Could pensions yet break state education?

teacher

The Teachers’ Pension Scheme is one of only eight guaranteed by the Government; provides additional benefits linked to salary; is inflation-proof to offer teachers a secure retirement; and offers the typical teacher around £7,000 in employer contributions every year.

This makes the scheme one of the most generous schemes on offer – in comparison, Work Place Pension rules require private sector employers to pay a minimum 3% contribution to an employee’s pension, which is around £900 a year for someone earning the same salary as a typical teacher.

The message is from Dominic Hinds, Education Secretary and represents an escalation in a longstanding argument over how we fund education in this country.

The mechanics of this are laid out in the same statement. If a school over-runs its pension budget (currently 0.05% of the total school grant) it can apply for for a top up calculated on a per pupil basis which will be paid from the £940 m set aside to meet extra pension costs anticipated for 2019/20.

The details of who will get what and why are in a detailed response to the Government Consultation on this subject

In response to increasing employer contribution costs for the Teachers’ Pension Scheme from FY 2019-20, the Department for Education proposed to provide funding to state-funded schools and Further Education institutions, as defined below, as these institutions are most directly funded by Government grant(s). The Department also proposed that Independent Schools and Universities (and other organisations providing HE) obliged to offer TPS would not receive funding.

This is not money that has been magicked from thin air. As Andrew Young, formerly a Government Actuary points out, it’s money found from the public purse – follow the money and you’ll find that it comes from your purse.

We all want teachers to get proper pensions and if it costs a little more than expected then so be it. The £940m supplementary pot is a price most of us would pay.


But here it gets political

Although all teachers will continue to get a very good pension, so long as they are in the teacher’s pension scheme, not all teaching establishments will benefit from the supplementary fund. That £940m that is set aside will not be available to higher education teachers who are in the teachers scheme. Nor will it be available to teachers in the teachers scheme but in the private sector. They will have to fund the extra costs from their own resources and that means higher fees.

So those with kids at private schools and most students, will find their fees will go up as a result of the Government Actuary’s decision that the funding of the Teachers Pension Scheme must increase.

Which is all very political and very divisive and not at all explained.


The message to parents

If you are a hard working parent who is funding your kids school fees, you will probably be finding your own pension contributions uncomfortable.  You will look at the tax deduction from your payslip and wonder about the next five figure demand for fees in a couple of months time. You may ask whether the amount you are paying towards other people’s pensions is more than is being paid into your own.

Here’s an interesting analysis from Alastair McQueen which shows just how wide the gap is becoming between private and public pension expectations.


You may well be thinking that you are being asked to pay more than your fair share, that the value for money you are getting from your tax-spend is pretty thin and that the likely increase in your school fees to fund the increased cost of your child’s teachers pensions will be the straw that breaks the camel’s back.

Were you to say this to Dominic Hinds, I suspect he would look you in the face and say “tough”.

For years private schools have been under the treasury’s eye for their charitable status. They are politically vulnerable as they are considered divisive by those with left of centre views and unaffordable by the majority of those with right of centre views.

Although hugely popular with the mass-affluent, the Government knows full well that the higher the fees, the more exclusive the fee-payer feels. There is a seemingly endless tolerance to private school fee inflation which has outsripped all other types of infflation over the past twenty years.

The message to parents is to tighten your belts or return your children to the state system. As for higher education, the message is less clear. The cost of the University Superannuation Scheme has been a major cause of debate (and industrial action) over the past two years. The strain on employers offering higher education and pensions through the teachers pension scheme (rather than USS) looks likely to be another cause of instability.


Deliberately provocative?

Dominic Hinds’ statement looks deliberately provocative. By demonstrating that the imputed value of contributions to the Teacher’s Pension Scheme are more than ten times the minimum contributions needed to comply with the auto-enrolment regulations, Hinds is laying down the gauntlet to the private schools, to higher education and more generally to a private sector already bearing the brunt of public sector pension costs,

While this makes for a good sound-bite when talking to state schools , it is likely to inflame the larger debate over the “pensions apartheid” between the haves and the have nots.


If you are in the public sector you now have a protected pension scheme. If you are in the private sector or teaching in higher education , your employer’s pension costs are unprotected.

Your private school of HE employer may try to kick you out of the teacher’s pension scheme (though that will be difficult as indicated below). Or they may refuse you pay-rises , or they may pass on costs to parents and risk school fee tolerance snapping and parents withdrawing children.

These are the wider consequences of Damian Hinds’ statement. It strikes me that statement is cavalier, deliberately provocative and not fully thought through. “Interesting spin” indeed.


 What next for private schools?

In its consultation response , the Government holds out very little hope for the private sector

The Department therefore confirms the funding rationale set out in the consultation document and will not fund Independent Schools at this stage. However, by way of a potential mitigation to the risks identified, the Department will begin work to consider allowing Independent Schools to leave the scheme via phased withdrawal.

If you want to teach in the private sector, be prepared to lose future pension accrual  and join the swelling ranks of under pensioned professionals who rely on a DC plan and a contribution at your employer’s discretion.

