Pension Provision Affecting EIS Members
This provides background information to supplement the flyers issued for the forthcoming ballot.
Current Pension Provision Affecting EIS Members
(i) The Scottish Teachers’ Superannuation Scheme (STSS)
The vast majority of EIS members are members of the Scottish Teachers’ Superannuation Scheme (STSS). The STSS is a notional scheme. Contributions are made by both employers (currently (14.9%) and by employees (6.4%). In a notional scheme the contributions are retained by the Treasury which guarantees to meet the scheme liabilities. Pensions are based on the final salary of the employee. This is known as a defined benefit scheme. (A defined contribution scheme is one where contributions are invested and an annuity based on market value is established on retirement). The lump sum and annual pension to be paid is based on years of service and the accrual rate. The STSS is a pay-as-you-go scheme with today’s contributions being used to pay the pensions of those who have retired.
The STSS is subject to periodic valuation by the Government Actuary’s Department (GAD). Following valuation recommendations are made on the contribution levels of both employers and employees.
The STSS was reformed in 2007 and the terms of the reform scheme can be found in the Pension Section of the website.
(ii) Local Government Pension Scheme (LGPS)
Music Instructors, Librarians, some Educational Psychologists and QIOs and a small number of college lecturers are members of Local Government Schemes. The scheme is regulated by the SPPA but administered by 11 fund administering authorities across Scotland. The LGPS is a funded scheme. In other words the contributions of employers and employees are invested, the scheme is administered by representatives of employers and employees and the investments pay for pensions on retirement. The LGPS is a final salary scheme. Employees’ contributions are based on a tiered contribution rate depending on salary.
(iii) Universities Superannuation Scheme (USS)
A small number of EIS members in higher education belong to the Universities Superannuation Scheme. The USS is not subject to the current proposals.
While pensions policy is a reserved matter, the pension regulations which govern the Scottish Teachers’ Superannuation Scheme (STSS) and Local Government Schemes (LGPS) are set by the Scottish Parliament. For the STSS any regulation changes also require Treasury approval.
The Westminster Government set up the Independent Review of Public Service Pensions headed by Lord Hutton and required him to consider the growing disparity between public sector and private sector pension provision and to consider how to share risks between the taxpayer and scheme members. He was required to make recommendations on provision that is sustainable, affordable and fair.
Following the publication of the Hutton Report (10 March 2011), the Government conducted a series of meetings with TUC and separate scheme discussions have commenced. There is consultation with each scheme on the first stage of contribution rate increases. The Government has proposed increasing contribution rates of employees across the public sector by an average of a further 3.2% contribution increase over the next three years (1.2%, 1.2% and 0.8%). This represents a 50% uplift from the current 6.4%. The Government has developed Lord Hutton’s final report into a reference scheme against which scheme reforms will be measured. The Treasury is also working on cost ceilings for each scheme to ensure that any scheme design which does not conform to the reference scheme still conforms to the reference scheme costings.
In 2006–7 Scheme discussion for the STSS, the TPS in England and Wales and the Northern Ireland Teachers’ Scheme were all initially conducted through the mechanism of the Teachers’ Superannuation Working Party at UK level. Again, this mechanism is being used to commence discussion and the EIS is represented in those discussions.
The Scottish Government, as stated above, has to approve regulations. It does not require to reach agreement with trade unions. It has only to make change through a majority in the Scottish Parliament.
The Scottish Government’s position has been set out by First Minister Alex Salmond can be found in the Pension Section of the website.
The Principal Changes
(i) Change of Indexation
Since 1971 pensions in payment have been uprated annually by the Retail Price Index. From April 2011 this has been changed to the Consumer Price Index. This does not only affect the pensions paid to those who have retired and who believed that their pensions would always be uprated by RPI. It will also have an impact on final salary calculations where the final salary is not as high as the best three year average in the last 10 years and on those who have a deferred in pension. This change has already been made.
(ii) Increase in Contributions
The Government is seeking to introduce contribution increases over the next 3 years, to provide an average 3.2% contribution increase across public sector schemes with the exception being the armed services. The Government has also recommended that these contribution increases should be tiered to protect the low earners both within and across schemes. This will mean that the contribution increases for many teachers will rise over the 3.2% (which for teachers is a 50% increase on the current 6.4% contributions).
(iii) Career Average
In line with the Independent Public Sector Pensions Commission findings the Government’s reference scheme recommends replacing a defined benefit final salary scheme with a defined benefit career average scheme. In a CARE (Career Average Revalued Earnings Scheme) there is a pension value attributed to each year of pensionable service. This is then uprated annually and the final salary will reflect earnings averaged over a full career.
A career average scheme will disadvantage those who benefit from promotion since the pension will reflect earnings over a career and not the salary prior to retirement.
The value of pensions will be dependent on the accrual rate which is adopted. This is still being considered by the Government. Initially, papers from Treasury suggested that the Government might contemplate an accrual rate of 1/100 or 1/90. Even this rate will compare uncomfortably with the current accrual rate of 1/60.
(iv) Retirement Age
For teachers the current normal retirement age is either 60 or 65 depending on when you joined the scheme. The Government intends to link the retirement date of most occupational schemes to the state pension age.
