On 20 December the Secretary of State for Education reported to the House on the heads of agreement on the teachers’ pension scheme to be introduced in 2015, which set out the Government’s final position on the main elements of scheme design. Since 20 December, Ministers have been engaged in detailed discussions with the teacher and lecturer unions over the remaining details of the teachers’ pension scheme. I can now report to the House that discussions on these final details of the scheme design for the teachers’ pension scheme to be introduced in 2015 have now concluded. The Government have made it clear this sets out our final position on scheme design, which unions agreed to take to their Executives as the outcome of negotiations. This includes a commitment to seek Executives’ agreement to the cessation of any industrial action on pension reform. The final scheme design outlined is conditional on acceptance of this proposed final agreement.

This proposed final agreement reflects the conclusion of discussions on the final details with teacher and lecturer unions since the Secretary of State made his written ministerial statement on pension reform, on 20 December 2011, Hansard, column 157WS. The headline elements of the proposed final agreement remain unchanged from those reached on 20 December.

The core parameters of the new scheme are set out below:

a. a pension scheme design based on career average; b. an accrual rate of 1/57th of pensionable earnings each year; c. revaluation of active members’ benefits in line with CPI + 1.6%; d. normal pension age equal to state pension age, which applies both to active members and deferred members (new scheme service only). If a member’s SPA rises, then NPA will do so too for all post-2015 service; e. pensions in payment to increase in line with prices index (currently CPI); f. benefits earned in deferment to increase in line with CPI; g. average member contributions of 9.6%, with some protection for the lowest paid (subject to the detailed arrangements for determining future contribution structure, as shown in annex A of the proposed final agreement); h. optional lump sum commutation at a rate of 12:1, in accordance with HMRC limits and regulations;

i. spouses/partner pension in accordance with current provisions; j. lump sum on death in service of three times FTE salary; k. ill-health benefits the same as those in the current open scheme; l. actuarially fair early/late retirement factors on a cost-neutral basis except for those with a NPA above age 65 who will have early retirement factors of 3% per year for a maximum of three years in respect of the period from age 65 to their NPA; m. an employer cost cap to provide backstop protection to the taxpayer against unforeseen costs and risks (as set out at paragraph 5 and annex B of the proposed final agreement); n. the public sector transfer club will continue, and consideration will be given to the best method of operation in the reformed schemes; o. phased retirement arrangements which reflect those in the current scheme, with the additional option of a third drawdown of benefits after a member’s 60th birthday; p. abatement will not apply to service in the reformed TPS. Abatement rules for the current scheme will remain unchanged; q. members who leave the scheme and return within five years will have their accrued service in the current (NPA 60/65) scheme linked to their final salary at retirement; and r. flexibilities to allow members to elect to pay a higher contribution rate in return for a higher accrual rate for a particular year, at full member cost, within existing limits on additional pension. s. members who in the new scheme have a normal pension age higher than 65 will have an option in the new scheme to pay additional contributions to reduce or, in some cases, remove any early retirement reduction that would apply, if they retire before their normal pension age. Only reductions that would apply in respect of years after age 65 can be bought out and the maximum reduction that can be bought out is for three years (that would apply to a member with a normal pension age of 68 or higher).

The Government Actuary’s Department has confirmed that this scheme design does not exceed the cost ceiling set by the Government on 2 November. Copies of the proposed final agreement and GAD verification have been deposited in the Libraries of both Houses.