If private school teachers get as agitated about this as University Staff, then the “phased withdrawal of private school employers from the Teacher’s scheme will be a very messy and disruptive business.

I think that many parents considering their children’s education , may well end up looking at the state system , which presents another set of problems for Damian Hinds, for a migration from private to state will impose a new set of funding challenges for his department.

The DOE are banking on parent’s fee escalation tolerance. The cynic in me suspects that they may yet be right.

This is a high risk game which I have likened earlier this week to the pension  game the Government is playing with the pension franchises.

The Government should tread softly, as it’s treading on its citizens dreams.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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10 Responses to Could pensions yet break state education?

  1. Brian says:

    This is a very good argument for removing the charitable status of private schools. Parents who choose to buy their children the undeniable lifetime advantages of a private education will then have the taxpayers subsidy removed. Quite why teachers who choose to teach in the private sector should be allowed to join a public sector pension is beyond me. If they want to teach in the private sector then let them and their employers fund their pensions privately.

    • henry tapper says:

      I think the private sector would claim to be reducing the cost of teaching to the taxpayer- the argument for charitable status’ . Parents get no offset on tax for not using the state system. It’s a balance

      • Brian says:

        I would say that such a claim is somewhat laughable. If said parents kept their children within the state system the APU funding their state school would receive would be far less than the amount saved funding charitable status. Doesn’t even come close. Baloney Henry.

  2. Dave C says:

    To live in a world where you worry over pension contributions up near 20-25% contributions not going up any further… or how you’ll get by when your five figure private education fees might go up a bit more.
    It must be nice.

    On uni students and fees/debt, that’s a more difficult issue but students need to make solid decisions.
    If you’re willing to work hard enough in the right industries the fees are still irrelevant in the bigger picture.

    Just throwing tax payer and student debt money at the greedy teachers isn’t a long term solution..

    • Brian says:

      Teachers aren’t greedy Dave. Contrary to ignorant popular opinion the vast majority of teachers care deeply about their job and most of them work throughout their holidays updating and improving their schemes of work and lesson plans. They have a sense of vocation and are not in the least bit greedy. However as a taxpayer I would happily contribute towards the cost of a well earned pension if they are educating the masses. However I deeply resent helping parents get a leg up to help their kids receive the privilege of a private education. And therefore I disagree with paying the pensions of those who choose to teach in private schools.

  3. Bryn Davies says:

    No

  4. John S Mather says:

    If the Teachers Scheme were funded what would be the deficit?

    What is the total deficit of all unfunded public sector schemes?

    I was reading a report this morning, one of a range of articles that with advances in bottling techniques could eradicate insomnia, here is an extract. Another example of sticking plaster “solutions” to real issues

    “According to the Local Government Association (LGA), by 2020 local authorities will have lost 60p in every £1 they were allocated by central government a decade ago. Notwithstanding this reduction in funding, the demands to provide social care and infrastructure investment has never been greater and have caused local authorities to turn to the property market in search of income to bridge the funding gap.

    Many local authorities have used record low interest rates to borrow money to invest in property, including commercial assets ranging from office blocks and industrial buildings to shopping centres and retail parks, not necessarily in their own areas. The latest data shows that borrowing by councils shot up to £10bn in 2017-18 from £4.4bn four years earlier.

    The most common source of funding has been low-rate borrowing from the Public Works Loan Board (PWLB), part of central government’s UK Debt Management Office (DMO). ”

    Borrowing to consume disguises the reality of declining productivity in the UK economy. Pushing these obligations on our children makes no sense at all. With a decline in the retail sector property investments of this type could give rise to systemic risk similar to the folly of Icelandic Bonds

    • Brian says:

      Very good point. Maybe the most relevant statistic is the loss of 60p in the pound funding from central government at a time when the need for social services, particularly social care and health care, has never been so great. Well done to local authorities for trying to find ways of filling the gap innovatively. Perhaps if as a society we were less inclined to measure success in individual material wealth then things might change. The lack of admiration for our fire services health services and education services is a sign of the race for self wealth rather than furthering civilization.

  5. Julie Richards says:

    Being a product of a state school, I would gladly have left my children in state system if I had felt it was good for them but it wasn’t – low quality teaching, disruptive pupils, serious bullying all pushed to us to the limit and we took the kids out and, from post tax/NIC income, paid for them to go to a good local private school. Not a big name, no real “leg -up” for the kids, just a safe, good quality teaching environment. Did we get a reduction in our NICs for not using the states systems? of course not, nor would we expect such – it was our choice. Did we have to make sacrifices to be able to afford to do such? Absolutely. Access and quality of education in this country is a much bigger, more fundamental issue than simply a pensions debate, no matter how we feel about the rights and wrongs of the protected nature of teachers DB pension. Govt policy is a mess, lacks transparency and honesty (it is politics after all)

    • Brian says:

      Very true Julie. Successive governments have tinkered with the education system with a genuine but ill judged desire to improve. Sadly as a society we get the leaders we deserve. A bunch of old Etonian elitists acting purely from their prism of reality. People like Rees-Mogg Johnson and previously Cameron will never know the impact of their failed policies since their families are wealthy enough to cope with any outcome.

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