What does the valuation of the latest Scotland Teachers’ Pension Scheme mean for members’ contributions?
Member contributions
The latest Scottish Teachers’ Pension Scheme (STPS) valuation carried out by the Government Actuary’s Department identified a shortfall in the existing member contribution structure in meeting the STPS contribution yield of 9.6% over the next valuation implementation period, 1 April 2024 to 31 March 2027.
Under the STPS framework agreement, members are required collectively to contribute 9.6% of their pensionable pay across the whole scheme membership.
The shortfall arose due to the annual uprating of contribution tiers in line with the Consumer Prices Index (CPI), as CPI inflation exceeded earnings, and the effect on distribution of the membership falling into lower contribution tiers.
Action was required to reset the structure to ensure that the required yield continued to be achieved from member contributions.
In line with NASUWT policy position, it was agreed that:
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a single flat structure of increases, if implemented, would cause further hardship for lower paid members, in addition to the current cost-of-living and energy crises;
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affordability issues may drive opt-outs from the STPS, potentially threatening the Scheme’s viability; and
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any changes should continue to protect the lowest earning members.
Therefore, it was agreed that employee contributions will continue to be progressively tiered and based on actual earnings.
Teachers earning less than £34,869 will not be impacted, with their pension contribution remaining at 7.35%.
In the higher paid tiers, teachers earning £50,000 will pay approximately £10 extra a month or £120 per annum and teachers earning £110,000 will pay approximately £200 extra per annum.
NASUWT’s policy position prevents any negative impact on the ability to recruit and retain teachers, particularly amongst teachers who are starting out in the teaching profession and therefore have the lowest salaries.
Progressive tiering has helped ensure that the STPS remains sustainable, a valuable part of the reward package and affordable to all members.
A progressive tiered structure, based on levels of actual pensionable pay, means those earning the most pay a higher percentage of pensionable earnings than lower paid scheme members who will pay the least and be protected from the burden of higher contributions, in line with NASUWT policy.
Increases to tiers will be based on CPI and future pay awards and the six contribution tiers will be increased by a single multiplier of 1.0202 in order to ensure the yield of 9.6% over the implementation period.
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.
| Tier | Actual pensionable pay | Contribution percentage rate |
|---|---|---|
| 1 | Up to £34,869 | 7.35% |
| 2 | £34,870 to £46,940 | 8.88% |
| 3 | £46,941 to £55,659 | 9.90% |
| 4 | £55,660 to £67,975 | 10.61% |
| 5 | £67,976 to £92,693 | 11.73% |
| 6 | £92,694 and above | 12.14% |
Total contribution yield 9.6%
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 STPS.
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 advantages of the STPS design and benefit structure, their general value to members and the alternative options available.
The STPS is the government-backed pension scheme for teachers.
The STPS
NASUWT endorses and expects all teachers working in the Scottish public sector to be eligible to join and participate in the STPS.
The STPS 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 STPS 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 STPS 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 STPS also provides for 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 26% 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 STPS at retirement, while remaining eligible to access that element of their deferred pay at retirement.
Equality
NASUWT believes that the Scottish Government’s recommended tiered employee contribution model assists the Government in delivering the Public Sector Equality Duty (PSED) set out in the Equality Act 2010.
The Scottish Government’s recommended tiered employee contribution model ensures that teachers who are new to the profession pay a lower contribution and it therefore acts to counter the unequal treatment of younger teachers in the Scheme who have no pre-2012 service.
In addition, a progressive employee contribution model, which acts to protect lower paid teachers, will promote equality of opportunity between men and women, given that male teachers’ salaries are, on average, higher than female teachers’ salaries, when female teachers often have lower pensions due to earning less and are more likely to work part time due to caring responsibilities and the ‘motherhood penalty’.