Music charity leaves Teachers’ scheme to offer benefits symphony

As a charity that focuses on music provision, school support and private music lessons, Services for Education had 88 per cent of its workforce enrolled in the public sector pension scheme.

But due to the government’s decision to raise employer contributions in September 2019 – to 23.6 per cent of salary from 16.48 per cent – the charity was “facing unsustainable increases”, which meant a “full review of reward and benefit arrangements was required to enable the business to continue to flourish”, explains Lindsay Allen, human resources director at Services for Education.

In 2018, the government announced plans to change the rate used to calculate the liabilities of public sector schemes to reflect the Office for Budget Responsibility’s long-term growth forecasts, which led to these increases.

Due to the significant level of pension contributions required under existing arrangements, it had not been possible to fund a wider range of employee benefits beyond pension scheme membership and enhanced holiday entitlement

Lindsey Allen, Services for Education

In April 2019, the Department for Education announced that it would support state schools and further education colleges with extra funding, while other educational institutions would have to find their own funds to cover the rise in employer contribution rates.

Pensions Expert reported in April that the number of private schools opting out of the Teachers’ Pension Scheme increased by more than a third in the previous six months.

Steve Webb, former pensions minister and partner at LCP, argues that the funding of public service pension schemes “is byzantine in the extreme”. 

“When the discount rate on the schemes was cut, employers had to put more money in, but state schools were then given the money back again,” he says. 

“The losers in this bizarre merry-go-round were employers of people in the TPS who got no refund, such as independent schools and educational charities. The consequences of this have been that many such employers have now moved workers on to less-generous defined contribution arrangements, while the Treasury pockets the difference.”

Adapting pensions to changing workforce

In the case of Services for Education – which had the remainder of its 250 staff who were not enrolled in the TPS split between the Local Government Pension Scheme and a DC scheme – the level of pension contributions required under existing arrangements was already significant prior to the increases.

Ms Allen says: “It had not been possible to fund a wider range of employee benefits beyond pension scheme membership and enhanced holiday entitlement, and it was recognised that this was not fully meeting the needs of the current workforce.”

After a consultation period on the proposed changes initiated in February 2019, these were implemented by the charity in November, with all staff being moved to a new DC scheme.

The new pension fund offers three tiers for employees to choose from: if the worker contributes between 4 and 5.5 per cent of its salary the charity will contribute 7 per cent; the second tier has an employee rate of between 6 and 7.5 per cent, with the company putting in 8.5 per cent; and for staff who contribute 8 per cent or more, Services for Education will pay 10 per cent into the scheme.

The charity opted for QChoice, a service for small and medium-sized enterprises, which offers a range of products and pre-selected benefit providers for an employer to choose and use within a portal.

Pauline Iles, principal benefits consultant at Quantum Advisory, explains that Services for Education was looking to develop a new employee reward strategy, to “offer something that was more transparent, more equal across the board to all employees, and that would actually address more points of concern in terms of what they could offer to employees than just pensions”.

She notes that while pensions “is still a very important benefit, it has different levels of importance for employees across the different generations”.

Employee survey kicked off review

Ms Iles says that one of the charity’s main challenges was to choose which benefits to offer, since it only offered a pension scheme and holiday entitlement.

An employee survey looking at staff demographics, household status and what benefits workers would value more was carried out, she adds.

Richard Beddall, senior benefits consultant at Quantum Advisory, argues that “too many organisations have a set of benefits that aren’t relevant to their employees”.

He says: “I believe this is more important in the SME market, they have to fight just as hard to recruit people and therefore to retain them.

“The employee survey is part of the initial discussions we have, it allows an organisation to look at the investment they’re making on their employees and get a decent return on it.”

After looking at the survey results, Services for Education decided that besides the current existing benefits it would offer protection benefits such as life assurance, income protection and critical illness, an employee assistance programme, health assessments, gym and retail discounts.

Ms Iles says: “In total, where employee selections were required to activate benefits, almost 260 selections were made. Real-time benefits have also had an impact, with the selected retail discount scheme featured on the portal already accruing more than £4,100 of spend.”

She adds that QChoice has planned to conduct a short internal survey to explore views on the new arrangements in 2020, which will allow the benefits company to inform plans for the coming year.

“We’re already working on their offering for the renewal in September and they made some enquiries on potential new benefits, so it’s a really ongoing partnership and that’s what we want to have with all our clients,” she says.