Employer contributions in the Teachers’ Pension Scheme (“TPS
”) will be rising by over 7% from September, which will have a significant effect on overall pension costs. We consider why this is happening and what approaches independent schools could take if they are considering ending access to the TPS.
The contribution rate rise
The Teachers’ Pension Scheme is an unfunded pension scheme. It works on a ‘pay as you go’ basis backed by HM Treasury and completes a valuation every four years to assess the cost of providing benefits. Broadly, the latest forecast long-term gross domestic product had a lower than anticipated growth rate which meant that the latest valuation found the cost today of providing the pensions into the future was higher and so employer contributions needed to increase. The employer contribution rate will therefore increase from 16.4% to 23.6% from 1 September 2019.
On 12 February, the Department for Education completed consulting on proposals to provide funding to support schools and further education colleges with the change and to understand the impact on the higher education and independent schools sector for which funding support will not be provided.Leaving the TPS
Headlines suggest that some independent schools may seek to leave the TPS as a result of the contribution rate rise. Their participation in the scheme is voluntary and can be ended by notice to the Secretary of State. However, before doing so, the school should undertake a review of the wider employment terms and conditions of the affected employees.
Some contractual terms might pose a potential obstacle to any proposal to offer employees different pension benefits going forward. Possible solutions to this include:
- amending the terms and conditions of employees so that membership of the TPS is withdrawn;
- dismissing employees who are members of the TPS and offering to re-engage them on identical terms save as to the type of pension provision; or
- transferring employees to another employer which does not participate in the TPS.
Some of these solutions require the informed consent of employees. No solution is without risk from an employment and pensions law perspective. Any proposed changes are likely to require detailed communications from the school as part of a consultation exercise and decisions about the schemes that would qualify as a replacement.
Our education team has the employment and pensions expertise to help guide independent schools and other educational establishments through their decision making around the contribution rate rise.
For more information, please contact Christopher Nuttall on 01604 463134 or click here
to email Christopher.