1. PENSION REFORM CAMPAIGN NAHT - NATIONAL MEETING 12 September 2011 UPDATE / ISSUES RE Teachers’ Pension Schemes Mike Beard Specialist Adviser (Pensions) – NAHT HQ

2. Public Services Liaison Group (TUC & Government) Ministerial Group TPS Technical Review Group (DfE, Employers & Teacher Associations) TSWP Pension Specialists TSWP (Teachers ’ Panel) NEGOTIATION / CONSULTATION FORUMS The commencement of consultations / discussions relating to the Northern Ireland and Scotland Teachers’ Pension Schemes will be determined by the relevant legislature

3. TIMETABLE – England & Wales Consultation on 2012 Contributions Increase 20 October 2011 Agreement on Reference Scheme ‘Headline‘ terms 31 October 2011 Implementation of 2012 Contributions Increase (Phase 1) 1 April 2012 Establishment new public sector pension schemes - legislation to be implemented within the parliamentary year 2012/2013 Proposed Contributions Increase (Phase 2) 2013 Proposed Contributions Increase (Phase 3) 2014 Implementation of new public sector pension schemes 2015

4. GOVERNMENT’S PROPOSED REFERENCE SCHEME The main design proposals (by Government) for the Reference Scheme include:  Career Average Revalued Earnings (CARE) pension scheme  Earnings revaluation – to determine the appropriate vehicle for revaluing past CARE service for active members (deferred pensions to be increased by CPI)  Accrual Rate - to be determined centrally which is consistent with the statement by the Chief Secretary to the Treasury that pensions at NPA would be broadly as generous for low and middle income earners as it is now  Normal Pension Age (NPA) linked to State Pension Age (SPA)  No fixed Lump Sums – optional conversion at a 12:1 ratio (as per post-2007 new entrants to TPS  Ancillary Benefits – ill health, death and survivor benefits that match the post-2007 provisions for new entrants  CPI increases for pensions in payment and in deferment

5. CONTRIBUTION INCREASES Lower Salary Higher Salary Contribution rate 2012 Estimated from 2013 Contribution from 2014 Total extra contributions payable per annum for each £10,000 earned * £14,9996.4% £0 £15,000£25,9997.0%7.6%7.9%£150 £26,000£31,9997.3%8.2%8.65%£250 £32,000£39,9997.6%8.8%9.4%£300 £40,000£74,9998.0%9.6%10.4%£400 £75,000£111,9998.4%10.4%11.4%£500 £112,0008.8%11.2%12.4%£600 Teachers’ Side position:  proposed increase is unjustified  no evidence via an actuarial valuation has been produced  Pre-empts ongoing discussions within PSLG  is a breach of the 2006 cost sharing agreement  a tax on teachers  higher contributions increase the risk of opt-outs Consultation ongoing in respect of 2012 increases whereas the proposed increases for 2013 & 2014 subject to further consultations Costs relate to current rate of 6.4% and the estimated rate applicable from 2014 and the Full-Time Equivalent salary

6. CAREER AVERAGE REVALUED EARNINGS SCHEME Government’s Reference Scheme:  fairer to low and middle earners (what about high earners?)  unlike Final Salary Schemes CARE helps to manage the financial risk  any proposals to retain FS benefits for future accrual for some or all of the membership of a reformed TPS must be contained within cost ceiling Teachers’ Side:  at this stage not convinced of its merits  significant areas of uncertainty about HMT intentions:  accrual rate for proposed CARE arrangement – (HMT has instructed scheme actuaries to calculate draft costs ceilings on a full range of accrual rates between 1/50 and 1/80)  treatment of any additional costs arising in respect of past service  any consideration of either a CARE or retention of some form of FS for some or all TPS members currently stifled by the lack of data from HMT re cost ceiling

7. NORMAL PENSION AGE Present position:  Pre-2007 joiners NPA of 60  Post-2006 joiners NPA of 65 Proposals:  For future accrual link NPA to SPA  Future rises in NPA to 66 / 68 and beyond  Longevity suggests the need for change  Some commentators suggest that moving to SPA may not be sufficient as longevity advances and that teachers are likely to live longer than the general population – possibility that NPA may be greater than SPA MAJOR concern: extending the working life in an already stressful profession has the potential of being detrimental to the health and well-being of teachers Could lead to a greater levels of ill health in the profession Could lead to greater incidences of capability dismissals

8. TRANSITIONAL PROTECTION Hutton Report: The Government must honour in full the pension promises that have been accrued by scheme members: their accrued rights. In doing so, the Commission recommends maintaining the final salary link for past service for current members. (Recommendation 4 - Independent Public Service Pensions Commission: Final Report 10 March 2011) Government response: In setting the terms of reference for the Commission, the Government made clear that accrued rights should be protected. The Government remains committed to this principle. Protecting accrued rights is a prerequisite for reform, to provide clarity and reassurance to the public sector workforce. (PSLG document on Public Sector Pension Reform: 13 May 2011) What does this mean in practice?  All service / benefits accrued up to the day preceding the introduction of a new scheme (e.g. 31 March 2015) will continue to be assessed and payable at the present NPA (60 or 65)  Only service / benefits accrued from the implementation of a new scheme will be subject to the new scheme rules and revised / higher NPA

9. WHAT HAPPENS NOW? Teachers’ Side: DfE has been informed that with regard to the Reference Scheme the Teachers’ Side cannot comment in detail on the paper given - the absence of the cost ceilings and - central discussions were ongoing areas covered in paper were ones that the Teachers’ Side might wish to consider in the future, but there might be others that we would like added whilst others that might not be of interest Scope for further discussion would depend on accrual rate and the cost ceiling Similar to comments by employee and employer groups in other scheme- specific discussion an expectation that an outline of any new TPS could be produced by 31 October 2011 was extraordinarily ambitious

10. WHAT HAPPENS NOW?  Negotiating Forums continue to meet on a regular basis.  TPS Technical Review Group further meetings planned for 19 September 2011 and 5 October 2011 DfE committed to providing data: breakdown of TPS membership by sector from 2004 to present day breakdown of pensions in payment breakdown of those aged 60 or over who remain in pensionable employment and how this has changed over time DfE reluctant to commission data on the impact of the RPI / CPI change but Teachers’ Side reaffirmed view that such data was essential  RPI / CPI change Hearing in the High Court 25 October 2011 – six public sector unions taking action over the detrimental impact of the change in indexation

11. WILL THE CHANGES AFFECT ME?  In Service PAY MORE Higher contributions PAY MORE WORK LONGER Later NPA for post-2015 service / benefits WORK LONGER LESS REWARD Potentially less benefits LESS REWARD  In Retirement LESS REWARD Smaller increases in pensions via CPI LESS REWARD Thus, even if you decide to leave before implementation of a new TPS in 2015 or you have already retired some element of the Government changes / proposals will have an effect on your total retirement income. YES