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Teachers' Pensions - An Uncontrollable Cost or Are There Other Options for Schools?

on Thursday, 04 October 2018.

The Teachers' Pension Scheme announcement that employer pension contributions will rise from 16.4% to 23.6% from September 2019 has caused widespread concern throughout the sector.

Although an increase was anticipated, the extent of it was not. Prior indications had been for the level of employer contribution to be increased to 19.1%. There is no corresponding rise in employee contributions which remain frozen, with all the burden of the increasing cost of this defined benefit pension scheme being passed to schools. This note outlines some of the strategic considerations and considers the potential options, at this early stage.

As schools will be aware, the ISBA and ISC are working to challenge the TPS decision, both on the basis of the actuarial assessment and the process followed. Everyone in the sector will be hoping that the challenge is successful, but it is recommended that schools start to weigh up their options. 

Schools should take steps to understand the likely cost increases for them of the increased contributions and consider how these might be met. With the ongoing challenge of ensuring that school fees are affordable for parents, it may not be an option simply to cover the increased cost with a rise in fees.

The economic climate has meant that the majority of schools will already have been managing costs closely, and all schools need to continue to review their staffing structures and timetable to ensure they are operating as efficiently as possible. Many schools have reviewed pay scales to manage financial sustainability and to direct pay towards the most effective contributors, improving incentives, performance and reward. 

We have been supporting many schools with strategic initiatives to generate additional income streams or with mergers or collaborations to benefit from economies of scale. There will be a greater imperative on governors to consider such projects and/or accelerate their completion.

Whilst the TPS provides a great benefit for teaching staff and is valued as a recruitment and retention tool, many schools may also want to assess the benefit against the increased cost and consider whether there are other options.

The current understanding is:

Is it possible to close the scheme to new members of staff and offer an alternative?

Under the current TPS rules this is not an option. A school that is accepted to offer the TPS must enrol all teachers at the school.

Is it possible to ring-fence different staff to be offered the TPS and not others?

Not under the current TPS rules. All teachers have an entitlement to membership of the TPS if the school is a member.

Can you close the TPS scheme entirely at your school?

Although this may be unpalatable to some (indeed it is currently a condition of membership of some heads' associations that heads are members of TPS), it may be considered as one of the options. Any such decision would involve consultation with staff and depending on the wording of teaching contracts is likely to constitute a contractual change to terms and conditions.

Occupational pension schemes are sometimes 'left behind' on a transaction which involves a transfer of staff to a different employer, with alternative defined contribution schemes being put in place, as pension scheme membership does not transfer under TUPE. Although the employee relations impact should not be taken lightly, this is a fairly well trodden path for commercial schools groups when acquiring independent schools. We have also witnessed this approach ripple across the economy as many final salary schemes are closed by large employers, seeking to insulate themselves from the long-term effect of ever increasing contribution levels.


Next Steps

We would recommend that all schools ensure that governors are aware of the TPS announcement, collective by the associations and the likely impact on the school's financial position so that this can be factored into all decision making.  All governors should consider how their school will meet the planned increases, the impact on pupil fee increases and staff pay reviews whilst maintaining staff morale and the recruitment and retention of quality teachers.

Schools may want to explore other options and if consideration is to be given to moving away from the TPS, what alternative pension schemes and other benefits are available that may present a viable alternative. ISBA is setting up a working group to consider this on sectoral basis.

If schools need to make changes that affect staff as a result, whether to pay scales, staffing structures, or a move away from the TPS, it will be vital to have an effective means to consult with staff. Consideration should be given to establishing an appropriate consultation body, with the appropriate remit, so that any proposed change is considered and implemented in accordance with the law and with the understanding of staff.


For further advice or assistance on these matters please contact Alice Reeve on 0117 314 5383 or Naseem Nabi on 0117 314 5630.

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