Management Information Sheet

Teachers' Pensions Scheme Indexation

MI Sheet TypeInformation
MI Number:71/22
Publication Date:25/03/2022 12:00:00
LA Contact:Ian Cooper (01603 222897)
Audience:Headteachers of maintained schools
Links:MI Sheet draft - TP Indexation.docx

Teachers' Pensions Scheme Indexation


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. Note: This issue does not apply in the career average scheme.

The Department for Education is considering amending the regulations to stop this issue occurring in the future. However, this will not resolve problems that may be experienced in the 2021/22 reporting year (April to March).

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

The joint correspondence proposed a 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.

The Teachers' Pensions final salary scheme uses two methods to work out average salary and the pension calculation:-

  • 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 (TPS) 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 (i.e. no change to the gross salary for the scheme member in the stated period). The Department for Education accepts that this is the position.

Non-revaluation can therefore cut the pension that a scheme member gets in retirement if a period of pay freeze is part of the 'best consecutive three in ten'.

Therefore 2021/22 may lead to loss for a scheme member (e.g. who is at the top of their pay range and do not achieve progression) if they joined the Teachers' Pension Scheme before 1 April 2015 and they retire or leave teaching in the next 10 years.

DfE Position

A DfE response to the NASUWT on this issue stated:-

Thank you for your email correspondence of 18 January on the issue of indexation in the final salary section of the Teachers' Pension Scheme and the request for the Department to issue guidance clarifying the universal use of recruitment and retention payments, referred to in STPCD guidance, (and equivalent provision for school leaders) - as has been proposed jointly by the unions.

The Department's pay and pensions teams have jointly considered the request for further clarification to be provided to employers regarding the suitability of making such payments.

Before dealing with the specific STPCD point, by way of context, I think it's important to set out that the issue that has been raised will not affect the majority of teachers who are subject to pay restraint, as a significant proportion are likely to have received an adjustment to pay as a result of progression payment or promotion.

Additionally, teachers who joined the TPS for the first time after 1 April 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. Therefore, to be clear, the issue that has been raised would only affect those who joined the TPS before 1 April 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.

As you are aware, the long-term approach is being discussed with the Scheme Advisory Board and an update will be provided in February. If the Department determines that the policy approach should be changed, this will need to be agreed with HM Treasury and subject to consultation before a change to regulations would be made. The Department considers that this is the appropriate way to address the issue that has been raised.

Whilst the concerns raised in respect of the current year are understood, the Department notes from the Annual Budget and Spending Review announced in October 2021 that public sector workers would receive pay rises across the 2022/23 to 2024/25 Spending Review period.

With regard to the proposal to apply a £1 uplift for teachers and school leaders (including head teachers, deputy headteachers and assistant headteachers) the Department does not believe that universally applying pay adjustments is necessary or justified in accordance with the STPCD. 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 e.g., 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. 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.

That said, you will be aware that headteachers, deputy headteachers and assistant headteachers are not eligible for a recruitment and retention allowance. However, if justifiable and appropriate, schools may wish to consider alternative provisions allowable within the STPCD provisions e.g., making a small notional change in the value of their pay point/annual pay. 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.

In doing so, employers would also need to consider whether any adjustment to pay could have unintended consequences for a member - e.g., if a member is close to the next tier of the TPS contribution structure and adjustment results in higher member contributions.

Clearly what we have set above in relation to the STPCD only applies in a statutory sense to maintained schools, and academies are free to make whatever decisions about pay they believe are appropriate.

I hope this helps to clarify the Department's thinking on this issue and I am copying this response to other STRB statutory consultees as I know that most will have an interest in this matter.

Next Steps

EducationHR are extracting reports from NCC Payroll to establish which maintained school employees, who are members of the Teachers' Pension Scheme, have seen no increase in pay between 31 March 2021 and 31 March 2022.

From that, they will look to exclude individuals who could not have joined the scheme before 1 April 2015 (most likely those under the age of 27 at March 2021). Because the issue will only impact those within 10 years of retirement (or of leaving teaching), any report may also identify age bands to support schools in a judgement around this criterion, although there is no longer a 'normal' or statutory retirement age.

EducationHR and NCC Payroll are also exploring how it may be possible to make payments in May 2022 but to report those payments as being intended prior to April 2022. If this is possible, schools will be advised on how they can request payment (of £1) to those remaining on the list as likely to be affected.

Schools can then consider whether they wish to make payment to any individuals.

Further communication will be released shortly, once reports are available.

Contact point:
Ian Cooper
EducationHR Service Lead
01603 222897