TEACHER'S PENSION ADVICE - Additional contributions to mitigate losses from coming out of TPS?

Sandwedge135

QUESTION: 

£49,000 + TPS   =   £49,000 + £?? + Aviva Pension

What percentage increase might be fair to ask for to replace the lost value from coming out of the TPS?

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I have moved schools to take up an equivalent teaching role elsewhere. My old school was a part of the TPS and the new one is not. I have been offered the job but have not yet accepted in writing. I am excited about the new role but am concerned about the relative value of the employment offer given this change in pension type.

• My previous job had a salary of £49,000 + TPS
• My new job offer is the same £49,000 salary but with an Aviva APTIS pension (Defined contribution scheme where I contribute 6%, the employer contributes 16.7%).

Overall I am pretty sure this new offer is less valuable in the long term, but by how much? To bridge the gap in the pension offering I would like to try to negotiate a % age increase in my newly offered salary, and use this extra as an automatic regular additional contributions to my Aviva pension.

My question therefore is how much extra might I reasonably ask for to make the employment offer equivalent?

I am looking for a sum to cover the money aspect only. Obviously some of the additional benefits of TPS (death in service etc) cannot be directly compared with APTIS. Nevertheless I hoped someone might be able to estimate an approximate percentage figure I could reasonably propose to my prospective employer to try and balance the equation.

(Age 37. Plan to retire at approx 63)

Thank you!

Marcon

Sandwedge135 said:

QUESTION: 

£49,000 + TPS   =   £49,000 + £?? + Aviva Pension

What percentage increase might be fair to ask for to replace the lost value from coming out of the TPS?

---------------------------------------

I have moved schools to take up an equivalent teaching role elsewhere. My old school was a part of the TPS and the new one is not. I have been offered the job but have not yet accepted in writing. I am excited about the new role but am concerned about the relative value of the employment offer given this change in pension type.

• My previous job had a salary of £49,000 + TPS
• My new job offer is the same £49,000 salary but with an Aviva APTIS pension (Defined contribution scheme where I contribute 6%, the employer contributes 16.7%).

Overall I am pretty sure this new offer is less valuable in the long term, but by how much? To bridge the gap in the pension offering I would like to try to negotiate a % age increase in my newly offered salary, and use this extra as an automatic regular additional contributions to my Aviva pension.

My question therefore is how much extra might I reasonably ask for to make the employment offer equivalent?

I am looking for a sum to cover the money aspect only. Obviously some of the additional benefits of TPS (death in service etc) cannot be directly compared with APTIS. Nevertheless I hoped someone might be able to estimate an approximate percentage figure I could reasonably propose to my prospective employer to try and balance the equation.

(Age 37. Plan to retire at approx 63)

Thank you!

The current employer contribution rate to the TPS is 28.68% - but it's not that simple (it never is with pensions!). That is a composite guesstimate covering all ages, and the older someone is, the more of that contribution is applied to 'them' - at least notionally.

Your new employer's contribution rate is certainly more generous than many DC schemes, but it won't replicate the TPS benefits. I'd point that out to them and ask them to reconsider the salary they are offering, then wait for them to make the next move ie don't open the batting by putting your own request on the table, just in case they are willing to offer something better. 

Also - make sure you can make 'your' contribution via salary sacrifice, to get the NI saving - and see if they are willing to pay any extra as a result of their saving on NI.

If you are only being offered the same salary and a less generous pension, you are effectively taking a pay cut - but if this is an independent school, as seems likely, they may simply not be in a position to pay you more, especially with the spectre of Labour's proposals in relation to private education.

hugheskevi

Starting point would be the cost of new pension accrual, which as at the last Valuation was 27.6% of pensionable earnings (see page 7). 

Of that 27.6%, a member earning £49,000 would pay 9.6 percentage points leaving an Exchequer contribution of 18% of pensionable earnings.

This is different to the employer contribution rate as the employer rate includes 10.6% of pensionable earnings to pay for a notional past service deficit in the scheme.

Marcon

hugheskevi said:

Starting point would be the cost of new pension accrual, which as at the last Valuation was 27.6% of pensionable earnings (see page 7). 

Of that 27.6%, a member earning £49,000 would pay 9.6 percentage points leaving an Exchequer contribution of 18% of pensionable earnings.

