Private schools are offering payments or increased salaries to teaching staff in return for them agreeing to pull out of their gold-plated pension schemes.
Hundreds of independent schools have already withdrawn from the Teachers Pension Scheme (TPS) and enrolled staff in alternative schemes because of the increased cost to employers.
Further schools are now enticing staff to leave the scheme with cash offers of around £2,000 in some cases, though union leaders have said these are “irresponsible”, with pension experts warning staff to “carefully consider” whether they want to accept the payments.
The TPS is a generous defined benefit (DB) pension scheme which guarantees staff a fixed annual income in retirement. But, in September 2019, employers went from having to pay 16.48 per cent of an employee’s pay towards the scheme to help fund it, to 23.68 per cent.
While for the state sector this was paid for with government money, the private sector had to stump up the cash itself, prompting an exodus of schools from the scheme.
From this month, the contribution rate has risen again, to 28.68 per cent. A sector leader told i this is “unaffordable” for many private schools.
David Woodgate, chief executive of the Independent Schools’ Bursars Association (ISBA), said that in light of the higher rate more schools “are either in consultation about possible withdrawal or are planning to start a consultation over the next few months”.
“I am aware that some schools have offered, or are proposing to offer, additional payments or increased salaries to teaching staff in return for their agreement to proposed contractual pension changes.”
He said the practise of schools offering teachers cash to leave their schemes was not being used “widely” at the moment and that the specific proposals “will vary from school to school based on the circumstances”.
Niamh Sweeney, deputy general secretary of the National Education Union (NEU), said some employers were offering staff a one-off payment of £2,000 to leave the TPS.
She also criticised the practise of enticing staff to leave the TPS with cash payments as “irresponsible”.
“NEU believe that accepting such offers will leave our members facing an uncertain, and potentially impoverished, retirement,” she said.
Freedom of Information data show that 432 independent schools have now withdrawn fully from the TPS and a further 150 have closed membership to new joiners.
Mr Woodgate said the number was likely to rise because of the rising cost to the schools.
“At this level it just becomes unaffordable for an increasing number of schools, particularly against the background of the likely imposition of VAT on school fees and the abolition of business rate relief by an incoming Labour government,” he added.
Pension experts warned staff being offered the chance to leave the scheme to consider their options carefully.
Tom Selby, director of public policy at investment platform AJ Bell, said: “Defined benefit schemes are the gold standard of retirement provision, so quitting your scheme, regardless of the incentive offered, should be carefully considered.”
He added: “In particular, you need to think about how you will fund your retirement without the security of a guaranteed income for life from your employer. Anyone who isn’t sure about what to do should speak to a regulated adviser to better understand their options and the impact of any decision they take.”
DB schemes like the TPS offer employees fixed annual incomes in retirement based on their salary during their career and the length of their career.
They were once common, but are now generally only found in public sector roles.
The alternative, known as defined contribution schemes, see workers save into a retirement pot, which they are responsible for managing in retirement.
Those private school staff who do leave the TPS will be offered an alternative scheme, but it may not be as generous.
Teachers get 1/57th of their pensionable earnings each year in retirement. So for a teacher on £40,000, leaving the scheme for just three years could equate to a loss of over £2,000 per year in retirement.
If a teacher was then enrolled into a DB scheme at the minimum contribution rate, they would accrue around £8,100 into their pension pot instead over those three years – 8 per cent of their earnings over £6,240.
What they would end up with in retirement would then depend on the growth of this money as an investment, and it would be the teacher’s responsibility to manage it and use it to provide their income during retirement.
Teachers working in the private sector have campaigned hard against their schools leaving the TPS.
In 2022, teacher members of the NEU at the Girls’ Day School Trust – a network of private schools – went on strike over their schools’ proposals to leave the scheme, though a deal was eventually reached allowing current staff to stay in the scheme.
Many private schools are facing financial uncertainty because of Labour’s plans to add tax to the fees pupils’ families pay if it wins power at the next general election.
Some are drawing up cost-cutting plans because of fears that adding the cost on the fees will mean fewer can afford their fees.
Get in touch
Are you a teacher who has been offered money to stay in your role?
Are you considering switching position as a result of your school leaving the TPS? Maybe you are considering moving to a state school?
Let us know. It can be anonymous – callum.mason@inews.co.uk