Update on the possible increase in TPS employer contribution rate

The Teachers’ Pension Scheme (TPS) remains a key strategic issue and area of potential risk for those independent schools that continue to participate. Several schools are either in consultation with staff, preparing to consult in the autumn term, or considering their strategy. This is largely driven by the possibility of a further increase in the TPS employer contribution rate in 2024, and schools have been waiting with interest to hear the definitive position in this regard.

We now understand from the Independent Schools’ Bursars Association (ISBA) that HM Treasury anticipate completing the valuation of the TPS in September 2023 and have indicated that, “the direction of travel is in the order of a 5% points increase in the employers contribution rate”, i.e. a prospective increase from the current rate of 23.6% to 28.6%. ISBA note that HM Treasury and the Department for Education are content for employer organisations and teaching unions to communicate this to their staff and members, provided they use the form of words above, given the valuation, and the precise level of increase, is not yet determined.

This follows the Government’s announcement on 30 March 2023 that the SCAPE discount rate for unfunded public service pension schemes (such as the TPS) would reduce from 2.4% to 1.7%. At that time, this was seen as the clearest sign that the employer contribution rate under the TPS is likely to increase.

At present, it remains the case that any increase in TPS employer contribution will come into effect from April 2024. It had been hoped that this may be delayed to September 2024, although there is currently no indication that such a delay will be announced, and the indication given above by the Treasury makes such a delay less likely.

Although the prospective rate increase is, perhaps, not of the level some had expected, it would nevertheless present a significant additional cost that many independent schools within the scheme may consider unsustainable. This indication as to the likely direction of travel will assist those schools that are currently considering strategies for addressing this risk and those planning for consultation with staff next term.

Should you wish to discuss your strategy and the options available in respect of the TPS, please contact Oliver Daniels or Rachel Parkin.