Teachers Pension. Employer Contribution & Employee Contribution

hyubh

Universidad said:

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!

One might argue it's pretty outrageous that private schools can participate in the first place, and on a cash accounting basis to boot (i.e. there's no pension liability that goes into the accounts, like if they have their own DB scheme, or participate in the LGPS). Why should ordinary taxpayers be supporting the extremely generous pension promises of private schools...?

Universidad

hyubh said:

One might argue it's pretty outrageous that private schools can participate in the first place... Why should ordinary taxpayers be supporting the extremely generous pension promises of private schools...?

One might argue that, but against a backdrop of private schools pulling out of these generous pension schemes, it rather looks like many of them see it as a burdensome perk they can offer staff, rather than a true benefit.

The ultimate recipients of the pension aren't the school, they're the educators who work within the school. 

You could quibble about where the money comes from, but don't forget that virtually every customer of a private school has paid the taxes that support the state school at which they are not taking up a place.

Certain financial realities exist regardless of our personal position on private education.

hugheskevi

Andy_L said:

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

Do you know when the change was made? I found this reference from 2005-06 which confirms banded employer contribution rates were used in 2006, and that was prior to the introduction of the nuvos pension scheme in 2007, which was the first career average scheme in the Civil Service.

Interestingly (to some!) buried in the latest Valuation published earlier this month is this text:

"The Cabinet Office has confirmed that it does not intend to adopt a tiered employer contribution rate structure when implementing the 2020 valuation."

The Valuation also increases the assumed proportion of pension exchanged for cash, noting that this assumption change reduces scheme costs.

Andy_L

hugheskevi said:

Andy_L said:

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

Do you know when the change was made? I found this reference from 2005-06 which confirms banded employer contribution rates were used in 2006, and that was prior to the introduction of the nuvos pension scheme in 2007, which was the first career average scheme in the Civil Service.

Interestingly (to some!) buried in the latest Valuation published earlier this month is this text:

"The Cabinet Office has confirmed that it does not intend to adopt a tiered employer contribution rate structure when implementing the 2020 valuation."

The Valuation also increases the assumed proportion of pension exchanged for cash, noting that this assumption change reduces scheme costs.

I misread & thought you were talking about employee contributions

hyubh

Universidad said:

hyubh said:

One might argue it's pretty outrageous that private schools can participate in the first place... Why should ordinary taxpayers be supporting the extremely generous pension promises of private schools...?

One might argue that, but against a backdrop of private schools pulling out of these generous pension schemes, it rather looks like many of them see it as a burdensome perk they can offer staff, rather than a true benefit.

Well... that's because it is just a 'burdensome perk' when employer rates are raised  When the TPS' discount rate is tightened, employer contributions go up, yet this greater prudence doesn't benefit the private sector employer at all. The employee doesn't get any extra pension, so the employer can't say the higher contributions are improving its attractiveness to potential staff; but conversely, the fact TPS costs are accounted for on a cash not accruals basis means the extra prudence entailed by a tighter discount rate is meaningless for them.

Were the TPS 'funded' like the LGPS, then a higher regular contribution rate today should entail a much more palatable exit valuation tomorrow. But the TPS isn't funded, so doesn't perform exit valuations: when the last active member for a given employer leaves, that's that, they walk away scot free, and it's left to the taxpayers of tomorrow to ensure pension promises are kept. That's why I referred to private sector involvement as arguably 'outrageous': the moral hazard is firmly with the taxpayer, whatever the moaning about increased employer contribution rates.