Independent schools opting out of the Teachers Pension Scheme due to high contribution levels have been warned to seek help from an adviser before opting for alternative arrangements.
In September employer contributions increased from 16.48 to 23.6 per cent following the government’s announcement that 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.
Due to this around 60 private schools have left the Teachers’ Pension Scheme and are currently looking for alternative arrangements.
But Royal London urged governors of these schools to take advice before settling on a new scheme, warning they did not have the specialist knowledge to choose the right alternative pension arrangement for their teachers.
Alan Chan, director and chartered financial planner at IFS Wealth & Pensions, said advisers can help governors by acting independently to balance the interests of the governors with the teachers' and reach an amicable compromise.
He said: “Withdrawing from the Teachers Pension Scheme will provide significant savings in pension costs and can be seen as a very one sided arrangement which might leave some teachers feeling bitter.
“Advisers may be able to help by considering both sides and advising them on a suitable arrangement that remains attractive enough to retain and attract new teachers.”
Taunton School in Somerset sought financial advice and as a result set up a hybrid arrangement which allows staff to stay in the Teachers’ Pension Scheme if they are prepared to fund the increased contributions, or to opt out and receive a package of similar value payable into a private pension.
Taunton School’s chief operating officer, Nicola Miller, said: ‘We have all been on a steep learning curve when it comes to pensions.
“When we talked to our colleagues, we found that they wanted a range of different things. Some wanted to remain in the Teachers’ Pension Scheme and were prepared to pay extra to do so.
“Some were happy to opt out of the Teachers’ Pension Scheme and have us pay contributions into a private pension, whilst a few wanted to pull out of pensions altogether.
“We benefited from taking expert advice and from talking to a range of pension providers before setting up an arrangement that we think works best for our people."
Sarah Searle, independent financial adviser at Milsted Langdon, who specialises in pensions for teachers, said advice was needed to navigate these complex decisions.
Ms Searle said: “The alternative pension arrangements on offer can vary in things like the amount they take in charges, the range of investment funds that are available and the options for members at retirement.
“Pension providers also vary in how much help they will give to individual schools in setting up a new arrangement.