Defined Benefit  

Govt to allow private school teachers to enrol in DC scheme

Govt to allow private school teachers to enrol in DC scheme

The government is proposing new rules for the Teachers’ Pension Scheme, which will allow private schools to enrol new teachers into a defined contribution scheme while keeping existing staff in the public sector pension fund.

In a consultation published yesterday (September 9), the Department for Education proposed to amend the rules governing the DB scheme so that private schools can choose to keep their existing teachers in the scheme, while offering alternative pension provision to new teaching employees, including auto-enrolment.

Currently, state and private schools all contribute to the Teachers’ Pension Scheme, making it easier for teachers to move between the two sectors.

But recognising the cost burden on independent schools the government said in April it will consider allowing these schools to leave the scheme via phased withdrawal.

However current scheme rules dictate that schools cannot offer membership to some eligible teachers but not others, therefore while independent schools are able to leave the TPS this would require them to withdraw all of their teachers at the same time.

FTAdviser reported in August that 62 private schools are leaving TPS after the government declined to give extra funding to make up for the hike in pension contributions those institutions are facing.

Employer contributions rose from the current 16.48 to 23.68 per cent this month, after the government announced in September it would be changing the rate used to calculate the liabilities of public sector schemes.

And while the government decided in April to fund state schools and further education colleges to the tune of £830m and £80m respectively this year, private schools will have to find their own funds to cover the additional cost.

According to David Robbins, senior consultant at Willis Towers Watson, the new proposal allows schools to keep current employees in the TPS and put new recruits in a DC scheme instead – presumably with contributions far below 23.68 per cent.

He said: “This mirrors what most private sector employers did when they closed their DB schemes to existing members, bringing the two-tier workforce phenomenon to independent schools’ staff rooms.

“For some schools, this might mean only closing to new entrants when they would otherwise have left the TPS altogether; for others, it might mean closing to new entrants when they would otherwise have stayed open.

“Over time, when fewer and fewer teachers are still in the TPS, it may become harder to justify differential treatment.”

Mr Robbins noted that from a school’s perspective, phased withdrawal means they would still face most of the immediate strain of higher contributions but could see savings over time.

He added: “From the government’s point of view, most of the negative cashflow effect would be delayed if this became widespread, but it would mean continuing to borrow from private school teachers in the form of unfunded pension promises, and doing so at a higher cost than the government can borrow in the markets.

“For teachers, this could provide an incentive either to stay at their current job or move to a state school in order to keep accruing DB benefits – but only if phased withdrawal became widespread in the independent sector.”