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Teachers’ Pension Indexation and 2021 Pay Freeze

16/02/2022

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.

A number of unions have written to schools and academies highlighting this issue and proposing solutions.

The DfE in turn has considered the matter.  The DfE is in discussion with the Teachers' Pension Advisory Board to consider whether legislative and/or policy changes need to be made to address this issue going forward.  In the meantime, the DfE suggests that consideration needs to be given to the potential impact on retaining teachers who may be affected by the pay freeze this academic year.

Who is affected

This issue will not affect the majority of teachers. 

Those who may be affected are teachers:

  • who first joined the Teachers' Pension Scheme (TPS) prior to 1 April 2015.  (Those who joined after this date only have membership in the Career Average Scheme which is not impacted); and,
  • who have not received any pay increase this year.  (If a teacher received an incremental rise or additional allowance or moved to a promoted post will have had a change of pay and their pension will therefore be revalued.  NB a change of hours would not count as a pay change if the FTE pay rate is the same); and,
  • who 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).

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.

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.

Next Steps

  • Governing Body/Trust Board (or Committee e.g. Pay Committee) to agree approach.
  • Identify those teachers affected and any potential unidentified consequences (which should be discussed with the teacher so they can decide if they want to accept the pay increase).
  • Process payment via your payroll provider asap but no later than August 2022 payroll, with an effective date of change of 1 September 2021.
  • Confirm in writing to affected teachers (sample letter below).

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 2022Member Contribution Rate
Up to £28,309.99Up to £29,187.997.4%
£28,310 to £38,108.99£29,188 to £39,290.998.6%
£38,109 to £45,185.99£39,291 to £46,586.999.6%
£45,186 to £59,885.99£46,587 to £61,742.9910.2%
£59,886 to £81,661.99£61,743 to £84,193.9911.3%
£81,662 and above£84,194 and above11.7%

             

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

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