At least ten private schools are in talks with a school leaders’ union about pulling out of the Teachers’ Pension Scheme (TPS), with one major chain already set to move staff out.
The potential exodus could leave state schools facing further pension contribution hikes to fill a “black hole” in the scheme.
Employer contributions will rise from 16.4 per cent to 23.6 per cent in September, which the Department for Education said it would fund for state schools until the next spending review.
Independent schools say the increased contributions could force them to close or raise fees. The department is now considering allowing private schools to leave the TPS “via a phased withdrawal”.
But Kate Atkinson, a pension expert at the National Association of Head Teachers (NAHT), said current contributions from private schools were helping to cover a predicted £1.7 billion black hole in the scheme.
“There is this huge assumed deficit, which in theory the Treasury thought it’d be getting more money for.
“The retired members now won’t experience less money, but what it may mean down the line is the employer contributions from schools could rise to make up the shortfall.”
What it may mean down the line is the employer contributions from schools could rise to make up the shortfall
Atkinson said at least ten private schools were talking to her union.
Private schools are not obliged to join the TPS, but they need government permission to do so. They are free to leave when they want, and must simply write to the education secretary. At that point all their teachers are withdrawn.
The department’s proposed optional “phased withdrawal” allows a private school to retain its current teacher members, but to close the scheme to new entrants. The department will consult on the plan, should it get the backing of the sector.
Alpha Plus Group has already written to Damian Hinds over moving all its 20 private schools and colleges, seven of which are already in a pension scheme with Scottish Widows, out of the TPS from September.
A spokesperson said the group did “not wish to pass on the increased costs of the mandated changes to the TPS to parents” – and wanted all staff in the same scheme.
The group would “maintain the current level of employer contributions” of 16.4 per cent for ten years, they added.
However, the private scheme is a defined contribution scheme rather than defined benefit scheme like the TPS, which Atkinson said was “riskier” as staff would not get a guaranteed amount on retirement.
She said a few schools were thinking about reducing their employer contributions from16 per cent to as low as 5 per cent. “Some of these schools are not just using this as a cost-capping exercise, but as a cost-cutting exercise.”
The NAHT wants all private schools leaving the TPS to join schemes that at least maintain the current 16 per cent contribution rate.
The Methodist Independent Schools Trust, which has 14 schools, said it was “reviewing the impact of the increase in employer contributions and following the national debate closely”.
Atkinson said withdrawal from the TPS could also affect recruitment and retention. Experienced teachers might choose to retire early because it would not be worth staying for a better pension, while less generous retirement packages could put graduates off teaching.
Teachers’ ability to switch between the state and private sectors could also be jeopardised.
However, private schools could get a recruitment advantage if they used savings on pension contributions to boost salaries.
The Independent Schools Council (ISC), which represents about 1,000 private schools, said its schools would try to “ensure a balance between providing attractive remuneration packages for teachers” with “the need for schools to remain financially viable”.
A Department for Education spokesperson said it would encourage independent schools to remain in the TPS so teachers could “continue to move between the public and private sector”.
Schools Week understands two other education unions are in talks with private schools about moving out of the scheme.
Pension consultation response: need to know
- DfE will “fully fund” contribution increases for state schools and colleges to tune of £830 million for 2019-20
- Private schools will not be funded, despite 28 per cent of respondents arguing for it
- But the DfE is considering a “phased withdrawal” in which current private school teachers remain in the scheme but it is closed to new entrants. It will consult on this soon
- Of the 360 private schools that responded, 185 indicated their school could leave the TPS and 57 said their school could close because of the proposals
It’s not a helpful comment, but this is what happened to the rest of the world years/decades ago. The cost of defined benefit schemes are so exorbitant (think what 23.6% actually means) that virtually every private sector employer has moved from defined benefit to defined contribution.
There is another angle though, which is that ‘excellent pensions’ is a strong reason to become/stay a teacher in circumstances where another job might have higher basic pay. Remove that carrot and it could well impact recruitment/retention, especially among the older workforce. (Regretful as it may be, most young people care much less about pensions).
And yes, independent schools leaving the TPS is likely to increase contributions from those remaining in it. But I would think far less than an aging population, increased life expectancy, and fund performance.
You’re right about how the generous teachers’ pension (TP) has meant they’ve been willing to work for lower wages than they could earn elsewhere in return for this pension. If this perk goes it’s likely teachers and would-be teachers will look for employment in better-paid jobs.
The way TP, and most other public sector employment pension schemes, was set up was this: employees would pay part of their salary (obviously) plus employer contributions to the Treasury. The Treasury would use this money for the benefit of taxpayers in return for a promise that taxpayers would pay these pensions in the future.
For years, teachers paid in more than was needed to fund retired teachers. This surplus was used by the Chancellor of the day for something else. Now the situation’s reversed.
Mark – you’re also right about the move from defined benefit to defined contribution pensions during the last few years. But it wasn’t because costs were ‘exorbitant’. It was mainly due to changes in pension law introduced decades ago combined with poor stock market returns. Before the 1990s, most private sector firms offered their employees a defined benefit, aka final salary, scheme.
The two major pension regulation changes were Lawson’s Law and Gordon’s Grab.
Labour’s Gordon Brown prohibited pension schemes from reclaiming dividend tax credits. But the most damage done to pensions was Lawson’s hatchet job.
Tory Nigel Lawson thought companies were avoiding tax by putting money into pension schemes. He introduced a tax on schemes more than 105% funded. This resulted in firms taking ‘pension holidays’, not paying money into their funds. Both the CBI and TUC warned this would result in the collapse of defined benefit schemes.
And so it came to pass…
How long before academy trusts follow? They’re technically independent schools.
A cynic might say the government is deliberately taking steps to ensure the teachers’ pension scheme collapses.
It’s a fair question, but in reality the first part of the question is not for academy trusts. All trusts are under an absolute obligation, imposed contractually by the DfE, to offer TPS to teachers, and LGPS to all other employees. There is no flexibility or ambiguity at all.
The only way that will change is if the DfE makes a pro-active decision to amend the contracts it has in place with academy trusts. Joining you in cynics corner, I can indeed see the scenario where the DfE thinks it can save itself money by removing this requirement which would then mean it could reduce the money it has to pay to schools (on the basis the employment costs go down).
However even if that happened it wouldn’t necessarily be Armageddon for pensions. When academies first came in, the worry was that having freedom on pay and conditions would mean academy staff would have pay and benefits slashed. But the reality is that this has not happened, for the simple practical reason that recruiting staff is competitive. If an academy pays less than a maintained school, all other things being equal a teacher with a choice will join the maintained school.
If we have a world where maintained schools offer TPS, and academies don’t, then the better teachers will want to join a maintained school. If membership is not compulsory I would be amazed if no academy trusts left the TPS, but I’d also be very surprised if a high proportion didn’t remain.
There is nothing cynical in considering that what has happened to the independent sector, has been planned by the govt. and is the first step towards the inevitable collapse of the the TPS. The expansion of the academy system has weakened the power of the unions as a. collective voice and left teachers isolated when trying to retain the rights that were in place when they entered the profession. I fear it’ll be gone before you know it.