Teachers Pension. Employer Contribution & Employee Contribution

likesallweather

This is a daft question, I'm sure...

Teachers Pension employer contribution is about 24%. My contribution about 8%. When I called them last, they explained this as, "your employer contribution is about 24%, of which, your contribution is about 8%".

I always thought the two were separate. So, if I earned 10k, they'd pay roughly £2.4k and I'd pay about 8k, so a total of 32%ish would be paid into the pension...

Which is correct — is my contribution included in the 24% or in addition to?

thanks

Dazed_and_C0nfused

likesallweather said:

This is a daft question, I'm sure...

Teachers Pension employer contribution is about 24%. My contribution about 8%. When I called them last, they explained this as, "your employer contribution is about 24%, of which, your contribution is about 8%".

I always thought the two were separate. So, if I earned 10k, they'd pay roughly £2.4k and I'd pay about 8k, so a total of 32%ish would be paid into the pension...

Which is correct — is my contribution included in the 24% or in addition to?

thanks

Does it really matter?

TPS is a defined benefit scheme so the amount of the contribution is of no real relevance.

The pension you accrue is based on the scheme rules, you don't have a pot of money like you would have with a defined contribution scheme.

The contributions rates are explained here

https://www.teacherspensions.co.uk/employers/managing-members/contributions/calculating-contributions

hyubh

likesallweather said:

Teachers Pension employer contribution is about 24%. My contribution about 8%. When I called them last, they explained this as, "your employer contribution is about 24%, of which, your contribution is about 8%".

Looks like a typo (or simple misstatement).

Which is correct — is my contribution included in the 24% or in addition to?

The latter, but... as D&C says, employer contributions in the TPS are very much 'academic'. Quite apart from being a DB scheme, it is also 'unfunded' or 'pay as you go': one part of government allocates money to schools, then another takes a proportion back as pension 'contributions'. But they don't contribute to anything, instead Teachers pensions are paid for out of general taxation as and when due.

Universidad

hyubh said:

employer contributions in the TPS are very much 'academic'. Quite apart from being a DB scheme, it is also 'unfunded' or 'pay as you go': one part of government allocates money to schools, then another takes a proportion back as pension 'contributions'. But they don't contribute to anything, instead Teachers pensions are paid for out of general taxation as and when due.

The employer contributions don't matter to employees, however they can matter quite a lot to employers.

For example, private schools and Universities may have access to TPS, and aren't truly government funded in the way you describe. They can, and do, pay the employer contributions, and sometimes balk at increases in costs.

There are examples of institutions pulling out of these unfunded government backed schemes and providing (some or all of) their members with inferior DC pensions that have controllable costs.

This will become a huge theme in private schools in the next couple of years if Labour follow through on their promise to charge private schools VAT.The obvious place to make savings may be pension schemes for many organisations, and this will have a massive effect on the sector, as it will effectively mean the remuneration packages for private schools, which currently tend to be slightly higher than state schools, will instead be dwarfed by them.

You can expect this to have a knock on effect on the quality of staff retained, which will have a knock on effect on the quality of education, which will lead to fewer enrolments, which will lead to greater burden on state schools, which will mean the VAT policy is likely to cost taxpayers rather a lot of money.

Folks may have a political opinion on private schools (as a civil servant, I obviously don't...) but we should recognise what may be about to happen will have significant knock on effects. And employer contributions are going to be the pivot point!

mark5

It’s a good pension scheme with a low contribution rate from yourself the rest doesn’t really matter, most people would kill for a pension like yours. 

daveyjp

Having just seen an advert for a senior civil service job the Government think the employer contribution is important as its highlighted at 27%, despite it making no difference to the employees pension pay.

No wonder financial knowledge of pensions is so poor if Government use a figure to mislead job applicants,

likesallweather

Thanks for the responses. The mud is becoming a little more clear! I suppose I should give some context to the question: I'm considering leaving teaching to work for my own Ltd company. The way I was thinking, was "how much do I need to earn, to cover the loss of salary from teaching + the loss of employer and my own pension contributions". I was working on roughly salary x 1.3...Sounds like it might not be that simple?

Universidad

likesallweather said:

it might not be that simple?

Assuming your pension is worth about 30% of the salary on top is a good ballpark figure.

However, you probably don't want to be 30% richer but have no pension. 

