Enjoy yourself, later than you think

There's nothing like a general election to concentrate the mind. For the best part of four months, the government and the teaching unions were in stalemate over proposals to reduce the benefits of the Teachers' Pension Scheme (TPS). By the beginning of March, the National Union of Teachers had voted for strike action in April, and even the usually moderate NASUWT and Association of Teachers and Lecturers had passed motions at their Easter conferences recommending strike action be considered.

And then, towards the end of last month, the government did a U-turn. The previously non-negotiable plans to raise the retirement age from 60 to 65 for all public sector pensions schemes from 2013 onwards were deemed to be negotiable after all, and the unions put any strike plans on hold. The government was adamant that its decision had nothing to do with avoiding industrial action during an election campaign, and was based entirely on a desire to reach a conciliatory resolution.

"We have been assured the government's decision to reconsider the retirement age has been made in good faith," says Barry Fawcett, the NUT's head of pensions, "and I have told Alan Johnson [the work and pensions secretary] that we expect him to keep his word."

Unofficially, though, most experts reckon the government has bought itself an amnesty and that when negotiations are resumed in the summer, it will be just as intransigent over raising the retirement age as it was earlier in the year. Not out of bloody-mindedness, but because it has no other option.

Last October, the government-appointed pensions commission, chaired by former CBI director general Adair Turner, published a 528-page report that made the Book of Job look cheerful. It declared the present pension system to be unsustainable, with an extra £57bn needed each year merely to maintain current levels of provision. If the money were not found, the choices would be stark - people would have to work longer and save more, or be willing to accept much reduced benefits.

Changes in tax legislation introduced by successive Tory and Labour administrations had decimated pension funds; employers had taken long contributions holidays in the years when sustained stock market growth was taken for granted, leaving funds seriously exposed when the market crashed; and the general population was living longer.

The main proposed change concerns the raising of the retirement age from 60 to 65 in 2013, the effect of which is to make teachers work five years longer to accrue the same benefits they get now, or to take a reduction in benefits. A 25-year-old teacher retiring at 60 on £35,000, under the new proposals, will take a £2,364 reduction in annual pension and £7,092 less on the lump sum due on retirement.

Older teachers take less of a hit, as they will have worked longer under the old scheme. But even a teacher who is now 40, retiring at 60 on £35,000, will take a £1,000 annual reduction and a £3,000 lump sum loss. In both cases, the sums concerned are substantial, and because a pension is essentially a deferral of salary, teachers regard the proposed changes effectively as a salary cut.

The TPS is an unfunded scheme. This means employers' and employees' contributions go straight into government coffers, and all benefits are paid for out of general taxation. It is not the only scheme under threat: all local and central government public sector funded pensions are facing the same structural changes, meaning school support staff face similar reductions.

As a sop to the unions, the government has proposed recalculating public sector pensions in 60ths rather than 80ths (with each year of service counting as one-sixtieth of the final pension). But this only has the effect of reducing by half the net financial loss caused by raising the retirement age.

"The notion that this black hole has appeared from nowhere is absurd," says Sue Johnson, head of pensions at the ATL. "Actuaries have known people were living longer for many years, so it can't have suddenly come as a surprise. What's more, the TPS is revalued every five years to make sure it is satisfactorily funded, and employers' contributions were only increased by 0.4% in 2003 to make good any shortfall. A rise this small suggests there can't have been that much wrong with it."

Others take a more pragmatic approach. They believe the government buried its head in the sand about the severity of the problem and is panicking now that it has to face the reality. But, argues Fawcett, this is no reason to treat all public sector pensions in the same way.

"It might well be that some clerical jobs can still be done by 65-year-olds," he says, "but the very nature of the job of teaching is such that a pensionable age of 65 doesn't make sense. Teaching is an extremely physically demanding job, and working beyond 60 is not beneficial either for teachers or pupils. Already a significant number of teachers retire on grounds of ill-health before 60; this figure will rise substantially if the retirement age goes up to 65."

Teachers have got used to a certain level of benefits. Back in the late 80s and early 90s, the government was eager to get rid of what it saw as dead wood at the top of the profession and most teachers in their 50s were encouraged to take early retirement through a series of financial inducements. As a result, many teachers began to see early retirement as a right.

"I'd never really intended to work through to 60," says Hazel Danson, a 37-year-old primary school teacher from Huddersfield. "I could never really see myself organising PE and sitting on the infants' chairs when I was in my late 50s. I would be more like the kids' granny than a teacher.

"Increasing the retirement age to 65 will significantly alter the pension I can expect. I'm not at all sure what provisions I'll have to make to take care of my family or pay the mortgage - all I know is that I won't be teaching. I guess I'll have to look for some other part-time job."

The idea that raising the retirement age will create a mass exodus from the profession is widely shared. "I don't think it will have an effect on recruitment," Johnson says, "as most people in their 20s don't give much thought to their pension when they start a career; they can barely imagine being 30, let alone reaching retirement age.

"But as they get older, it becomes far more significant and I believe that many teachers will look for another job, rather than work through to 65. So retaining senior staff will become far more difficult than it is already."

Much as teachers might protest at any reduction in their benefits, it remains an uncomfortable truth that, even with a raised retirement age and reduced pay-outs for ill health, their pension will still be a great deal better than many others'. There are few corporate pension schemes that haven't been badly hit by the downturn in the stock market.

Most employees in the private sector have had to watch helplessly as their pension has been downgraded from a final salary to a career average scheme. A report issued last month by the Pensions Policy Institute found that, even after the proposed changes, public sector pensions would typically be worth an extra 3%-18% of salary, compared with those in the private sector.

Johnson is well aware of this. "I'm always very careful to point out to our members just how good the TPS is in comparison to other schemes," she insists. Not that this cuts much ice with many teachers.

Ministers have done themselves no favours on this score by the speed and greed with which MPs regularly vote to make good any deficits in their own pension funds from the public purse. An MP of eight years' standing, earning £55,000, will have already clocked up a pension of £11,000 a year - only a few hundred pounds less than a primary teacher retiring at 60 after 37 years could expect to get, if the revised teachers' pension came into effect.

"Saying that our pension will still be better than many others is no reason to accept a reduction in benefits," argues Martin Reed, a member of the NUT executive and a teacher in the East Riding of Yorkshire. "The pension is an article of faith, a gold standard, for many teachers. We have been prepared to accept a slightly lower salary than people working in other professions because we were getting other long-term benefits.

"To reduce these benefits midway through teachers' careers is to arbitrarily change the terms and conditions on which people joined the pro­fession. Teachers already feel their position is being undermined - most expect management allowances to be greatly reduced when the rewards and incentives groups report back in 2008 - and reducing pension rights will be seen as a further erosion. I believe if the changes do go through, many teachers will decide that enough is enough."