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.
Employer contributions financed by tax to an unfunded scheme. Follow the money.
— andrew young (@glesgabrighton) April 13, 2019
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.
Here's a scary answer to your question (with the usual small print below). ONS don't give average contributions, so I've made some assumptions based on mode. Other answers are available!
PROJECTED PENSION FUND AT RETIREMENT
– Private sector: £110k
– Public sector: £457k pic.twitter.com/iM3NWYAfmz— Alistair McQueen (@HelloMcQueen) April 12, 2019
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.
Wow – that’s stark https://t.co/VfjolvPBUE
— Robert Cochran (@RobCochran1874) April 12, 2019
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.