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28th Jun, 2023

Gavin Beart
Gavin Beart
Job Title
Divisional Managing Director

Teachers’ pensions are often known as ‘gold-plated’ schemes, thanks to employer contributions of 23.68%, while the employee can put in between 7.4 and 11.7 per cent – crucially without the option to alter either way. As such, those overstretched by the challenging financial climate are risking their futures by opting out of the scheme altogether – to the tune of £8,000 for every lost year, according to a report in earlier this month.

It’s a tough call for those struggling to make ends meet – first to go are some of the ‘luxuries’ that have become second nature: holidays, subscriptions, take aways, coffee to go. Then there’s frugality with the grocery shop, making do and mending, and finding ever more inventive ways to cut household spending – maybe even selling treasured items to stay out of an overdraft. Now pensions hang in the balance, with those choosing to opt out finding themselves hundreds of pounds better off each month – or in other words – able to pay their bills.

While I won’t get into the murky waters of teacher strikes, it is clear that many – particularly those new to the profession on typically lower salaries – are struggling to stay afloat. And with interest rates set to climb until the end of the year, if not beyond, people are bound to prioritise their mortgage or rent over an unseen pot many years out of reach.

Teachers' pensions: opt in or out?

Some will argue that experienced teacher salaries are reasonable – the average classroom teacher, according to the government, is paid £39,500 – and benefits tend to be greater than many private-sector plans. However, ongoing factors such as inflation are countering this. According to the Institute of Fiscal Studies, teacher salaries in England fell by an average of 11% between 2010-2022, owing to inflation.

Department for Education data, obtained through financial services firm Wesleyan, revealed that 9,199 teachers across the UK left their pension scheme for personal financial reasons between April 2022 and March 2023.

Linda Wallace, Director of Wesleyan, said that leaving the Teachers’ Pension Scheme “should be a last resort” and that professional advice should be sought before doing so. But this is not brand new information – since 2015 there have been reports of teachers opting out. This year, however, the exodus could be the worst yet.

While inflexibility to lower contributions remains in the pension scheme, there is little teachers can do until the financial crisis eases, making this once envied benefit something of an albatross around the neck. This begs the question, is it time these traditional pensions were put under the microscope before the economic situation spirals further?

Pension contributions: is it time for change?

Should there be a reduction in the size of the employer contribution to allow more salary to be paid to the teacher?

Teachers’ pensions are index-linked, which helps protect from future increases in the cost of living and guarantees retirement income that is directly linked to salary. Any alternative that teachers might look to replace it with is likely to be far less generous.

Might the profession one day face a private-sector model, with far lower employer pension contributions? What knock-on effect would that have when it comes to attracting people into teaching? And what alternative benefits might be offered, of equal appeal to a good pension?

The conversation has started and perhaps change is on the way.

Looking for your next role in education or to hire new staff at your school? Get in touch with your local Reed specialist.