Independent schools: Counting the cost of the Teachers' Pension Scheme

The costs are rising...

The defined benefit (DB) pension challenge

This has shed some real light on the current challenges many independent schools are facing, following the significantly increased costs of the Teachers’ Pension Scheme (TPS). 

In this blog we look at some of the issues these clients are dealing with, and what you need to consider before deciding on a course of action.

The defined benefit (DB) pension challenge

Teachers have historically been provided with a generous Defined Benefit pension. However, the cost of providing this has increased drastically in recent years, resulting in the benefits being scaled back and the cost to teachers and schools increasing. 

From April 2019, the cost to schools of providing this pension has increased by 43% (from a cost of 16.4% of the teachers’ salaries to 23.4%).  This has stretched many schools’ budgets and led them to consider moving away from providing this pension.

In this situation it’s important to find a strategy that works for you:

• Is the best course of action to begin consulting with staff on exiting the TPS?

• Is phased withdrawal, offering an alternative arrangement for new staff, appropriate?

• Or can you afford to continue to offer the TPS and absorb the risk of future cost increases?

Key future strategy considerations

There are key issues to consider when setting a future employee benefit structure that is affordable, in line with your duties to the school and that continues to support recruitment and retention of high-quality staff. Here are just a few:

• If you decide to set up a new pension scheme, you’ll want to ensure you are getting the best value for your teachers. The Independent Schools Bursars Association has partnered with Aviva to offer a good value scheme, but larger schools or groups of schools may be able to find even better value in the market.

• How will you ensure you design a cost-effective, flexible and valued contribution structure?

Should you decide to leave the TPS, the issues aren’t just limited to the pension:

• There are non-pension considerations when exiting the TPS, such as providing benefits on death in service or ill-health, that would otherwise be provided through the TPS pension

• You may wish to consider your whole employee benefits strategy at the same time, to make it work for your employees and help to mitigate the risk of employee discontent when leaving the TPS. Here you could think about introducing elements such as medical insurance, salary sacrifice or cycle to work schemes.

Leaving the TPS?

If you decide to move away from the TPS, the key throughout the whole review and process of change will be to ensure that a clear, engaging and accurate message is provided to your teachers through written communication and face-to-face sessions with pension experts. 

We're beginning to see the trend of moving away from the Teachers’ Pension and anticipate that more Governors and Bursars will follow suit to help protect the future of their schools. 

To find out more please visit our comprehensive web resource A complete guide to pension challenges faced by independent schools'

To discuss further or for more information, please contact us.