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Pension consulting
20 July 2020
Author: Graeme Bell

Government pension proposals forces many independent schools to act

Continuing TPS membership may become unbearable...

The Government’s consultation on the proposed solution(s) for removing age discrimination from public sector pensions, including teachers’ pension schemes, is now open with responses to be submitted by the 11th October 2020.

Counting the cost of the TPS changes 

The consultation includes details of two options proposed, allowing pension scheme members to choose between receiving benefits on a legacy scheme basis (pre-2015 schemes) or on a reformed 2015 scheme basis with the two options being around the timing of a member’s decision - one option being that the decision is made up front shortly after the reforms are finalised, the other deferring a member’s decision until the point they are taking benefits.

The latter is inevitably more complex with a member’s benefits needing to be calculated under the legacy and reformed scheme basis until after the last impacted member has retired, but it does allow members to make an informed decision on which scheme pays them the better retirement benefits which will depend on how their career and pensionable salary has progressed during their membership(s) of the schemes.

What will it cost?

The Government has estimated that the cost of removing unlawful discrimination back to 2015 will total about £17bn and they confirm within the consultation that the “costs of removing the discrimination will feed into future employer contribution rates once the 2020 scheme valuations are completed”.  

There are many other factors that influence scheme valuations and contribution rates, but this does increase the probability of further employer contribution rate increases sooner than previously expected (2023).  

This, together with the mounting speculation that exit penalties will be introduced for schools leaving the teachers’ pension schemes, is definitely pause for thought for independent schools, but don’t pause for too long given that leaving the schemes can take 6 to 12 months to complete, and sometimes even longer depending on how long and smoothly the employee consultation exercise runs.

Additional risk

For independent schools, the additional risk from future pension costs increasing alongside the impact of COVID-19 may well make continued membership of the Teachers’ Pension Scheme (TPS) unbearable.

Punter Southall Aspire anticipates the speed of change to accelerate further with more competitive terms offered for replacement pension schemes (as demonstrated by Aviva recently announcing a reduction in charges for its APTIS arrangement). 

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

If you would like to discuss the challenges of the TPS or how to ensure you put in place a new benefit structure that will help you retain and recruit high quality teachers, please do get in touch.

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