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The Teachers Pension Scheme issue

How are schools responding to the challenges?

03/09/2019
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In the autumn it was highlighted that the indicative employers’ rate for the Teachers Pension Scheme (TPS) will increase to 23.6% from September 2019, an increase of approximately 7%. Whilst for state schools there will be a government subsidy to assist with such a large increase, although only confirmed for one year, clearly for independent schools they will need to fund this additional cost themselves.

The sector bodies have been undertaking an exercise to scrutinise the actuarial valuation and lobbying the government on behalf of the sector. Whilst their work continues in the background governing bodies are facing the challenge of meeting both the immediate needs of the school and considering their short and medium term options. Whilst many schools may be able to afford to meet this current increase, given the nature of defined benefit pension schemes there will be future valuations which it seems are likely to result in further cost increases.

At a time when the sector is already challenged by the affordability issues, further cost increases are most unwelcome. For the larger, wealthier schools there are more options for how they may meet these increases, but even if they are affordable at first sight some action is likely to mitigate the effect to some degree. Many schools find themselves discussing general cost cutting measures, increasing class sizes, expanding capacity within boarding houses and delaying capital projects. However, with capital projects in particular further costs may be incurred with delays due to building inflation and perhaps financing issues which may make postponement more difficult.

Smaller preparatory schools and day schools have much more limited options. The sector is exploring an alternative defined contribution scheme which all schools may wish to transfer their teaching staffing into, which will have a reduced employer’s rate. Across the sector as a whole the suggestion of exiting the TPS altogether has met mixed response because of the concern around being able to hire good quality staff in the future. However, for younger teachers who may also being trying to get on the housing ladder they may well at this point feel that this task is more worthy of their attention than retirement and therefore less concerned by an exit from TPS.

Moving forward governing bodies who feel they do need to remain in the TPS to be competitive and attractive to good quality teaching staff will need to focus on minimising the effect of the TPS charge. Some schools will already have very efficient teaching resource management however, for some this will need careful re-consideration. Areas which could be considered include:

  • reviewing contact time with students and making sure across the teaching cohort this is at an acceptable level
  • reflecting on the non-teaching time and how is it being deployed. Are there roles which a teacher is performing which could be performed by non-teaching staff?

These actions taken together could help reduce the teaching headcount and therefore the impact of the cost for TPS.

In general many schools will be looking at a range of measures, which taken together will help manage the position, for example allocating at least notionally part of future fee increases towards the cost, general cost reviews and management and the possible restriction of future salary increases for teachers.

As always in difficult times there are also opportunities for the right organisations. One thing that is certain is that the costs of running an independent school can only be controlled to a point. It is time for schools to be more strategic in planning for the future. We have seen an increase in schools considering mergers with good quality schools who cannot bear the additional costs. It is important for any school who is facing financial difficulties to be proactive in planning for their future rather than utilising all the financial resources before taking action. It is worthy of note a school in financial distress is unattractive as a partner in a merger.

Some schools are looking to better leverage their support services and are proactively seeking opportunities to provide “back office” solutions to other schools and share estates staff.

Up to now this model has largely only been seen in the state sector. This has the benefit of reducing the burden on all parties of not only the cost implications but also in some cases keeping up with regulatory change.

This issue will be a key item on all governing body agendas for some time. Certainly schools must either take action to try and avoid future increases by exiting TPS scheme, or looking at the way they run themselves to provide the necessary room in the budget to absorb these increases and any possible further future demands. It is possible we may see a very different looking independent school of the future.

For further guidance on these issues, please contact your usual contact partner or Tina Allison, Head of Education.

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Tina Allison
Tina Allison
Partner, Head of Education - Non Profits
London