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13,000 teachers opt out of pension scheme because they can’t afford it

Teachers are choosing to move their money to private pension pots over affordability concerns

The number of teachers opting out of the Teachers’ Pension Scheme (TPS) has risen by 14 per cent in the past year with the majority of those leaving saying it is because they can no longer afford to contribute the high rates.

A Freedom of Information request by Wesleyan Financial Services to the Department of Education revealed that between June 2023 and May 2024, 13,112 teachers across the UK left their pension.

All state schools in the UK have to automatically enroll their staff in the TPS, which is a generous defined benefit (DB) scheme that guarantees staff a fixed annual income in retirement based on their salary throughout their career.

It is different to most pensions in the private sector, which are known as defined contribution (DC) schemes, where staff pay into a pot, from which they then draw down in retirement, but can theoretically run out.

However, under the TPS scheme, staff contribute a minimum of 7.4 per cent of their salary towards the funding of current pensions, and schools contribute 28.6 per cent. This is a much higher contribution sum than most private sector plans.

As a result, 9,010 teachers opted out of the TPS scheme citing personal finance reasons, an increase of 7 per cent on last year. Another 1,240 opted out because they were joining another pension scheme – an increase of 147 per cent.

One possible reason for the rise is the number of independent schools moving away from the TPS due to higher employer contributions.

Many are now opting to switch to private pension schemes.

Another 307 teachers opted out because they said they were not planning to stay in the UK, a figure that is up by 33 per cent. This may point to teacher pay not being competitive internationally, Wesleyan told i.

Linda Wallace, director of Wesleyan Financial Services, fears this could indicate the makings of a “retirement income crisis” within the teaching profession.

She said: “While circumstances may mean that more and more teachers simply can’t afford to keep contributing, leaving the TPS should be a last resort. The pension scheme is an extremely valuable benefit.

“[It is likely] this surge in teachers switching to private pension schemes reflects the fact that more and more private schools are leaving the TPS amid rising employer contribution rates. Where schools leave the scheme, teachers may be left with no choice but to make alternative pension arrangements.”

The TPS has the major advantage of being index-linked, which helps protect it from future increases in the cost of living and guarantees retirement income that is directly linked to a teacher’s salary.

Ms Wallace added: “Any pension alternative that teachers might look to replace it with is likely to be far less generous.

“It’s essential that anyone looking at alternative options – by choice, or by necessity – understands exactly what the implications could be for them”.

Experts have warned that opting out will mean missing out on a major perk of working in the public sector.

Tom Selby, director of public policy at investment platform AJ Bell, said: “Some increases in opt-outs were inevitable given the combination of runaway inflation for the last few years and the relatively high member contributions required to be a member of the TPC.

“However, the contribution rate is just part of the story – the pension you are promised in return is the gold standard and extremely good value for money. Anyone opting out of the pension scheme is therefore missing out on one of the major perks of working in the public sector.

“Before making a decision of this magnitude, make sure you’ve reviewed your budget and assessed whether you can make other cost savings. Every year you are not in the pension scheme will reduce your income in retirement, so if you do opt-out, make sure you have a plan to get back in the scheme once you are financially able.”

It comes as 28 per cent of teachers aged under 30 said they would take a higher salary now in exchange for a less generous pension, something that is now being offered by some schools.

A Teacher Tapp poll of over 11,000 teachers also found that 19 per cent overall would “prefer a higher salary now with a lower pension in the future”. However, 59 per cent said they would not.

The survey app asks teachers three questions a day to find out what they think about a daily topic.

It found those in favour of such a higher salary rose to 28 per cent for teachers in their 20s, and 21 per cent for those in their 30s. This contrasts strongly to just 14 per cent of educators in their 40s and 11 per cent of those aged 50 and over.

i reported this week that United Learning – the biggest group of state schools in the country – plans to offer their staff higher pay in return for smaller pension contributions in what is thought to be a first for the state sector.

Those who want to take up an alternative pensions offer, in exchange for more pay, could opt out. Under the new pension plan, United Learning would still contribute at least 10 per cent in employer contributions.

Currently, employers pay 28.68 per cent of salary into the TPS. Money saved from this will be used to boost salaries, potentially rising up to £45,000 for new teachers in inner London and £38,000 elsewhere.

But the move has put United Learning on a collision course with the teaching unions, which have urged the new education secretary, Bridget Phillipson to intervene.

They claimed the move could “threaten” the public sector pension scheme’s “stability and long-term future”, a view contested by United Learning’s chief executive Sir John Coles, who says teachers should be given the choice.

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