Thu 18 Jul 2024

 

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Teachers offered higher pay but less towards pension in new scheme

A group of 90 state schools has put a new pension offer on the table for staff

A large group of schools plans to offer their staff higher pay in return for smaller pension contributions in what is thought to be a first for the state sector.

United Learning, the biggest group of state schools in the country is proposing a new pension option for staff that would allow starting salaries of up to £45,000, but would lead to them getting less generous pension contributions.

All state schools in the UK have to automatically enroll their staff in the Teachers’ Pension Scheme (TPS), which is a generous defined benefit (DB) scheme that guarantees staff a fixed annual income in retirement based on their salary throughout their career.

This is different to most pensions in the private sector, which are known as defined contribution (DC) schemes, where staff pay into a pot, from which they then draw down in retirement, but can theoretically run out.

Under the TPS scheme, staff contribute a minimum of 7.4 per cent of their salary towards the funding of current pensions, and schools contribute 28.6 per cent – although this money is used to pay the pensions of currently retired staff.

The proposed scheme, first reported by Schools Week, would mean staff are given smaller pension contributions from their school. As an example, United Learning says a teacher currently paid £39,000 would be paid £45,000 instead, and given a 10 per cent pension contribution.

A 10 per cent contribution would still be higher than the minimum of 3 per cent, which many in the private sector receive, although DB pensions like the TPS are known for being very generous, and so opting out could lead to a less lavish retirement.

The trust of schools says it thinks it will “attract” new staff into teaching.

A spokesperson for United Learning said: “This proposal is an exciting new option for teachers, which will allow us to offer, for example, starting salaries of £45,000 plus 10 per cent pension in London. We think this will attract a whole new cadre of people to teaching. It also provides an attractive pension to hundreds of colleagues who have opted out of the Teachers Pension Scheme due to its costs.

“It won’t be right for everyone – the traditional option including TPS will continue to be available to all current and future colleagues, exactly as now. The two options have the same cost to us – the new one just puts more into pay and less into pension than the traditional one. There will be no pressure to choose one or the other and colleagues will be free to move between the two year by year to suit their needs and preferences.”

Experts have previously told i that higher salaries and smaller pensions could be a better way of boosting recruitment into the public sector without incurring extra costs.

In April, National Foundation for Educational Research (NFER) economist Jack Worth told i: “What’s clear is that the DB nature of the teachers’ pension makes it probably very generous in relative terms and costly for government, while the teaching workforce at the moment is relatively young and therefore may value the long-term benefits of a generous pension less than the current benefit of pay.”

Experts have warned that staff considering taking the offer should look at the positives and negatives very carefully.

Tom Selby, director of Public Policy at AJ Bell, said: “Any decision to water down your pension benefits in favour of higher salary is a significant one financially and what is the best course of action will vary from person to person. Anyone who chooses to accept the lower pension terms needs to be crystal clear that, while they will have more money today, they will be sacrificing a more secure retirement in the future.

“That is not to say that decision is wrong, particularly where someone is struggling to make ends meet today, but more to emphasise the importance of thinking carefully about such an offer. For anyone who isn’t sure, speaking to a regulated financial adviser to fully understand the implications [is] likely [to] be sensible.”

And former pensions minister Sir Steve Webb, now a consultant at LCP, told i that if more schools were to start to offer alternatives to the TPS, it could cause a funding problem for the scheme, as current contributions fund pension payouts for ex-teachers.

“If this became widespread, it would cut contributions from teachers and schools into the TPS, which would reduce the amount available to pay today’s retired teachers,” he said.

“On the other hand, if the government got 45 per cent tax, including employer NI contributions on the extra amount of pay, that would soften the blow,” he added.

Hundreds of independent schools have already withdrawn from the TPS and enrolled staff in alternative schemes because of the increased cost to employers.

And i has reported that some private schools are now enticing staff to leave the scheme, with cash offers of around £2,000 in some cases.

United Learning is currently in conversation with the teaching unions – which have criticised the proposals.

Paul Whiteman, general secretary of the school leaders’ union, NAHT, called the plans “alarming”.

And union leaders have written to education secretary Bridget Phillipson to “encourage” United Learning to stop its its plans.

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