Employer Contributions in the Teachers’ Pension Scheme
We have set out a summary of the main options for schools considering their position as a result of the increase in employer contributions in the Teachers’ Pension Scheme (TPS). We have not included here the option of leaving the TPS as part of a sale or merger of a school.
The list below is non-exhaustive and contains examples only. At the time of writing, schools have to be either ‘in’ or ‘out’ of the TPS and cannot currently offer TPS membership to some qualifying staff and not others – more on this below.
1. Option 1: Governors make a decision to stay in the TPS. This should be documented and of course may be reviewed at a future date but otherwise, there is nothing further to do other than communicate with affected staff.
2. Option 2: Governors make a decision to consult with affected staff about a possible withdrawal from the TPS. If this option is going to be explored, schools should please refer to the ISBA guidance note.
3. Option 3: Governors make a decision to remain in the TPS and also introduce a new defined contribution (DC) pension scheme (a parallel scheme) to run alongside the TPS, with the possibility for flexibility over salary and pension contributions. Staff may stay in the TPS if they wish or may opt into the DC scheme. The downside for schools with this option is there is no cost control – for example, all staff members may stay in the TPS. It is helpful to talk to staff about what pension options they would like to see. This option may be helpful for schools to gauge interest in alternatives to the TPS. There is no obligation to formally consult with staff if exercising this option as the school will generally not be making a contractual change to the terms and conditions of employment of staff. The school would need to offer (and introduce) the DC scheme as they would any new/different benefit. This option is available now.
Contact our Education team now for more information.
4. Option 4: Governors make a decision to consult with affected staff over a proposal to offer two options:
a. Staff to remain in the TPS but with a reduced salary i.e. pay cut. Schools will need to model what this means in practice for employees; or,
b. Staff to stay on current salary but move out of TPS to a DC scheme. The school will need to decide on the level of contributions and other benefits.
This option can be thought of as a ‘pay and benefits’ package in that staff in either option a or b have the option of choosing pay versus benefits. The total package for each staff member (whether in TPS or the DC scheme) will be the same but in a DC scheme, there may be greater flexibility over the make-up of that package.
Schools will need to consider as part of this option what the default scheme will be. For example, if staff, after consultation, do not agree to either option a or b, and the school are faced with dismissing and re-engaging staff, which scheme do they offer as the new terms on re-engagement? Is the default scheme staying in the TPS with a pay cut, or maintaining levels of pay but moving the staff member into the DC scheme? This is ultimately a decision for the school.
In addition, if schools wish to go along this route, they will need to consider now how they will address possible future increases to the employer contributions. It is possible to manage employee expectations, however, if further increases are made to the employer contributions and a school wishes to introduce a further pay cut in order to fund the increase, the school will, in our view, need to consult before introducing a further change. The nature of the relationship between an employer and employee is master and servant and the employee will not generally (in our view) be bound by any ‘indemnity’ they give with regard to future increases in this respect. If a school wishes to rely upon a future change as part of the business case for introducing new contract terms and the school goes along the ‘dismiss and reengage’ route, this might well have an impact on staff morale and also there may be a question about the ‘fairness’ of this approach in any unfair dismissal claim.
If this option is going to be explored, schools should please refer to the ISBA guidance note. The process will largely be the same as the proposed withdrawal, albeit with different options presented to staff. Note: each option amounts to a contractual change so formal consultation is needed in order to try and reach agreement over either.
5. Possible option 5 (not yet available): The DfE has referred to this as the ‘mixed economy’. This is the option of a school closing the TPS to new members of staff only, with existing staff continuing to be members. It is our understanding that this would be in relation to new employees at a school, but it also seems feasible that it could be in relation to new members of the TPS, ie those who are new to teaching and are not existing members of TPS. This latter arrangement would, of course, be considerably narrower in terms of impact for a school.
This would enable schools to reduce the number of employees in the TPS, and therefore the associated costs, over a period of time. It is not yet available to schools and was the subject of consultation by the DfE which closed on 3 November 2019.
We are unable to say at the present time if this will become an option at all.
There are other options which a school may wish to explore. Any decision is likely to be influenced by the governor’s appetite for risk as well as the prospect that circumstances are not fixed as a future government may seek to pursue further changes to eligibility and the TPS.
More questions? Contact our Education team now for more information.