So what has changed in the past couple of years?
Broadstone has been working with independent schools in relation to their participation in the Teachers’ Pension Scheme (TPS) since shortly after news of the 43% employer contribution increase became known back in 2018.
In that time the landscape has changed substantially – since January 2019 over 200 independent schools have left the TPS, and it was understood recently from David Woodgate, Chief Executive of ISBA (Independent Schools’ Bursars Association) that around 150 schools are currently consulting with their staff in respect of the TPS. The numbers are not surprising as an actuarial valuation of the TPS is currently being undertaken and schools will be mindful of April 2023, which is the next date at which the employer contribution is likely to change again. Current predictions are that the employer cost could rise again, from the 2019 rate of 23.68% to somewhere in the region of 30% to 35%. Not good news for schools given that many have been hit hard financially in the past year by Covid-19.
The Government announced last November that TPS ‘phased withdrawal’ will be available for independent schools from spring 2021. Phased withdrawal effectively allows a school to close the TPS to new members of staff – but existing staff can remain in the scheme until they cease to be employed by the school concerned. Over time, schools that opt for phased withdrawal will see a gradual reduction in their commitment to the TPS. But it won’t be a big instant hit, as plenty of staff who are employed today could remain in their jobs for many years. Phased withdrawal is a helpful addition to the options available for schools, but of course, it only offers limited initial protection against risks such as future employer contribution increases and a possible employer exit charge.
What have we learned through experience since 2018?
Much has changed since late 2018 – but we have also learned an awful lot through our direct experience of working with independent schools, particularly so in terms of the collective staff consultation process that a school will likely have to run before any pension-related changes are introduced.
An independent school client recently asked us the following question: “What key ‘lessons learned’ should we be aware of before / if we start this process?”
We answered as follows:
1. Age isn’t necessarily a key factor and it is not always who you believe will have issues with the proposed outcome that does. For example, you may believe that teachers who are closer to retirement than the start of their careers will be more concerned, but we have found that often the younger teachers have also been quite upset by the potential loss of the TPS. The benefits provided by the TPS are a factor that, amongst many other reasons, of course, attract younger people to the teaching profession.
2. It is vitally important to ensure that all parties representing the employer (senior leadership team, headteacher and the governors) are as aware and as on board as possible and that all governors are in support of the proposed changes.
3. Schools need to fully understand that industrial action might be taken by teachers, the default position of many of the teaching unions is to reject any proposed changes and to ask their members to take strike action.
4. Communication, communication and communication are key – starting from initial financial education (TPS vs. Defined Contribution (DC)) for teaching staff either ahead of, or very early in the consultation process. Ad-hoc sessions may also need to be arranged at short notice during the consultation process as the need arises, and we definitely recommend that 1-2-1 guidance sessions with a qualified financial adviser are provided for each teacher that requires one. Teachers are often reluctant to ask a personal financial question during group presentations, but in a 1-2-1 environment, they are likely to be more comfortable discussing their own particular circumstances.
5. Schools should take a close look at a few Defined Contribution providers at least. The premise is the same – they could all run a DC pension scheme on your behalf – but the approach taken by providers will differ considerably. Working with your appointed pensions consultants, make a list of what is most important to you as an employer – is it the charges that will be borne by employees? Or perhaps the online tools available for employees, or maybe even the range of funds that are on offer for those who want to bypass the default and make their own strategic investment choices? Before reaching a final decision you should closely examine the DC providers in order to find the one that is the closest match to your specific requirements.
6. Expect to be thoroughly questioned and scrutinised with regard to the business case – schools will need to ensure that all reasoning is absolutely clear and to be prepared for detailed analysis of the employer finances as questions will arise such as why did the school choose to buy certain assets, or can certain assets be sold – these have included additional sites, grounds, swimming pools, staff accommodation (etc.) that is owned by the school and even whether staff redundancies were an option instead.
7. Finally, schools should keep an open mind during the entire process and listen to what the staff are looking for. It may be a surprise as to what is important to them, and sometimes modest concessions to their requirements can help guide the consultation process to a successful conclusion.
As always, if there is anything that Broadstone can do to assist you, then please do not hesitate to get in touch with us for an initial conversation.
