Valuation

Following the scheme valuation, member and employer representatives came together to discuss changes to the member benefit structure to return pension benefits back to the level agreed in 2015. Those discussions led to a recommendation that, for the Teachers’ Pension Scheme, the rate at which pensions accrue should be improved. This change to the benefit structure is currently on hold pending the outcome of legal proceedings in the case of McCloud and Sargeant. As the Government has been denied leave to appeal the Court of Appeal decision, the required changes to adhere to the Court’s findings will be determined by the Employment Tribunal.

In short, nothing. As soon as the outcome of the Employer Tribunal is known we’ll inform employers, members and stakeholders of the result and provide as much information as possible.

Every four years, the Government Actuary’s Department (GAD) carries out a valuation of all unfunded public service pension schemes. Teachers’ Pensions is one of these schemes.

The Employment Tribunal will determine the changes needed. At this time it’s too early to estimate how long will be needed to implement the changes. We’ll keep you updated as we know more.

We’ll provide further information on likely timescales as soon as we’re aware of them.

The valuation is the process by which scheme costs are measured and managed.  It assesses the long-term cost of providing pensions and other benefits to members of each public service pension scheme and determines the appropriate employer contribution rates going forward.

The valuation results show that the cost of providing pensions has increased.  Therefore, the Government has decided that the employer contribution rate to the Teachers’ Pension Scheme should increase to 23.68% (including the administration levy of 0.08%). The changes to the employer contribution rate will take effect from 1 September 2019 to align with the academic year and allow employers additional time to plan for its implementation.

Although this could be effective from 1 April 2019, the Government has decided it’s more appropriate to implement the revised employer contribution rate for the Teachers’ Pension Scheme on 1 September 2019, to align with the academic year and allow employers additional time to plan for its implementation. The Department for Education has been consulting on the additional funding that may be provided to some Teachers' Pensions Scheme employers to cover the additional costs.

The Government has estimated that in the event of an unsuccessful appeal, the cost of any likely adjustment to benefits will be at least similar to the cost of the proposed benefit improvements on which the revised employer rate is based.

If the revised employer contribution rate were not implemented from September 2019 as expected, a significant scheme deficit would occur. If that happened, there would need to be a further increase to the employer rate to address the deficit.

Once the final position is known with regards to the Employment Tribunal, we’ll take the necessary steps either to:

• comply with the required rectification as directed by the Tribunal, retrospectively to 1 April 2015 or
• implement the improved benefit structure to active career average members, which will be effective from 01 April 2019

UPDATE: On 27 June the Government was denied leave to appeal the Court of Appeal decision, which means the required changes to adhere to the Court’s findings will be determined by an Employment Tribunal.

The case was brought by members of the Judicial and Firefighters’ pension schemes and relates to the transition protection offered to some members of the final salary schemes when the schemes were reformed in 2015. The transitional protection allowed those members who were within 10 years of normal pension age to remain in their Final Salary scheme. The complainants argued that allowing some members to remain in the more expensive final salary provisions based on their age was discrimination on age grounds. In December 2018, the Court of Appeal determined that the transitional protection offered to some members of the scheme was discriminatory on age grounds.

The Court of Appeal found that having introduced the protections, the Government should have justified the discriminatory impact (i.e. of leaving older members in the final salary arrangements thereby giving them better arrangements than younger members), but that it had failed to do so.

On 27 June the Government was denied leave to appeal the Court of Appeal decision, which means the required changes to adhere to the Court’s findings will be determined by an Employment Tribunal.

This may require action to alter pension arrangements of all of the unfunded public service schemes.

Any remedy will be implemented retrospectively from 1 April 2015, and ensure future discrimination is removed.

Costs relating to member experiences have fallen as a result of reforms, however member costs are just one factor used to determine the cost of the Scheme.

The cost of providing pensions is determined by a number of factors, including the assumptions adopted for the scheme valuation.  The key assumption leading to the increase in costs is the ‘discount rate’.

HM Treasury changed the discount rate for public service pensions to reflect the lower expected future growth in the economy.  A lower discount rate means a higher cost of providing benefits. 

The cost of providing pensions is determined by a number of factors, including the assumptions adopted for the scheme valuation.  The key assumption leading to the increase in costs is the ‘discount rate’.  Future payments are discounted using the ‘discount rate’ to provide a cost of providing benefits in today’s terms.

HM Treasury changed the discount rate for public service pensions to reflect the lower expected future growth in the economy.  A lower discount rate means a higher cost of providing benefits.

The Department for Education recently concluded a consultation on the proposed funding arrangements. The consultation set out the Department’s proposal to fund those employers who are most reliant on government grants. Responses to the consultation are currently being analysed and a final decision on the funding position will follow.

Independent schools participate in the Teachers’ Pension Scheme on a voluntary basis and can therefore leave the Scheme at any time. The school must write to the Secretary of state setting out their position. The Secretary of state will then confirm, in writing, the date that schools ceases to participate in the Scheme.

Once you leave the Scheme, all your employees will cease to be eligible to participate and their pension provision will become deferred.

You can choose to leave the Teachers’ Pension Scheme but you’ll be required to consult with your staff on any changes and enrol your employees into another qualifying pension scheme. We recommend you take advice if you choose to follow this route.

If the new scheme that you offer is a ‘Defined Benefits’ scheme then your employees may be able to transfer their teacher’s pension over to it, as long as they do this within 12 months of entering the new scheme.