TPS (Teachers’ Pension Scheme) update – new school year, new consultation

Nicola Evans Charities Counsel

On 9 September 2019, the government published its consultation on proposals to allow independent schools in England and Wales to make phased withdrawal from the Teachers’ Pension Scheme (TPS). The consultation is open until midday on 3 November (which is a Sunday) and is an opportunity for schools and wider stakeholders to comment and raise concerns.

Why consult?

The rationale for the consultation is to help ‘those independent schools that need it to manage the additional pension costs, while protecting teaching staff that are already participating in the [TPS] in order to keep as many existing employees in the TPS as possible’.

The need arises from the steep 23.6% increase in employers’ contributions to the TPS which takes effect from 1 September 2019, following the latest valuation of the TPS.

The government consulted in January 2019 on proposals for funding the increase (Funding increases to teachers’ pensions employer contributions) and its response in April 2019 confirmed that the government would not fund the increase for independent schools, offering instead the limited mitigation of the possibility of a rule change in the TPS to allow phased withdrawal by independent schools. The new consultation asks for views on proposals for such a rule change.

What are the proposals?

The consultation is short and to the point. It proposes amending the TPS regulations to allow an independent school to choose to keep its existing teachers in the TPS, while offering alternative pension provision to new teaching employees, the ‘mixed economy’ position. The proposal would mean that:

a teacher joining a school which made this choice would be enrolled in the alternative pension scheme, whether or not the teacher was an active member of the TPS immediately before moving to the school;
existing teacher members could remain in the TPS until they leave the school’s employment (or join another fully participating school);
a teacher who was employed by the school at the time that participation was frozen but who opted out would be able to return to the TPS at a later date; but
a teacher who opted out of the TPS after the school had frozen participation would not be eligible to return to the TPS and would instead be offered the alternative pension scheme;
a teacher who was no longer in pensionable service as a result of, say, sick leave or family leave would be able to resume active participation in the TPS where the period involved is covered by statutory rights or their contract of employment; but
where the leave of absence is beyond statutory or contractual rights, then whether the teacher could return to the TPS or would instead be offered alternative pension provision would be at the discretion of the school; and
a school which chose to freeze participation would retain the option of returning to the TPS at a future date, in which case the school would be required to enrol all eligible teaching staff from the date that it returned.

The consultation asks four questions:

Question 1: Do you agree that the phased withdrawal proposal will help independent schools to manage the financial pressures resulting from the additional costs of TPS employer contributions?
Question 2: Do you agree that the phased withdrawal proposal will protect those teachers that are currently participating in the scheme?
Question 3: Other than government funding, which the department confirmed will not be provided to independent schools at this stage, are there any alternative methods of achieving the aim of helping independent schools to manage this additional financial pressure while protecting existing TPS members?
Question 4: Do you have any other comments regarding this proposal?

The consultation also notes some potential equality impacts which the Department for Education (DfE) is bound to consider under the public sector equality duty.

The DfE’s initial analysis indicates there could be equality impacts in respect of protected characteristics of gender, age and / or pregnancy and maternity. This is on the basis that younger teachers are more likely to opt out of the TPS, putting them at risk of not being able to opt back in at a later date; newly qualified teachers are also likely to be younger (and risk being affected, via their choice of school); and gender, pregnancy and maternity may affect the likelihood for extended career breaks (and TPS data indicates female members are more likely to take career breaks or extended parental leave), putting them at risk of being subject to employer discretion over re-joining the TPS.

The consultation asks for input on any other equality impacts which may result and how any equality impacts might be mitigated.

Implications of the proposals

As reported in our previous blog on the TPS, the hike in employer contributions poses significant challenges for independent schools. It has been reported in recent months that at least 62 independent schools have notified the DfE of their intention to withdraw from the TPS. For independent schools which have not made such a move, the new proposals will be another factor to take into account.

On the face of it, it seems obvious that if this extra option were on offer, then schools would have more choice and that is bound to be helpful. For schools which are concerned that they will have to propose leaving the TPS entirely, especially if another rise in employer contributions was announced at the next valuation in 2023, phased withdrawal could offer the prospect of an affordable compromise position. However, whether it would necessarily help schools manage the financial pressures they face, or ‘protect’ staff currently in the scheme is not so straightforward. For example, if a school were to adopt the phased withdrawal approach:

any savings would not be immediate and may only be realised over years or even decades – it would be part of a long-term strategy and would need to be financed accordingly;
it would result in a two-tier structure for teaching staff pensions, with some staff still in the TPS and others in the new scheme:
- this can risk a lack of collegiality in the staff, with some feeling resentful that they are not on the ‘gold standard’ scheme of their colleagues, and that would need managing; and
- it can also be costlier and more complex to administer – this is not new, as such arrangements have been commonplace across the private sector in recent decades as companies have closed their defined benefit schemes – but it should be accounted for in any decision.
the school would need to consider the impact on recruitment and on retention of staff. Might the school risk losing out to competing local schools which remain in the TPS? Or might existing staff feel ‘trapped’ if other local schools went for phased withdrawal or opted out entirely? Adopting the phased withdrawal approach does not rule out the possibility of a school later leaving the TPS entirely (or opting back in fully), so ‘protected’ staff are likely still to feel concerned about their future.

Phased withdrawal might offer opportunities, allowing more flexibility in the overall benefit package which the school offers to staff at different stages in their careers, eg enabling younger staff the choice to take more pay now in order to prioritise mortgage payments over pension.

What next?

There is no guarantee that the phased withdrawal proposals will be brought in. The government expects to make a final decision in response to the consultation ‘by late 2019’. The government has liaised with the ISC and ISBA before issuing the consultation, but teachers’ unions have indicated previously that they would oppose introduction of phased withdrawal. If the government decided to proceed, it is not clear how quickly the legislation could or would be implemented to enable schools to act on it – and that is without considering the ongoing uncertainties arising from Brexit and the prospect of another general election.

Schools interested in the proposal should not therefore necessarily rely upon the prospect of the proposals being enacted any time soon. It is important, however, that schools make their concerns known in response to the consultation; otherwise there is a risk that the government may take the view that schools are not unduly concerned.

With other significant threats to independent schools’ financial position and future, the situation remains a difficult one for independent schools, staff, parents and pupils. The new proposals, while helpful in many respects, may add to the ongoing concerns and uncertainty within the sector. As noted in our previous blog, what remains essential throughout this period is that the Governors get their governance right, so that they can feel confident in the difficult decisions to be made, and communicate with interested parties in a clear, timely and thoughtful manner.