The Government has told a trust of nearly 100 schools that it cannot go ahead with a plan to offer teachers higher pay for smaller pensions
A plan to offer teachers the option of swapping big pensions for a higher salary has been blocked by the Government in a move that has big implications for the public sector.
United Learning, the biggest academy trust in England, was aiming to offer the scheme to thousands of teachers from April, but has been thwarted by an intervention from the Department for Education.
The plan would have meant a teacher earning £39,000 could receive a pay-rise to nearly £45,000 in return for a lower employer contributions to their pension schemes.
The trust’s chief executive officer Sir Jon Coles, a former senior civil servant at the Department for Education, told The i Paper that the planned scheme was “completely compelling” and that the move to stop it happening meant the trust had been “prevented from giving staff a choice.”
All teachers in the UK are automatically enrolled in the Teachers’ Pension Scheme (TPS), a generous defined benefit (DB) scheme that guarantees staff a fixed annual income in retirement based on their salary throughout their career.
Plan could have been a ‘model’ for public sector
United Learning, made up of nearly 100 schools, had proposed offering staff the chance to either stay in the original scheme, or move to the alternative pension plan and receive higher pay as a result.
It said the plan was designed to help with recruitment and retention of teachers, with Sir Jon saying younger staff often prioritised higher pay up front, rather than larger pensions.
NHS and civil service experts have also suggested a rebalancing of pay and retirement benefits would aid recruitment in the public sector. It was suggested the Government was considering the idea for the public sector as a whole as recently as December, though it has since said it is not doing so.
Sir Jon said the United Learning plan could be a “model” for the public sector, but when it was unveiled last summer, it was met with opposition from the unions, who asked the Education Secretary Bridget Phillipson to intervene to “encourage” the trust to abandon the plan.
Other schools had expressed an interest in adopting similar schemes.
DfE shut down the plan
But The i Paper understands that civil servants at the Department for Education has written to United Learning and told the trust it opposes the plan.
The Government has suggested that part of the trust’s funding could be ringfenced and that they would not be able to access this cash unless it was being used to pay for membership of the TPS pension scheme.
It told the trust it also faced the threat of a financial notice to improve, which would come from the Education and Skills Funding Agency (ESFA).
Sir Jon said: “We’re in a situation financially where teachers are not going to get significant above inflation pay rises any time soon, and the Government is missing its recruitment targets.
“It’s fairly clear that for younger teachers pension comes relatively low down their list of priorities.
“We’re in a ridiculous position where we’re being prevented from giving staff a choice. We have to pay the equivalent of 28.6 per cent of staff members’ salaries into a pension scheme: we could offer an option where we cut that a little and give teachers a significant pay increase. We wouldn’t be forcing this on staff either: they would have a choice and they’d also be able to change back at any time.
“We still want to go ahead with the plans to offer this scheme, but given the Department’s position on this… its impossible for us to go ahead in April.”
How the TPS works
With the TPS, teachers pay a portion of their salary to be a member of the scheme with their school paying in too. They then get a fixed payment in retirement each year for as long as they live.
The scheme is far more generous than most private sector defined contribution pensions, but the contributions the school and the employee have to make are higher than what most private sector individuals make.
Martin Willis, partner at consultancy Barnett Waddingham, said: “There is no disputing that public sector pensions are a great benefit, but they’re often an expensive one for individuals.
“Those that do join employers that only offer DB pensions may opt out of the scheme entirely as they can’t afford the required personal contribution.”
One in six would prioritise salary over pension
Recent figures from polling app TeacherTapp for an Education Policy Institute (EPI) report found one in six teachers would prioritise an immediate salary increases over retirement benefits.
But Daniel Kebede, general secretary of the National Education Union, said: “The money to pay teachers properly must come from additional Government investment in our education service, not teachers sacrificing retirement benefits.”
Last year, the civil service’s chief operating officer Cat Little said: “The questions that we need to look at are, you know, what’s the balance between pay and pensions? How do we really focus and segment our pay on the skills that we most need to recruit and retain within the Civil Service?”
Her remarks were widely seen as an indication that the Government was considering such a policy.
But a challenge is that unfunded DB pension schemes pay the pensions of retired staff from current staff contributions.
This could mean that if public sector staff were to opt out of their schemes en-masse, the schemes might require the Government to find other sources of funding to pay them, for instance more borrowing.
The Department for Education declined to comment.
Pensions reform explained
TPS explained
The TPS is a defined benefit (DB) pension scheme. This is different to the defined contribution (DC) pension schemes most private sector workers have.
With a DB scheme, the employee has no savings pot. They are paying into a pension scheme to become a member of that scheme and receive a regular payout when they retire.
Under the TPS scheme, staff contribute a minimum of 7.4 per cent of their salary and schools contribute 28.6 per cent, which is used to fund the pensions of current retirees.
The employee builds up an entitlement for their retirement and this is usually worth 1/57 of their annual pensionable pay for each year they work.
What is the change that teachers were going to be offered?
Under the plan, teachers would have be able to stay in the TPS if they wished to.
Those who wanted would have been able to opt out and increase their pay. They could move between the TPS and the alternative at least once a year.
As an example, a teacher currently paid £39,000 would be paid just under £45,000 instead, and given a 10 per cent pension contribution.
Comparing how much less a pension will be worth if a teacher chooses the alternative scheme is difficult, as the two schemes operate differently, but it’s very likely the pension would end up being lower than they would receive if they remained part of the TPS.
