Teachers’ Pension Scheme: independent schools phased withdrawal Government consultation response

17 November 2020
On 11 November 2020, the Department for Education published its response to its consultation on allowing independent schools a so-called “phased withdrawal” from the Teachers' Pension Scheme (TPS).

Under the proposals, independent schools would be able to close TPS to new entrants, whilst allowing existing members at the date of change to continue in active membership. This is a course of action currently prohibited by TPS regulations.

Consultation conclusions

The key consultation conclusions are:

  • Although there would be limited immediate financial impact from phased withdrawal, this would increase over time.
  • The measure would assist some schools in managing the increased cost of TPS membership.
  • The measure is likely to result in more teachers retaining access to TPS than would otherwise be the case.
  • To the extent that the measure prevents independent schools exiting TPS altogether, the measure mitigates against upward pressure on the TPS employer contribution rate. 

Outcome

The Government therefore intends to proceed with the proposals, with a small number of adjustments for equality purposes:

  • Optants-out will be able to opt back in to TPS if the opt-out took place prior to the school’s phased withdrawal.
  • Individuals returning to work from non-pensionable sick/family leave will have a 5 year window to re-join TPS.

Next steps

Amending regulations are expected to be laid in time for “phased withdrawal” to become an option for independent schools from Spring 2021.

Advice implications

Whilst phased withdrawal is unlikely to be suitable for all schools, it's a helpful additional option in managing pension cost risks. But it doesn't address the risk of any future increase(s) in employer contributions. 

  • Advisers may be aware that, (although not certain), many stakeholders consider a further increase in 2023 possible/likely.
  • Schools which have adopted a “wait and see” approach may wish to review the way forward.
  • Schools currently considering a full withdrawal or “hybrid” approach may wish to consider whether phased withdrawal would deliver required cost savings within an acceptable timeframe.
  • In those schools where phased withdrawal is NOT considered a viable option, governors/governing bodies will nevertheless need to demonstrate that they've considered this option as part of their business case for change.
  • Schools already engaged in meaningful consultation may need to consider whether their existing business case needs to be reviewed and whether the new option is a viable alternative. Schools should be prepared for potential teacher dissatisfaction/push back unless/until phased withdrawal has been demonstrably considered.

Find out more

Read the consultation paper for more information. 

 

About the author

Moira Warner

Senior Pension Development and Technical Manager

Moira spent the early part of her career with a number of European investment banks both here in the UK and overseas with responsibility for sales of money market securities and fixed income products to institutional and Central Bank clients. In the early noughties she moved to the life insurance sector where she has held various pensions technical roles supporting both provider, product and proposition/ sales. Moira specialises in Public Sector pensions and worked closely with a number of key Public service pension schemes and the Local Government Association to help ensure the compliant overlay of pension freedoms on scheme regulations and practices. Moira moved to Royal London in August 2018 and is involved in developing adviser facing content, writing articles and commenting for the press. At weekends Moira can usually be found working in her garden but she doesn’t let her passion for plants prevent her from also indulging in her love of travel.

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