Experts have warned of a looming “retirement income crisis” in the teaching profession as the number of teachers opting out of their gold-plated pension scheme for personal financial reasons shot up by 77 per cent last year as higher bills, mortgage rates and food costs made it unaffordable for many to contribute.

Figures from the Department for Education obtained through a Freedom of Information request show 12,824 opted out of the Teachers’ Pension Scheme (TPS), one of the most generous pension schemes in the country. This was between April 2022 and March 2023, with three-quarters (9,199) saying they were doing so to save money.

This represents a significant increase from the year before, when 8,106 left the scheme, with 5,193 doing so for financial reasons.

For their pensions, teachers are given 23.67 per cent of their salary by their employer – far higher than in the private sector where the employer can contribute as little as three per cent – but on average they pay in more compared to private sector workers.

Teachers contribute between 7.4 and 11.7 per cent of their salary – with no option to decrease contributions – while private sector workers can feed in as little as five per cent.

Teachers who have opted out of the scheme told i that contributing so much of their salary to stay in the scheme risked them falling into debt.

Sir Steve Webb, former pensions minister and now partner at the pension consultant LCP, has questioned whether all teachers are aware how good their pension scheme is.

“Because there’s been a lot of changes to it in recent years – for example, the contributions increasing – teachers may have heard negative coverage of it…. [and feel it is] not worth having. Relative to what you pay in it’s a very good pension scheme, though the value for many can be quite distant”.

Why teachers are leaving the scheme

Emma, a single mum and English teacher at a grammar school in the south east of England told i that she opted out of her workplace pension scheme about eight months ago to cope with rises in energy and food bills. Doing so meant she had £340 per month more in her pay packet.

She says she considered opting back in back in January, but at this point, her mortgage bills rocketed up by £300 as her fixed deal ended and she was moved on to a more expensive product, meaning she was “sliding further into debt”.

“On my salary I should be able to afford a decent life for my daughter and I but I can’t. I’m keeping a roof over our heads and paying bills but there are no extras”, she said.

“I am going to continue to opt out of my pension, even though it’s crazy to do so. I’m shooting my future self in the foot, but I can’t afford to pay it. I’d love start paying it again but can’t see that happening for a long while”.

Until March, teachers earning £46,587 or more had to pay at least 10.2 per cent in contributions, although this has since risen to £51,293.

Louisa Smith admits she’s anxious about opting out of her pension scheme

How much are teachers losing by opting out?

The TPS is a defined benefit scheme, based on a teacher’s salary and service, instead of them building up a pension pot over time like most private pensions. The average classroom teacher, according to the government, is paid £39,500.

When they retire, teachers get a regular source of income until they die.

Analysis by Wesleyan Financial Services, which obtained the data, suggests that a new teacher on £28,000 could miss out on £6,630 in contributions from their school, which would equate to £491 of income per year in retirement in today’s money. This could be equal to almost £10,000 – again in today’s value – over a 20-year retirement for every year they opt out. This is nearly five times the £2,072 they would save from opting out of the scheme.

Linda Wallace, director of Wesleyan Financial Services said the opt-out data “could indicate the makings of a retirement income crisis within the teaching profession”

Teachers campaigning for better pay deal

The figures come as teaching unions are locked in a pay dispute with the government over teacher pay.

Many teachers have lost pay to go on strike over multiple days in the past few months.

Teachers were offered a one-off payment of £1,000 for this year, and a 4.3 per cent pay rise next year back in April, but members of the National Education Union (NEU) rejected this.

And reports now have now suggested the independent review body which recommends teacher pay is set to offer a 6.5 per cent rise.

New teachers currently get a salary of £28,000 outside of London, though salaries increase with experience. Those on the top of the upper pay scale can get more than £53,000 in inner London.

Kevin Courtney, joint general secretary of the NEU told i that most of those opting out of the pension scheme would be young teachers in the early stages of their career, and that the figures demonstrated why teachers needed a pay rise.

And Louisa Smith, an RE teacher from Surrey, said she had opted out in 2016 when she became a single mum.

“I feel quite anxious about not paying into a pension, but I can’t afford to opt back in”, she said, citing the rising cost of living and teacher pay.

“The issue is there’s no flexibility, I have to pay 10.2 per cent or nothing. I’d have to work out the figures for 3 per cent, but if I could pay that that it would feel much more reasonable and manageable” she added.

A Department for Education spokesperson said: “The teacher pension scheme forms part of a generous package along with pay and wider benefits such as job security.

“There are many reasons that may lead teachers to opt out of their pensions including to reduce their tax liability or because they participate in another pension scheme – it does not necessarily mean they cannot afford to pay into their pensions”.

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