Teacher Pensions Indexation Issue – 18 March 2022

John Cook

We have received a number of enquiries from clients regarding an issue that has arisen following the teachers pay freeze in September 2022.

The issue relates to teachers’ pensions and, in particular, the calculation method for the ‘best consecutive three years in ten’ average salary.  In cases where there is no change of pay, that year would not be taken into account, which could lead to a loss for teachers and school leaders.

Who does this affect?
The issue only affects teachers if all the following applies:-

  1. They are in or have been in the final salary pension.  So, it does not apply to any teachers that joined the Teacher Pension Scheme for the first time after 1 April 2015.
  2. They are within 10 years of retirement.
  3. They have not received any pay progression in 2021/2022 as a result of the pay freeze.

The trade union position
The teachers’ trade unions wrote a joint letter to all schools and local authorities in November 2021 to raise the issue.

The full content of the letter is here – Joint Letter re Pension Indexation final

They are asking for affected colleagues to be given a £1 pay increase in order to trigger the indexation and avoid any loss of pension.

This could be done, in some case (not leadership), by a notional recruitment and retention bonus in accordance with STPCD.

The DfE position
The DfE sent a response to the unions on 28 January 2022 – Pension indexation issue – NASUWT Response Final Jan 2022

The DfE position is:-
‘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 alternatives 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.

The DfE also acknowledge that academies are free to make whatever decisions about pay they believe are appropriate.

Our advice
We contacted the TPS who told us that increasing the salary by £1 for those who did not receive a pay increase was a common approach adopted by schools and something they did not have any issue with, although they cannot give financial advice.

It was interesting to note that the key is for there to be a change each year.  So, in the first year of a pay freeze this would occur with a £1 increase.  Next year, if there was an increase, that would trigger the indexation and the member would be on whatever the new level is for pay scale concerned, which just means that the £1 would be taken into account by the increase.  If there was second year of a pay free, the salary could be reduced by £1 and that would trigger the indexation.

Also important that the change needs to be applied for the full year in question, so the increase backdated to the start of the pension year in September.

There is a small risk that by increasing a salary by £1 that could push a member into the next tier of the TPS contribution structure and results in higher member contributions.

In our view, there needs to be a justification for any change.  It is difficult to see how regrading a role and increasing the salary by £1 would be appropriate.  Retention and recruitment could be applicable, but not for individuals on the leadership scale.  One justification would be that the school is acting in the best interests of the staff affected by the change and fostering good employment relations with recognised trade unions, at very little cost.

If you are considering implementing the change you should contact you payroll provider to do so.

John Cook – Solicitor

John Cook

I am a qualified Solicitor with over 30 years’ experience running a business, managing a team, appearing in the Employment Tribunal and advising on almost every conceivable employment law and HR issue. Clients appreciate my down to earth and straight forward approach that allows them to achieve results and manage their organisation more effectively. I take the worry out of employment law and HR issues with a proactive and robust approach.