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Independent schools can opt out of the Teachers’ Pension Scheme for new teaching staff

Partner and Pension Actuary at Quantum Advisory, Stuart Price.

FROM spring, independent schools across England and Wales will be allowed to opt out of the Teachers’ Pension Scheme (TPS) for future teaching staff while existing teaching staff can remain members of the TPS.

The decision, by the Department for Education (DfE), follows growing frustration in the independent school sector at the continual increase in employer pension contributions into the TPS – which in September 2019 rose by over 40% from 16.48% to 23.68%.  While the government covered the increase for state schools and universities, no support was provided to the independent school sector. For the TPS to remain an affordable option in the long term for this sector most independent schools would have to increase their fees or spend less on educational resources, and for many this is a step too far.

Stuart Price, Partner and Actuary at Quantum Advisory, says: “Independent Schools are akin to UK businesses in the private sector where we have seen defined benefit (DB) pension schemes like the TPS as unaffordable and declining because of increasing life expectancy, low interest rates and costly additional guarantees having to be provided. However, for independent schools, the added difficultly is that teaching staff could access a DB pension if they worked in a State School and many teachers feel that the benefit goes hand in hand with a teaching package. This new legislation will allow independent schools to enrol new teaching staff into an alternative pension arrangement such as a defined contribution pension scheme and this will provide independent schools with some funding stability, while existing teaching staff retain the benefits they were promised.

“However, this new option has come too late for some as around 200 independent schools have already left the TPS for new and existing teaching staff since the increased pension contributions were introduced in September 2019.

“While it is good that there is another option available for independent schools, it will be interesting to see how many schools take up this new option, which would obviously mean treating teaching staff differently and many schools may be uncomfortable doing this. In addition, from 2023, contributions to the TPS are likely to increase again, which may make this option unaffordable and independent schools having no choice but to exit the TPS for all teaching staff.”