Pension reform for teachers

TTUTA

IN HIS 2018/2019 budget presentation, the Minister of Finance acknowledged the plight of retired public officers, with a promise to take appropriate steps to alleviate the suffering endured.

The concept of pension reform for members of the public service has long been touted by the State without concrete action. This matter has serious implications for all public officers and requires careful consideration and the involvement of all stakeholders, particularly those organisations which represent public service employees.

The current pension arrangement features a lump-sum payment (gratuity) and a monthly pension. The payment of these benefits is initiated by the employer upon instruction by the teacher.

Members of the teaching service are required to submit applications at least one year in advance to avoid an inordinate delay in the payment of benefits. This happens because of the convoluted processes involved in dealing with retirement matters. For this reason only, it would benefit the system to change the arrangements governing teachers’ retirement.

The Government once proposed (and we hope is still considering) a revolutionary approach to pension arrangements involving the introduction of a contributory (“defined contribution” rather than “defined benefit”) plan which would allow teachers control of their pension benefits based on practices which have been utilised in developed countries.

The basic concept being that the quantum paid into the Consolidated Fund on behalf of a teacher would instead form part of the teacher’s salary and appear on the teacher’s salary slip, but would not be available to the teacher. Instead that money would be a compulsory contribution and would be automatically paid into a pension fund.

The fund would be personal to the teacher who would receive regular statements on the value of the fund and the benefits accrued to date. It would be portable – the teacher could take the fund with him/her to a new employer if one is changing jobs. It would also be transferable – the teacher could change carriers if he/she so desires to facilitate a change in employers or if one perceives they would receive improved benefits with another carrier.

The teacher could also determine their level of contribution above the employer’s contribution, thus having control over the benefits payable to them upon retirement.

Ethical carriers from among established financial institutions would be identified and would operate under stringent rules determined by the Government. The teacher would thus have the option to choose a preferred carrier. The fund could also be used as security for projects agreed upon between the employer and TTUTA, eg home construction.

The retirement payments would be made by the carrier, not any department of the Ministry of Education or the Ministry of Finance, eliminating existing bureaucracy and processing delay. In any event, teachers would have up-to-date information on their entitlements and would know beforehand exactly how to plan for their retirement.

No longer would teachers be at the mercy of the Ministry of Education upon retirement for their entitlement. Changes to benefits, for example when new salaries are negotiated, would be effected immediately.

The issues requiring attention would be the possibility of conflict with other personal pension or annuity plans, taxation issues and funding for past service before the establishment of any such fund.

Other pension or annuity plans should not conflict with the proposed plan nor should the National Insurance pension benefit – this plan being independent of any other plan and a teacher may subscribe to as many plans as they desire.

Taxation arrangements would be the same as applies under the present arrangements, that is, the gratuity or lump-sum payment would not be subject to tax and the existing allowances for retirees would apply. Teachers leaving regular employment may have taxes deducted from their payments under certain conditions as exists at present.

Previous service presents a problem of funding as the benefits accrued by each existing teacher at the date of the commencement of the plan would have to be quantified, and a contribution equivalent to that benefit would have to be deposited with each teacher’s choice of provider, to ensure they would not be denied benefits which they would have earned through previous service.

The proposed plan would serve to remedy several of the disadvantages of the present system and reduce the dependency of teachers on the services of the Ministry of Education. Supervisory oversight would have to ensure that the carriers maintain the highest level of integrity in their operations and that they are accountable to both the State and the employee.