This is different to the employer contribution rate as the employer rate includes 10.6% of pensionable earnings to pay for a notional past service deficit in the scheme.

You are of course right...but the higher number gives a much more compelling argument than the 16.7% offered by the new employer v the 18% Exchequer contribution which is why I'd start from that one (and if the new school understands the situation, they can always argue back on those grounds).

Sandwedge135

Thank you @macron & @hugheskevi

So actually from the new school's perspective, their contribution to my Aviva of 16.7% isn't too far from the 18% they would be contributing if I was in the TPS? (I agree @Macron using the April 2024 TPS figure of 28.68% contributions seems more compelling but they might see through that quite quickly, no?)

Would you both be able to help me to extrapolate this into what I might reasonably have as a target when I enter a negotiation? ( @Macron , I noted your sensible suggestion to get them to make the first move.)  

Am I right to conclude from what you have both said that from the new School's perspective I might only be within my rights to reasonably ask for the extra 1.3% (16.7% -->18%)?

Marcon

Sandwedge135 said:

Thank you @macron & @hugheskevi

So actually from the new school's perspective, their contribution to my Aviva of 16.7% isn't too far from the 18% they would be contributing if I was in the TPS? (I agree @Macron using the April 2024 TPS figure of 28.68% contributions seems more compelling but they might see through that quite quickly, no?)

Depends how recently the school left membership of the TPS and whether they have anyone with a firm grasp of pension funding, which - to put it bluntly -  is not exactly a racing cert, so worth a go.

Sandwedge135 said:

Would you both be able to help me to extrapolate this into what I might reasonably have as a target when I enter a negotiation? ( @Macron , I noted your sensible suggestion to get them to make the first move.)  

I'd wait and see what they offer then come back here and report.

Sandwedge135 said:

Am I right to conclude from what you have both said that from the new School's perspective I might only be within my rights to reasonably ask for the extra 1.3% (16.7% -->18%)?

It's not a case of rights, so much as expectations. As I explained in my first post, that employer contribution %age in a defined benefit scheme such as the TPS isn't applied 'equally' across all ages. For practical purposes a scheme actuary comes up with one %age contribution rate because otherwise the thing is administratively impossible. If you were say 25, 16.7% (or 18%) would look very healthy indeed, but once you get into your 50s or 60s there's less time for investment returns to build up, so it becomes less attractive.

You are only being asked to pay 6% to get an employer contribution of 16.7%, so if you add in the extra 3.6% you'd have had to pay if you stayed in the TPS, that's a handy top up.

I think it's a case of ask and see what you're offered.

badmemory

If you are changing employer to an academy then I would suggest extreme caution.  There is a reason employees are leaving their employment more quickly than others.

Sandwedge135

also @Macron
Yes i'd plan to do this via salary sacrifice so the NI saving is another great tip, thanks.
Google suggests 13.8% as the employer NI saving. Does that sound right?

hugheskevi

I agree with Marcon. In a negotiation situation, I would be emphasising that I was leaving behind an employer contribution rate of nearly 29%. 

I would also be saying how DB pension is better than DC due to the guarantees, so 29% is really an underestimate, and that you are looking to better your position by moving so whilst this a great opportunity etc, anything less than £x would be too much of step-back.

I very much doubt they would have anyone able to rebut that along the actuarial lines above, and would be disappointed if they did. I would be expecting a response more along the lines of these are the T+Cs, can't do better, do you want it, if they were not minded to negociate.

As to what £x is, I'd be saying £49K + 16.7% = £57.18K. I'd compare that to £49K x 29% = £63.21K, and taking into account all the things above have a starting position that I'd really be looking for a salary of closer to £60K. A reasonable outcome might be an extra £6K (£63.21K - 57.18K) resulting in a £55K salary if there was room for negotiation.

Sandwedge135

You've all been really helpful, thank you. 
Just to clarify @badmemory . It is one private school (who incidentally were pushing hard to move people out of the TPS) moving to another private school

Marcon

Sandwedge135 said:

also @Macron
Yes i'd plan to do this via salary sacrifice so the NI saving is another great tip, thanks.
Google suggests 13.8% as the employer NI saving. Does that sound right?

It does: https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions