Covid-19 has seen a number of private schools opt out of the Teachers’ Pension Scheme as they look to avoid a significant hike in contributions.
According to a Freedom of Information request submitted by specialist advice firm Wesleyan to the Department for Education, since September 2019, when contributions to the Teachers’ Pension Scheme increased by 40 per cent, a total of 177 schools have left the scheme.
The majority of withdrawals were triggered by an increase in contribution levels, but out of the 177 schools, 64 pulled out after the coronavirus outbreak in March.
Last year, employer contributions increased from 16.48 to 23.6 per cent following the government’s move to change 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, private schools will have to find their own funds to cover the additional cost.
Parminder Gill, advice policy consultant at Wesleyan, said Covid-19 has caused even more schools to pull out of the scheme as they struggle to afford the increase in rates.
He said: “The number of independent schools opting to leave the Teachers’ Pension Scheme is rising at an alarming rate – putting thousands of teachers into less generous schemes.
“Although we saw an initial jump in the number of schools opting to leave the scheme following the rise in employer contributions last September, this has accelerated sharply as schools began to get a clearer picture of the long-term financial implications of meeting the additional costs.
“With the events of the recent lockdown placing increased pressure on school budgets, many more schools are assessing their TPS options right now to see if they can afford to maintain their membership.”
Mr Gill has urged teachers at schools that have withdrawn to consider what the move means for their future retirement plans and the immediate options they have available.
He added: “The TPS guarantees retirement income that is directly linked to a teacher’s salary. It is one of only eight guaranteed by the government and is inflation-proof to offer teachers a secure retirement.
“Any alternative defined contribution schemes that many teachers will now have to consider are far less certain, with both employer and teacher contribution rates significantly lower than those that teachers would have experienced within the TPS.
“As with any changes to your financial situation, it’s important that you explore these carefully with a professional adviser. For some, retirement might seem like a long way off, however ensuring that the right plans are put in place now can significantly benefit you in later life.”
Former pensions minister Sir Steve Webb had previously warned private schools opting out of the scheme to seek help from an adviser before making alternative arrangements.
Sir Steve said: “This is a complex business, and there’s no single solution that will necessarily be right for all schools. Teachers will expect their schools to have taken advice and shopped around for the scheme that best meets their needs.”