What does the valuation of the latest Teachers’ Pension Scheme in England and Wales mean for members’ contributions?
Member contributions
The latest Teachers’ Pension Scheme (TPS) valuation carried out by the Government Actuary’s Department identified a shortfall in the member contribution structure in meeting the contribution yield over the next valuation implementation period, 1 April 2024 to 31 March 2027.
This was due to member contribution tier thresholds increasing at a higher rate, based on the Consumer Prices Index (CPI) inflation rather than average salary growth, which was lower than inflation. This had an onward effect on distribution of the membership in the contribution tiers.
Action was required to reset the structure to ensure that the required yield of an average of 9.6% continued to be achieved from member contributions.
Therefore, the forecast shortfall will now be met by an increase of 0.3 percentage points (p.p.) for tiers 2-6 and this is the rationale for the slight increase in member contributions from April.
The contribution rate for the lowest tier, which currently covers those earning up to £34,290, will not be increased.
In line with NASUWT’s policy position of protecting the lowest earning members and fairness for all members, teachers’ pension contributions are tiered and based on the amount of salary they earn rather than the full-time equivalent (FTE).
Teachers earning less than £34,873 will not be impacted, with their pension contribution remaining at 7.4%.
In the higher paid tiers, teachers earning £50,000 will pay an extra £10 a month or £120 a year and teachers earning £110,000 will pay nearly £200 (£198) extra per annum.
The adopted structure ensures the Scheme’s ongoing viability and sustainability by minimising potential opt-outs, whilst remaining sustainable and affordable to employers and members at all stages of the profession as part of the overall reward package for teachers.
| Annual Salary Bands (1 April 2025) | Member Contribution Rate (1 April 2025) |
|---|---|
| < £34,873 | 7.4% |
| £34,873 - £46,943.99 | 8.9% |
| £46,944 - £55,660.99 | 9.9% |
| £55,661 - £73,768.99 | 10.5% |
| £73,769 - £100,590.99 | 11.6% |
| > £100,591 | 12% |
| Example Salary | Net effect (Annual) | Net effect (Monthly) |
|---|---|---|
| £30,000 | £0 | £0 |
| £40,000 | £96 | £8 |
| £50,000 | £120 | £10 |
| £65,000 | £117 | £10 |
| £85,000 | £153 | £13 |
| £110,000 | £198 | £17 |
Indexation
All bands will increase by 1.7% due to the pensions increase from April 2025, in line with the increase in the CPI in the 12 months from the previous September (September 2024 where CPI was 1.7%).
Therefore, teachers in service (teaching) will receive a pension increase to their accrued CARE pension comprising CPI inflation: (1.7%) + (1.6%) in service credit) = 3.3% from April 2025 under the career-average TPS.
Independent financial advice
NASUWT is not regulated by the Financial Conduct Authority (FCA) and therefore the Union cannot provide independent financial advice on pension choices, other than to point out factually the benefits of the TPS design and benefit structure, its general value to members and the alternative options available.
The TPS is the government-backed pension scheme for teachers.
The TPS
NASUWT endorses and expects all teachers working in the public sector to be eligible to join and participate in the TPS.
The TPS is the default pension scheme of choice for teachers, in that the government directly funds the employer contributions through HM Treasury, with the scheme being fully paid up, meaning that the scheme is unfunded and therefore constitutes an important part of the overall remuneration and reward package for teachers.
The TPS is a great selling point for younger teachers entering the profession, with some of their deferred pay being invested for them as pension in their retirement.
The TPS remains a tax-efficient way of saving up for retirement and provides a guaranteed level of defined benefit pension, plus a lump sum if you choose this option, at retirement with all the investment risk borne by the government, making it one of the safest choices of pension for teachers.
The TPS also provides certain death benefits and protection for survivors. Many other inferior pension schemes do not.
Furthermore, teachers’ pensions are inflation-proofed, meaning that they grow at the rate of CPI inflation (+1.6% for teachers whilst they remain in service). Therefore, pensions won’t lose value over time and will not be eroded by high levels of inflation. This is pertinent, given the unprecedented levels of inflation that we have encountered recently.
Employers contribute 28.6%, including a 0.08% administrative levy, towards your pension and, should you opt out of the scheme, there is no other way to reclaim this contribution element that is essentially your deferred pay. Conversely, the average teacher’s contribution remains at 9.6% towards their pension by way of employee contributions.
NASUWT recognises the financial challenges presented to our members due to the current cost-of- living and energy crises.
Where members have previously opted out, they may remain eligible to opt back in and may wish to check this with their employer so that they can continue to accrue and access the benefits of the TPS at retirement and remain eligible to access that element of their deferred pay at retirement.
Equalities
More female teachers will be affected as there are more female members of the scheme. However, more men are in the higher salary bands and therefore older female members will not be as adversely impacted by the changes.
NASUWT consulted with the government on this choice of reform as it protects the lowest paid members, many of whom are likely to be women and those with protected characteristics (Black and younger teachers) as defined by the Equality Act 2010.
NASUWT agreed with the Department for Education’s Equality Impact Assessment. However, NASUWT continues to call on the DfE to produce and disseminate more meaningful equalities data, including characteristics of ethnicity or race.