‘Quirk’ sees public sector pay freeze hit teachers’ pensions annual hikes

Trade unions including the National Education Union, the Association of School and College Leaders and the National Association of Schoolmasters Union of Women Teachers sent a joint letter to the Department for Education in November warning that Teachers’ Pension Scheme regulations would result in some teachers losing indexation as a result of the pay freeze.

Chancellor of the exchequer Rishi Sunak introduced a public sector pay freeze in November 2020, which came into force in April 2021, saying at the time that it would be unfair for public servants to get a pay rise when their private sector counterparts were being furloughed. However, in the latest October Budget, Sunak said the pay freeze would be lifted for 2022.

Members in the final salary part of the TPS have their benefits calculated against the higher of the average of their past year’s salary, or else the average of the best three years in their past 10 years’ service.

Our preferred short-term solution is for all teachers with final salary service to receive a pay increase at some level in 2021-22, apart from those who specifically indicate that they do not want this

NASUWT

Regulations governing the final salary element of the scheme specify, however, that the calculation method for the “best consecutive three years in 10” average salary only applies indexation if the salary rate changes, with the pay freeze eliminating that indexation for some teachers and leading to pension losses.

Although 82 per cent of teachers in England and Wales have final salary service in the TPS, as this is the figure provided by the DfE for the number who fall within the scope of the McCloud remedy, the issue around pension calculations does not apply to every, or even most, of them.

A NASUWT spokesperson told Pensions Expert that it was not currently possible to estimate the precise number of teachers affected, though, in a letter sent to the NASUWT in January, the DfE said the issue would not affect a majority of teachers as a “significant portion” are likely to have seen their pay increase as a result of progression payment or promotion.

“Additionally, teachers who joined the TPS for the first time after April 1 2015 will not have any final salary service. Of those who do have final salary service and have not received an adjustment to pay, the issue of indexation would not affect those who are more than 10 years from retirement,” the letter explained.

“Therefore, to be clear, the issue that has been raised would only affect those who joined the TPS before April 1 2015 and are within 10 years of retirement and received no adjustment to pay in the year in question as a result of progression payment or promotion.”

How to fix it?

In their joint letter, the trade unions argued that the fix could be found in recruitment and retention payments allowed by the schoolteachers’ pay and conditions document.

They argued that a one-off payment of as little as £1 per teacher would be sufficient to trigger TPS indexation.

In its response to the NASUWT, the DfE said that a long-term approach to solving the problem was under discussion, with an update to be provided to the TPS Advisory Board in February. 

Pensions Expert understands that that update was indeed provided to the board on February 10, but remains confidential. The department has promised a further paper to be delivered in June.

The DfE told the NASUWT, however, that, with respect to the proposed £1 remedy, it did not think universal changes to pay were necessary, or justified under the schoolteachers’ pay and conditions document.

“It is up to individual employers to determine whether there are specific circumstances that justify a change in pay for a teacher or school leader; for example, where a school may reasonably think a teacher could be affected by the indexation rules and current pay restraint, and it could result in the member leaving teaching,” the letter stated. 

“Where employers believe there is a genuine risk to retention of individual teachers, they will need to consider what remedial action may be appropriate in line with the STPCD.”

The DfE added that headteachers, deputy heads and assistant headteachers would not be able to benefit from the unions’ proposed remedy, as they are not eligible for a recruitment and retention allowance.

“However, if justifiable and appropriate, schools may wish to consider alternatives provisions allowable within the STPCD provisions; for example, making a small notional change in the value of their pay point/annual pay,” it added.

“To be clear, though, schools will need to consider the issues, including the provisions set out in the STPCD, on a case-by-case basis and assure themselves that the requirements around increasing leaders’ salaries, as set out in the implementing your school’s approach to pay guidance, are met.”

It also cautioned that schools considering this step would have to be mindful of any unintended consequences arising from it, such as the pay adjustment leading to higher member contributions.

In a blog post for law firm Browne Jacobson, head of HR services Emma Hughes said one potential way around the problem of headteachers not being eligible for recruitment and retention payments would be for schools to implement a £1 pay increase across the board, whether or not the teachers benefiting were affected by the issue.

However, she said it would have to be a “justified public expenditure” with “a rationale in place”.

“If you are unable to identify all of the teachers who are affected [...] or the cost of identifying those teachers will outweigh the outlay of the £1 applied to annual FTE salary for all teachers, then that may be sufficient justification,” Hughes wrote.

“After speaking with [TPS], it seems likely that most employers will find identifying affected teachers problematic and costly in time spent gathering and investigating data.”

Although reducing pay by £1 was also an option, she warned that it would require a consultation given it would result in less-favourable pay conditions, and is likely to be challenged by the trade unions in any event.

The NASUWT told Pensions Expert: “Our preferred short-term solution is for all teachers with final salary service to receive a pay increase at some level in 2021-22, apart from those who specifically indicate that they do not want this.

“Our preferred long-term solution is for a change to the TPS final salary regulations, so that indexation is applied in circumstances where pay is flat, including during the 2011-13 teachers’ pay freeze period.”