Teachers Pensions: Background, Options and Emerging Issues Bishops - - PowerPoint PPT Presentation

Teachers’ Pensions: Background, Options and Emerging Issues

Bishop’s Stortford College

John Murphie Chief Operating Officer, ISBA 17 June 2019

What is the Teachers’ Pension Scheme?

• Unfunded, government run public sector scheme
• Currently no exit penalty for schools
• Open to state school teachers, university lecturers and independent school teachers
• Reviewed every four years to ensure its assets and performance remain within

parameters set by the Treasury

• Independent schools contribute about £700m per year currently
• This would be c.£840m if all schools remain in TPS and pay 23.68% contributions
• The current service cost of providing TPS pensions is not going to be met by the new rate

(Page 20 TPS Accounts 2017-18)

• Are future rises inevitable? Government is flagging this

The problem:

• Employer Contributions up 43% from September 2019 (from 16.48% to 23.68%)
• Unaffordable, Unsustainable, Unviable in schools in some schools in all associations
• ISC/ISBA challenge HMT, the Chancellor, DfE
• Cannot close scheme to new teachers – all in/all out: the “Mixed Economy”? Timing?
• A new scheme (APTIS) is available for September (Defined Contribution)
• ISBA’s position is clear
• Governing bodies must make their own decisions to remain/opt out and will need to

balance

• Impact on morale/recruitment/retention of teachers
• Affordability/duties as trustees and directors
• Risks of future increases/liabilities: speculation vs prudent risk management
• The Unions’ stance

ISBA’s Position

• TPS is a very good defined benefit pension scheme
• In an idea world, schools would not withdraw
• However a 43% increase in employer contributions may be unaffordable for (many) schools
• In which case there are two options (subject to consultation):
• to leave TPS and use APTIS
• to do something else such as “reversing into” existing defined contribution schemes for support staff
• Schools are consulting; schools have joined APTIS already
• Others are taking a “wait and see” stance and taking time to consider options and plan
• Is the “Mixed Economy” a solution?

Uncertainties and Context

• Affordability/pressure on fees/upward pressure on the cost base
• Political and economic drivers for change
• Levies
• VAT on school fees
• Loss of mandatory business rates relief
• Further TPS increases
• Brexit
• Loss of charitable status
• Parental choice and confidence
• Options? Doing nothing is not an option!

Questions for Boards re TPS:

• 1. Can we afford a 43% increase in employer contributions?
• 2. Can we future-proof against risk of future rises? (What if it is 30% in 4 years?)
• 3. Even if 23.68% is affordable now, what will the impact of further financial shocks be e.g. loss of MBRR?
• 4. Will we breach bank covenants? Going concern issues?
• 5. Is this proper use of charitable funds?
• 6. What will parent reaction be?
• 7. Should we leave TPS now along with other schools and whilst there are no exit penalties?
• 8. What will the impact be on teacher recruitment, retention, morale and industrial relations?
• 9. What should our future remuneration strategy be?

Options (1)

Option 1 – Pass the cost on as a fee increase – by up to 2.6% before any other inflationary increase. Option 2 - Maintain the current cost of teaching staff

• Increase Pupil:Teacher Ratio.
• Increase number of pupils
• Reduce teacher headcount
• Pay freeze – hold teachers’ pay for a couple of years at least a year on the basis that

their ‘benefits’ would have been increased by 6%.

• Review teacher employment (Are teachers employed for roles that could be carried
• ut by others e.g. coaching, library, management, etc?)
• Review structure of school, including setting, to have a smaller number of full

classes than a larger number of classes with empty seats.

Options (2)

Option 3 - Reduce other costs, as an example remove teaching staff fee discounts/means test staff remissions Option 4 - Accept a lower surplus of, say, 5% and in turn trim expectations about reinvestment. Option 5 – Address the core issue – the cost of exposure to an unfunded public sector pension scheme and the mechanism required to withdraw the school from it. Option 6 – This will be a catalyst for change so, merge with another school, or schools, acquire another school or schools, join a Group, seek investors?

Summary

• TPS is an unfunded scheme that will not make good its deficit using this increase in contributions
• There are no TPS exit penalties currently
• There are other strategic financial threats to consider
• Which should be balanced against recruitment, retention, morale of staff
• Other pensions schemes are available including APTIS
• The risk shifts in a DC scheme to the employee from the employer
• A DC scheme and salary sacrifice gives flexibility to school employees
• ISBA has provided the full details of APTIS and death in service/critical illness cover
• Legal issues (and other questions) are being answered as they arise
• ISBA will support schools through the necessary HR and other processes Beware of inducements
• It is for Boards of Governors to decide
• Will this be a catalyst for change in remuneration policies (and more widely in stimulating