re-evaluation at minimal cost for the school.  £12 is needed to ensure a whole £ increase each month. These payments should be processed via your payroll provider as soon as possible but by August 2022 payroll at the latest.  When the payment is processed, this will trigger a corresponding notification to Teacher's Pension of the salary increase back to 1 September triggering the revaluation.

Maintained Schools are obliged to operate within the confines of the Teachers' Pay and Conditions Document and thereby only to make such payments as are permitted by the Document. In this context

  • For teachers not on the Leadership Scale: the payment of £12 (which will be paid at £1 per month) can be made as an Annual Recruitment and Retention Payment for a fixed term of one year 1/9/21 to 31/8/22.
  • Teachers on the Leadership Scale are not eligible to receive R&R Payments and therefore would need to have their salary point value increased by £12 per annum with effect from 1/9/21 to trigger the re-evaluation.

TP has advised that where the change in salary for 2021-22 is implemented after 31.03.22 it is still possible to report this retrospectively in which case the indexation will be actioned provided the teacher has not applied for their retirement benefits before the salary change is made”.

 

Other considerations

Account needs to be taken of any unintended consequences this increase may have on the teacher. These might be that the increase:

  • places the teacher in a higher band for pension contributions (see table below):
  • places the teacher in a higher tax bracket (NB only the amount over the tax threshold would be taxed at the higher rate if this were the case)
  • affects any entitlement to other benefits such as chid benefit.

A teacher may prefer not to receive the increase if so affected.

 

Teacher Pension Contribution thresholds

Annual Salary Rate for the
Eligible Employment from 1 April 2021 – 31 March 2022

Annual Salary Rate for the Eligible Employment from 1 April 2022

Member Contribution Rate

Up to £28,309.99

Up to £29,187.99

7.4%

£28,310 to £38,108.99

£29,188 to £39,290.99

8.6%

£38,109 to £45,185.99

£39,291 to £46,586.99

9.6%

£45,186 to £59,885.99

£46,587 to £61,742.99

10.2%

£59,886 to £81,661.99

£61,743 to £84,193.99

11.3%

£81,662 and above

£84,194 and above

11.7%

 

What is the Council’s position on this issue?

There is no immediate need to consider the blanket payment of a nominal amount such as a solitary £1 to teachers in your employment. Given that the Scheme Advisory Board are considering this matter at their meeting in May 2022 and pending a national approach to this, we advise schools to not take any action on this matter until the outcome of that meeting is known.

If you choose to take the remedial action listed above it should only be for employees that meet the criteria defined by the DfE and listed in this communication.

 

Sample Letter

 

Dear

 

Teachers' Pensions

An issue has been identified related to the pay freeze in 2021 which may affect a small number of teachers in relation to their pension.

 

Background

Where teachers have membership in the final salary pension scheme, the average salary of the best consecutive 3 years in the previous 10 years prior to retirement is used to calculate pension benefits, where this is more favourable than the salary in the year prior to retirement. For this calculation, salaries are revalued to account for inflation.

This re-evaluation only occurs when there has been a change in salary. This means that in any year where there is no change in salary, revaluation does not take place and this has the potential to disadvantage some teachers in the calculation of their final salary pension benefits.

 

Who is affected

We believe that you may be affected by this issue because:

  • you first joined the Teachers' Pension Scheme (TPS) prior to 1 April 2015 and therefore have pension in the Final Salary Pension Scheme and,
  • you have who have not received any pay increase this academic year; and,
  • you are within 10 years of when you could potentially access your retirement benefits (i.e. age 55).

 

Remedial Action

In order to trigger a re-evaluation of your pensionable pay for pension purposes the Governing Body/Trust Board have decided to make an exceptional payment as follows:

Either Teachers

you will be a awarded a Recruitment and Retention Payment of £12 (£1 per month) effective from 1 September 2021. This is a temporary payment and will end on 31 August 2022.

or Leadership scale

the value of your current annual salary value will be increased by £12 with effect from 1 September 2021. We do not believe this will have any of the unintended consequences listed below. However, if you believe you will be adversely affected you can decide not to accept the increase.

The additional payment could:

  • place you in a higher band for pension contributions
  • place you in a higher tax bracket (NB only the amount over the tax threshold would be taxed at the higher rate if this were the case)
  • affect any entitlement to other benefits such as chid benefit.

A teacher may prefer not to receive the increase if so affected.

 

Yours etc

 

If you have any queries in relation to the information provided above, please contact the HR Advice Line via contactus@gloucestershire.gov.uk or 01452 425888.

 

 

 

Help us improve Schoolsnet

Don’t include personal or financial information like your National Insurance number or credit card details.