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Impact of pay freeze on the Teachers’ Pension Scheme (England and Wales) calculations

​The education unions have alerted the Department for Education to the potential impact the pay freeze could have on how some final salary pensions are calculated, due to a 'quirk' in the regulations.

This 'quirk' means that certain calculations need to be triggered by a change in the rate of pay, which wouldn't occur for some members affected by the pay freeze in 2021/22.

This issue does not apply in the career average scheme, nor to colleagues in Wales who were not subject to the pay freeze in 2021/22.

The Department for Education is now considering amending the regulations to stop this issue occurring in the future. However, this will not resolve the problems that will be experienced this year. 

As such NAHT, NASUWT, NEU, ASCL and Voice have written to all employers in England to highlight the problem and the action needed.

The joint correspondence sets out a practical way of ensuring the regulations work as intended by asking employers to create a change in the pay rate (suggested as small a change as £1 increase per annum) to engage regulation 37 (9) and (10), which will in turn trigger the revaluation of method B.   

We encourage members to discuss this with their governing bodies, to consider the implications for their schools. NAHT has also been in touch with the National Governance Association (NGA) to raise this issue through their channels.

Background

The final salary scheme uses two methods to work out average salary and the pension calculation, then uses the best of those two.

  • Method A: The last 365 days of salary.
  • Method B: The average of the best three consecutive years from the last 10 years, where the salaries are revalued to account for inflation.

The calculation for a member's pension in the final salary section of the Teachers' Pension Scheme England and Wales uses the best of these two methods.

TPS scheme regulations mean for revaluation to be credited in method B, the salary rate has to change. The only circumstance which does not trigger revaluation is a salary freeze. The Department for Education accepts that this is the position.

Non-revaluation therefore cuts the pensions members get in retirement if a period of pay freeze is part of the 'best consecutive three in ten'. Therefore 2021/22 may lead to losses for members at the top of their pay range/those who do not achieve progression but who retire or leave teaching in the next 10 years with their pension being calculated using Method B (‘best consecutive three in 10’).

First published 22 November 2021