So the real question is what pension provision you need to make, on top of the regular salary from your Ltd company and yeah, that's a much more complicated question. 

Marcon

daveyjp said:

Having just seen an advert for a senior civil service job the Government think the employer contribution is important as its highlighted at 27%, despite it making no difference to the employees pension pay.

No wonder financial knowledge of pensions is so poor if Government use a figure to mislead job applicants,

What's misleading about it? Any pensions novice wondering whether to join the main CS scheme or the partnership scheme would find that particular snippet very useful. See https://des.mod.uk/on-boarding/civil-service-pension-choices/#:~:text=What%20is%20the%20regular%20employer,depend%20on%20your%20salary%20banding.

hugheskevi

Marcon said:

daveyjp said:

Having just seen an advert for a senior civil service job the Government think the employer contribution is important as its highlighted at 27%, despite it making no difference to the employees pension pay.

No wonder financial knowledge of pensions is so poor if Government use a figure to mislead job applicants,

What's misleading about it? Any pensions novice wondering whether to join the main CS scheme or the partnership scheme would find that particular snippet very useful. See https://des.mod.uk/on-boarding/civil-service-pension-choices/#:~:text=What%20is%20the%20regular%20employer,depend%20on%20your%20salary%20banding.

(1) The contribution rate includes a notional past service deficit, created by HM Treasury changing the SCAPE discount rate as well as the McCloud judgment. None of which is of any relevance to the value of pension for a new joiner.

(2) The figure also includes the cost of funding administration of the scheme

(3) The contribution rate is averaged across the whole scheme, whereas the actual benefit depends heavily on an individual's age, with the scheme being around twice as generous for older members than it is for younger members.

(4) Employer contributions are banded, a left over from final salary legacy which makes no sense in a career average world but is difficult to move away from (although I think the snippet uses the overall average figure, not the banded rate which will apply to the member).

At best it is a crude, indicative figure. At worst it is extremely misleading (especially for young members, as it significantly overstates the value of the benefits for them). A much better figure to use would be the cost of newly accruing pension from the Valuation (23.6%, which is lower as there are no past service deficits to include). Even better would be age specific cost of newly accruing pension.

There is also the issue of the discount rate used in the calculations. The discount rate is based on expected GDP growth, and has been reduced significantly over time and is now CPI+1.7%. In recent times, gilt and bond yields have increased significantly as interest rates have risen, in quite a stark contrast to the assumptions being used in the public sector. If the discount rate had been held constant, or increased as interest rates have risen, the value of the employer contribution would be materially different.(eg, changed financial assumptions alone led to a 12 percentage point increase to the employer contribution rate).

Andy_L

hugheskevi said:

Marcon said:

daveyjp said:

Having just seen an advert for a senior civil service job the Government think the employer contribution is important as its highlighted at 27%, despite it making no difference to the employees pension pay.

No wonder financial knowledge of pensions is so poor if Government use a figure to mislead job applicants,

What's misleading about it? Any pensions novice wondering whether to join the main CS scheme or the partnership scheme would find that particular snippet very useful. See https://des.mod.uk/on-boarding/civil-service-pension-choices/#:~:text=What%20is%20the%20regular%20employer,depend%20on%20your%20salary%20banding.

(1) The contribution rate includes a notional past service deficit, created by HM Treasury changing the SCAPE discount rate as well as the McCloud judgment. None of which is of any relevance to the value of pension for a new joiner.

(2) The figure also includes the cost of funding administration of the scheme

(3) The contribution rate is averaged across the whole scheme, whereas the actual benefit depends heavily on an individual's age, with the scheme being around twice as generous for older members than it is for younger members.

(4) Employer contributions are banded, a left over from final salary legacy which makes no sense in a career average world but is difficult to nice away from (although I think the snippet uses the overall average figure, not the banded rate which will apply to the member).

At best it is a crude, indicative figure. At worst it is extremely misleading (especially for young members, as it significantly overstates the value of the benefits for them). A much better figure to use would be the cost of newly accruing pension from the Valuation (which is lower as there are no past service deficits to include). Even better would be age specific cost of newly accruing pension.

Weirdly the CS (as opposed to, eg, the NHS) didn't have banded contributions when it was a Final Salary DB scheme but only moved to them when they changed to a Career Average DB scheme