A total of 62 independent schools have told the government they plan to leave the Teachers’ Pension Scheme, with more set to follow.
This retreat has been triggered by a massive rise in employer contributions to the TPS in September, from 16.48 per cent to 23.6 per cent of salary.
The government has acted to stem the flow, but is it too little, too late?
Under current scheme rules, an independent school electing to opt-out of the TPS results in all members becoming deferred.
Independent schools face complex decisions about the right pension arrangement for their staff, and many governors will not have the experience to make that choice without taking advice
Sarah Searle, Milsted Langdon
But a Department for Education consultation, which closed on November 3, is set to change that. It proposes to allow independent schools electing to opt-out of TPS participation for future teaching staff to allow existing staff to remain as active members.
Martin Willis, principal at Barnett Waddingham, said: “This proposal seeks to offer schools a compromise option that allows them to retain TPS for existing staff, and in this respect it makes sense and is likely to proceed.”
However, he questioned whether it would make much difference, as schools with very high staff turnover would see significant savings
“On top of this it will create a two-tier benefit offering for staff in identical roles, which is unlikely to be conducive to a positive environment,” Mr Willis said. “Whilst retaining TPS membership for existing staff may support retention it won’t help with recruitment, particularly if the contributions offered to new hires are lower than they might be to cross-subsidise contributions to those in the TPS.”
Choosing a provider for the first time
In the meantime, more and more struggling independent schools that are overwhelmed with the cost of pension provision will be faced with selection of a new pension for their staff for the first time.
Like many independent schools, Taunton School in Somerset has responded to the increase in employer pension contributions by reviewing its pension arrangements. Having taken financial advice, it has set up a ‘hybrid’ arrangement with Royal London that allows staff to stay in the TPS if they are prepared to fund the increased contributions, or to opt out and receive a package of similar value payable into a private pension.
Commenting on the move, Taunton School’s chief operating officer, Nicola Miller, said: “We have all been on a steep learning curve when it comes to pensions. When we talked to our colleagues, we found that they wanted a range of different things.”
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“Some wanted to remain in the TPS and were prepared to pay extra to do so,” she explained. “Some were happy to opt out of the TPS and have us pay contributions into a private pension, whilst a few wanted to pull out of pensions altogether.”
Sarah Searle, an independent financial adviser at Milsted Langdon, who specialises in pensions for teachers, added: “Independent schools face complex decisions about the right pension arrangement for their staff, and many governors will not have the experience to make that choice without taking advice. The alternative pension arrangements on offer can vary in things like the amount they take in charges, the range of investment funds that are available and the options for members at retirement. Pension providers also vary in how much help they will give to individual schools in setting up a new arrangement.”
