Can CDC offer private school pensions?

CDC pensions boost

The Department of Education has a cunning plan. Put money behind pensions for teachers in state education and ransome private schools and colleges of higher education for higher pension costs. The policy is justified as an end to a tax-payer subsidy to the independent sector and private schools are thrown crumbs by promises to change participating rules in the Teacher’s Pension Scheme to allow schools to close entry for new hires.

There are conspicuous casualties in this. The private sector gets lumped with higher costs for existing staff and a Hobson’s choice between  two tier pension  going forward or another sever hike in school fees. Existing private School teachers see less money in the pot for pay rises and increasing job insecurity. Teachers moving into new private sector jobs are offered a DC workplace savings plan and not a pension scheme.

Teachers need pensions, that’s why the Teachers Pension Scheme is there. It isn’t flexible, it doesn’t promise pension freedom and it is not funded. It is an understated success story for the 500,000 teachers in the UK.


A history of collective pensions

Of those 500,000 teachers, 61,000 are in the private sectors spread over around 2,300 schools. They have their own trade bodies and co-operate with each other and the state over pension matters.

Historically, private schools have participated not just in the Teachers Pension Scheme but in the Local Government Pension Scheme (LGPS) and other multi-employer DB schemes such as the Pensions Trust (TPT). But TPS is the main provider and schools have accepted participatory conditions on the basis that they are the same for everyone. But this is no longer the case, the £940m supplementary fund announced by the Government will only be available to state schools and state colleges of further education.

With the solidarity between state and private sectors broken, expectation would be that private schools would – for new hires – engage with workplace pension providers to offer “DC pensions”. In doing so they would cease to directly offer a pension scheme and replace it with a scheme that allows teachers to purchase a pension.

There is no evidence that this is what teachers want. It is not something that teachers have had to consider, a teaching job comes with a wage in retirement bought from years of service in the Teachers Pension Scheme. Shifting the goalpost mid-career is not part of the plan. Not only have all schools participated collectively but all teachers are part of the pension scheme. This collective endeavour underpins the common room.


Can this collectivity be maintained?

 

Peter Crowley’s suggestion was I suspect tongue in cheek, but it caught a fire in my imagination.

Until recently Collective Defined Contribution Schemes were abstract conceptions of actuaries. Royal Mail changed that. Here an employer with a history of collective Defined Benefit pension provision rejected a move to DC savings in favour of the prospect of a collective defined contribution plan where costs to the employer was fixed and benefits paid as a pension dependent on money in one central pot.

The conditions that made CDC an option at Royal Mail were

  1. High level legislation promising the prospect of CDC
  2. Agreement that the costs of DB were no longer affordable
  3. Acceptance that having all workers in plan was preferable
  4. A wish among members to continue in a pension plan rather than a savings plan that could buy a pension.

It seems to me that these four conditions may well be in place in private schools and colleges of Higher Education.

It may well be possible, assuming the proposed rules for the Royal Mail type CDC are enacted following this summer’s Queen’s Speech, for a CDC scheme to be set up for the 61,000 teachers in the private sector and for their 2,300 employers. Teachers in further education might also be able to join such a scheme if rules allowed.

Such a plan could either follow the route of Royal Mail and establish a target benefit – rather like a defined benefit without the guarantees. There are other ways to run a CDC scheme which  put more emphasis on shares in the fund, these matters are secondary but important.


Could it work?

To work, there would have to be scale and I am not sure that scale could be achieved by just offering CDC to new hires within the private and HE sectors.

Offering CDC to some and DB to others would still be divisive.

I suspect that a collective solution would require all teachers in the sector to accept a CDC solution going forward, even those with a DB promise. This would be a major leap of faith for private teachers  and their unions.

To agree to a CDC pension based on a defined contribution would require confidence that there was an upside to CDC (tough) and that the alternative – the impact of remaining in DB – was not as attractive as previously thought. There are ways of getting there but none are easy.

Such a plan would also have an impact on the Teacher’s Pension Scheme, who would lose a substantial number of active members and the contribution stream baked into the Government Actuaries funding assumptions.

Releasing schools from further obligations to the Teacher’s Pension Scheme , would mean a sharp intake of breath at GAD and in the Treasury.

I can  only see a sustainable solution to the looming pension problems for the private sector in a collective approach.  I don’t see workplace pensions filling the gap left by not getting the Teachers Pension Scheme.

But I am a blogger and not the Governor of a private school, I am not an actuary and I’m certainly not in Government.

This blog does not represent anyone’s view but my own, but  I hope that it will be read and considered by others and that it may catch a fire.

Could this idea work? I don’t know – but it is the only alternative I can see which might attract a sustained pension consensus among teachers and I offer it to the debate.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in CDC, pensions and tagged , , , , . Bookmark the permalink.

2 Responses to Can CDC offer private school pensions?

  1. Phil Castle says:

    My wife is a teacher at a Private school and I had already posted a comment on a different thread of Henry’s to say that if Private Schools withdraw from the TPS, then CDC would be the next best option.

  2. Eugen N says:

    As far as I understand it, the solution could be another DB pension scheme.

    The Pension Trust is in discussion of launching this. Not sure why CDC would be a better solution that a DB scheme.

Leave a Reply