The Daily Telegraph's claim today that teachers have a "£500,000 pension pot" is misleading and their calculations wrong, Left Foot Forward can reveal.
The Daily Telegraph’s claim this morning that “a typical teacher can expect to retire with a taxpayer-funded scheme worth more than £500,000” is misleading, miscalculated and ignorant of the facts.
The misleading half-a-million-pound “typical teacher” pension figure distorts the actual level of public sector pensions by focusing on one of the better paid groups of public sector workers and assumes 37 years’ service.
The paper assumes a pension of £24,000 – yet the average teachers’ pension in payment is £10,000, as shown in the scheme’s Resource Accounts. Furthermore, they assume a teacher who enters teaching at 23 and retires at 60 with a final salary of £32,000 will have a pension of £24,000.
That assumption is wrong, as the simple calculations below explain:
• A teacher who joined the scheme on or before December 31st 2006 gets 1/80th of their final salary per year of service plus three times this as tax free cash.
• Their pension at 60 is (£32,000)X(37/80) = £14,800, + £44,400 tax free cash.
• A teacher who joined the scheme on or after January 1st 2007 gets a higher accrual rate of 1/60th of their final salary per year of service, but this can only be taken in full at age 65; there is no automatic lump sum.
• The pension available at 60 – including the current actuarial reduction factor of 0.753 – is (£32,000)X(37/60)X(0.753) = £14,859.
• This is not a pension of £24,000.
The Telegraph article also ignores the fact that teachers’ pensions are funded on a different and more secure basis than pension backed by annuities – their comparison is made to a pension secured by private sector annuity rates. This is misleading because the state does not need to operate in the same way as a private insurance company.
This means administrative costs are lower, there is no need to factor in a margin for profit, and by definition the Teachers’ Pensions Scheme contains long and short-lived people.
Of course, right-wing public sector bashing and fiddling of the figures is nothing new, as regular readers will be aware of.
49 Responses to “Telegraph’s “£500,000 teachers’ pension pot” claim is wrong”
taxpayer
Some interesting maths you share. So as you say this is the State that funds this.
The BEST rate that a private sector person could get to provide a pension is around 35:1.
So you say that a teacher’s pension is more like £14,800 per annum, rather than that ridiculous £24,000 per annum. So someone in the private sector would need to save £14,800 x 35 = £518,000, plus the tax free lump sum, £44,400 = £562,400 to be able to replicate the pension from the Teachers’ Pension Scheme.
OK, let’s strip out profit then. Let’s give the insurance company a margin of 15% to cover profit and expenses (huge, but let’s give you that).
£14,800 x 30 = £444,000 plus your lump sum, £44,400 = £488,400, which is er, um, kinda, sorta very close to half a million pounds. What a disgrace for the Telegraph!
I’ve actually ignored discounting on the lump sum, but the point is that you are cooking your maths too.
I don’t begrudge teachers earning a decent wage and an adequate pension, but your skewed agenda doesn’t inform or help the debate. I have worked in this area my whole life and I believe that the country has a serious pensions problem.
The government has unfortunately not put conveyed the case for change succinctly, but blinkers will not cover sup the facts unfortunately.
Please – speak to your nearest pension actuary and get an independent view, and abandon defensive bunker-speak.
What does “the Teachers’ Pensions Scheme contains long and short-lived people” mean? Its no different
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If you didn't see it yesterday >> The Telegraph's "£500,000 teacher pension pot" claim is wrong http://bit.ly/k4E7vr (from @shamikdas)
Pam Smith
If you didn't see it yesterday >> The Telegraph's "£500,000 teacher pension pot" claim is wrong http://bit.ly/k4E7vr (from @shamikdas)
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If you didn't see it yesterday >> The Telegraph's "£500,000 teacher pension pot" claim is wrong http://bit.ly/k4E7vr (from @shamikdas)