Independent schools’ TPS phased withdrawal to start in August

The Department for Education published on Wednesday a consultation on rule amendments for the public sector scheme, which includes details of how independent schools in England and Wales will be allowed to withdraw TPS participation for future employees while allowing existing staff to remain as active members.

This follows a consultation, published in November, where the government proposed changes to prevent a mass exodus of independent schools from TPS, since these establishments participate in the scheme voluntarily, but if they leave then all current members cease participation immediately. 

As Pensions Expert reported previously, more than one in 10 independent schools participating in the TPS were leaving the pension fund in 2019, after it was announced that the TPS employers’ contribution rate would be raised from 16.48 per cent to 23.68 per cent, which began in September that year. 

At the start of 2019, there were around 1,170 private schools in the TPS. Experts said the number of institutions leaving the public sector pension scheme was expected to increase further. 

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.

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

In the document published on Wednesday, the DfE reiterated that similarly to those organisations that do not participate in the TPS, employers who elect for phased withdrawal must provide an alternative workplace pension for teachers who would no longer be eligible for the TPS and contribute towards it. 

The draft regulations detail that a teacher who opted out of the TPS will be eligible to be re-enrolled where that election to opt out took effect prior to the date that the school became a phased withdrawal school.

A teacher who leaves pensionable service after their school is accepted for phased withdrawal, due to family leave or sick leave which lasted no more than five years, will be eligible to be re-enrolled upon their return to the same employer.

Furthermore, an independent school that opts out will be entitled to reapply to the scheme if they wish to resume full participation at a future date. 

Luke Hothersall, actuary and partner at LCP, said: “On the face of it, this should be good news and it offers more flexibility for independent schools who want to manage their defined benefit pension risks down over the longer term. 

“However, it’s no silver bullet — schools looking to introduce this option face a long tail of TPS membership and would be introducing a potentially divisive two-tier reward structure into their common rooms.” 

He added: “Each school will need to carefully consider its own position before proceeding with any particular course of action, and this adds yet another dimension to that process.”