Teachers’ organisations and pension professionals have given a lukewarm welcome to the Department for Education’s proposal to allow independent schools to retain Teachers’ Pension Scheme membership for existing staff, while at the same time offering private plans for new staff.
Published on November 11, the DfE’s proposal comes on the heels of huge increases to the TPS employers’ contribution rate, from 16.48 per cent to 23.68 per cent, which began in September 2019.
This led to hundreds of independent schools facing ruin, unable to afford the hike in costs with yet more contribution increases to come. The impact of the McCloud equality judgment has further pushed up funding costs, while Covid-19 has taken a toll on many schools’ finances.
Some schools may also be uncomfortable treating staff differently on such a key benefit as pensions, and the associated death benefits
Stuart Arnold, Punter Southall Aspire
The detailed regulations underpinning the new regime of a mixed economy/phased withdrawal will not be available until spring 2021.
According to the government’s consultation response, 52 per cent of respondents agreed with the idea, while 30 per cent supported it but expressed views on alternative solutions.
Some commentators have criticised the proposal’s likely hastening of withdrawal from the scheme. Jacques Szemalikowski, a conditions of employment specialist at the Association of School and College Leaders, says: “Over time, this approach will actually encourage more schools to phase out the TPS and we believe this is a retrograde step.”
But both the Independent Schools’ Bursars Association and the Independent Schools Council welcomed the DfE’s announcement. David Woodgate, chief executive of the ISBA, points out: “The two organisations had urged the Treasury and the DfE to make this option available.”
Alistair Russell-Smith, head of corporate defined benefit at Hymans Robertson, adds: “We’re pleased with the outcome of the consultation. It gives independent schools another viable option for controlling their pension costs and risks that wasn’t possible previously.”
Horse bolted?
But for many employers, it is too little, too late. Neil Barton, head of business development in the trustee solutions business at Broadstone, notes: “A full 12 months elapsed between the consultation closing to responses and the outcome. During this time, independent schools have, largely due to the impact of Covid-19, been accelerating their plans to exit the TPS.”
Freedom of information responses have identified that 177 private schools have left the scheme since the start of 2019.
But Mr Barton adds: “However, the rate of withdrawal has doubled since the full effects of the Covid-19 outbreak in March, with 64 schools serving intention of their notice to quit the TPS by September.”
He concludes that “within the next 12 months, we may see upwards of 300 schools having exited the TPS”.
Phased withdrawal is also probably not an option for any of the schools that have already exited or have served notice of their intention to leave, says Penny Cogher, partner at Irwin Mitchell.
In addition, Stuart Arnold, associate director at Punter Southall Aspire, says: “Some schools may also be uncomfortable treating staff differently on such a key benefit as pensions, and the associated death benefits.”
More pain in the offing
Indeed, independent schools should be wary of the Court of Appeal’s judgment in the McCloud case, which forced the government to undo measures ensuring that pensions cuts fell less harshly on older public sector workers.
Ms Cogher explains that the legislation’s passing does not insulate the government from challenge: “Objective justification for this type of discrimination on costs grounds alone is insufficient. Independent schools should very carefully document each and every decision they make, and ensure they do carry out any consultation with their employees in a way that satisfies the legal requirements on this, as their decisions may well be subject to scrutiny later.”
There is currently no exit fee imposed on employers who withdraw from the TPS, but Steve Simkins, partner at Isio, says: “The independent schools’ sector is fearful that exit costs will be introduced by the TPS and for some schools this has tipped the balance towards leaving.
“In my view, the risk of a sudden introduction of TPS exit costs may have been overstated, but it would be both fair and transparent for clarity to be provided by the government to enable good decision-making.”
Nevertheless, more pain is in the offing. Mr Simkins adds: “TPS contributions will increase significantly again in 2023, to 30 per cent or more. Independent schools and universities should plan carefully for this increase.”
