Raising that retirement age

TTUTA

THE RECENT announcement by the Minister of Finance that the Government is contemplating extending the age of compulsory retirement from 60 to 65 has left many teachers aghast and concerned. Apart from indicating that there is a strain on the National Insurance Scheme to meet pension obligations to retirees who are living longer, there was little by way of further details to allay the concerns of teachers whose retirement is imminent.

Many people are gravely worried that, having served 35 to 40 years in the teaching service, they will be forced to endure another five years to access their retirement package. This would exacerbate teacher burnout and lead to mental and physical health problems. It would also be grossly unfair since teachers would have been eagerly anticipating their well-deserved retirement.

It must be noted that the high-handed introduction of such proposals in other countries was met with fierce resistance by workers. It is therefore hoped that the local authorities learn from those experiences and not attempt to ramrod this agenda on the working population.

Given the stated challenge facing the State, TTUTA once again proposes an alternative that would create a win-win situation. This proposal places the onus for an enhanced superannuation package on the worker rather than the employer and therefore will not be a burden on the consolidated fund.

TTUTA’s proposal is certainly not novel or unique. It essentially involves the introduction of a contributory (“defined contribution” rather than “defined benefit”) plan which would allow teachers control of their pension benefit. The basic concept would be that the quantum paid into the consolidated fund on behalf of a teacher would instead form part of the teacher’s salary, appearing 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.

Here is TTUTA’s proposal:

1. The fund would be personal to the teacher – the teacher would receive periodic statements on the value of the fund and the benefits accrued to date.

2. The fund would be portable – the teacher could take the fund with him/her to a new employer if changing jobs.

3. The fund would be transferable – the teacher could change carriers if he/she so desires to facilitate a change in employers or if he/she perceives they would receive improved benefits with another carrier.

4. The teacher could determine the level of contribution above that of the employer, thus having control over the benefits payable upon retirement.

5. 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.

6. The fund could 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 Ministry of Finance, bypassing governmental bureaucracy. In any event, teachers would have up-to-date information on their entitlements, enabling them to adequately plan for their retirement.

Changes to benefits, for example when new salaries are negotiated, would be affected 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.

This plan would be independent of any other plan and a teacher may subscribe to as many plans as they determine. Taxation arrangements would be the same as applies under the present system; 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.

Past 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 that he/she 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, such as the inordinate delays to quantify and pay benefits. External oversight would be necessary 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.