Options for
independent schools - what are the alternatives to fully exiting?

Our viewpoint

Since the cost increase from September 2019 was announced almost all independent schools participating in the Teachers Pension Scheme (TPS) have at least asked the question “what should we do about pensions?”.

An ever increasing number are exiting the TPS altogether (having consulted with their teachers) and the impact of 2020 will no doubt push more schools into making a decision – more often than not the question we’re asked is “when should we consult” not “should we consult”.

Another key question is “what is our proposal?”. One thing we’ve seen more schools explore is the “parallel schemes” approach – sometimes call the hybrid model or total reward approach. The idea is quite simple: give teachers a choice to either:

  1. Remain in the TPS and take a salary cut
  2. Move to a defined contribution (DC) scheme with a lower contribution rate and retain their full salary

Of course, whilst it is a simple idea there are a number of areas of complexity including:

  • Needing the “Remain in the TPS” option to be the default (as the TPS rules currently require schools to either automatically enrol all eligible staff into the TPS or have none of them in it)
  • Designing the option, including what the DC contributions would be, considering death and ill-health benefits and factoring the additional cost of those into the thinking
  • Understanding what happens if and when there are future changes to the cost of the TPS

If seriously exploring this option schools will need to get legal advice on some of these points. On the final point this is an area where legal views can differ and so should be explored carefully to confirm whether by opting for option 1 teachers are able to agree that a future increase to TPS contributions would lead to an automatic salary reduction, whether this would need consultation or an alternative solution (e.g. different salary scales). [School’s will also need to be aware that these points could be challenged in future.]

On top of those it is important to remember that, by proposing this sort of approach, schools will be asking their teachers to make a decision on their future pensions (which may also affect their past benefits). My experience working with schools and speaking to teachers is that they often give very little thought to their pension (until very close to retirement or a consultation starts). Asking them to make a decision on something they know very little about is a big ask and so early engagement and education is, in my view, essential.

Whilst this might be an ideal solution for some schools for others the complexity (both in communication and administration) will be a challenge. There definitely isn’t a one-size fits all solution and it will be down to each school to balance their objectives in terms of cost and risk with the impact of any proposal on teachers.

The other “hybrid” option we’re still waiting to hear about is what is sometimes called “mixed economy” – that is allowing current teachers to continue to participate in the TPS, but not allowing new teachers to join. In the corporate sector this sort of approach is often called “closing to new members”, although in practice many schemes then go on to close to build up of new pensions as well (sometimes many years later). Under the current TPS regulations this isn’t possible. That said, last year the Government consultation on “phased withdrawal” was about making this possible. . This consultation was during the last part of 2019, we’re still awaiting the outcome of the consultation. If this option is introduced I am certain it will appeal to some schools … so watch this space.

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Expert advice for Independent schools

Expert advice for Independent schools

How we can help

Cost increases mean that it is essential for every independent school to consider their participation in the Teachers’ Pension Scheme carefully. We can help decision-makers decide whether the TPS is right for your school and, if not, what other provision could be proposed. We can also support you through the consultation process, communicating with your teachers with clarity, empathy and honesty.

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