At least ten private schools are in talks with a school leaders’ union about pulling out of the Teachers’ Pension Scheme (TPS), with one major chain already set to move staff out, as reported by Jess Staufenberg in SchoolsWeek recently.

This situation has been brought about by a black hole in the funding within the TPS.

Employer contributions are set to rise from 16.4 per cent to 23.6 per cent in September, an increase which the Department for Education said it would fund, for state schools only, until the next spending review.

Funding shortfall

The net effect of this increase means private schools will be forced to find a way to bring in additional funds, or draw down on their reserves to raise employer contributions to the fund.

Unfortunately, however, this won’t be a one-off bill but an ongoing expenditure and quite possibly parents will see fees rise over the next few years.

But Kate Atkinson, a pension expert at the National Association of Head Teachers (NAHT), said current contributions from private schools were helping to cover a predicted £1.7 billion black hole in the scheme.

“There is this huge assumed deficit, which in theory the Treasury thought it’d be getting more money for.

“The retired members now won’t experience less money, but what it may mean down the line is the employer contributions from schools could rise to make up the shortfall.”

Kate Atkinson, pension expert at the National Association of Head Teachers (NAHT)

Defined Contribution vs Defined Benefits

Unlike defined contribution schemes, where members’ benefits are linked to fund performance, the TPS is a defined benefit scheme, which means members are guaranteed a specific pension amount based upon their salary and years of service.

In recent decades, many companies across a variety of industries have discovered that the pot of money within their pension funds wasn’t going to be sufficient to cover future liabilities and have taken the step to close their defined benefits schemes to new employees.

An easy exit is possible

There’s nothing to stop an independent school to cease membership of the TPS; all that’s required is they write to the Education Secretary informing them of their intention.

For that private school the TPS would then be closed to new entrants, and the school would then need to arrange for a defined contribution scheme to replace it.

The downside to doing this, however, is that they may suffer from a loss of teachers, especially those with longer service who may have wished to augment their years of service with Additional Voluntary Contributions (AVC’s).

There’s also the possibility that well-qualified graduate teachers might prefer to take up a position in a state school (with the TPS) rather than an independent school with a defined benefit scheme.

Private schools already leaving TPS

Alpha Plus Group has already written to Damian Hinds over moving all its 20 private schools and colleges, seven of which are already in a pension scheme with Scottish Widows, out of the TPS from September.

The Methodist Independent Schools Trust, which has 14 schools, said it was “reviewing the impact of the increase in employer contributions and following the national debate closely”.

The Independent Schools Council (ISC), which represents about 1,000 private schools, said its schools would try to “ensure a balance between providing attractive remuneration packages for teachers” with “the need for schools to remain financially viable”.

A Department for Education spokesperson said it would encourage independent schools to remain in the TPS so teachers could “continue to move between the public and private sector”.

According to information obtained by Schools Week they believed that two other education unions are in talks with private schools about moving out of the scheme.

Parents need to prepare for above-inflation fee increases

Bursars and School Heads may need to burn the midnight oil over this one and discussions with pensions actuaries may be required to determine what will be their their next move.

Whilst uncertainty exists this issue, there exists the strong possibility that many schools will be forced to increase their fees to make up any shortfalls.

Some may have funds they can re-allocate, however, for those schools less well-prepared it could cause a significant dent in their funds.