Will Pension Flexibility Attract New Teachers?

Earlier this year, United Learning, the largest multi-academy trust in England, announced that it will provide teachers with the option of a compensation package featuring higher salaries in exchange for a less generous pension plan

CREDIT: This is an edited version of an article that originally appeared on Education Policy Institute

The scheme enables teachers to exchange part of their pension for a higher salary, maintaining the total cost to the trust. This initiative aims to attract new recruits who may be discouraged by the lower salaries in teaching and to retain existing teachers who might consider leaving for better-paying opportunities. However, teaching unions have voiced concerns about this approach.

Over the past fifteen years, schools’ contributions to the Teachers’ Pension Scheme have increased to 28.6% of a teacher’s salary, while teachers’ contributions now average 9.6%, resulting in a total contribution rate of 38.2%. These high required contribution rates have already prompted many independent schools and some teachers to opt out of the scheme.

Greater Flexibility

There are various ways to provide teachers with greater flexibility in their compensation, and United Learning’s approach is just one example. The critical question is whether this method might negatively impact long-term retirement security. So, who might be most interested in taking part in such a scheme?

Pension Awareness

Teachers who have a better understanding of their financial situation and are actively contemplating their retirement income may be more inclined to explore pension flexibility. On July 25, 2023, Teacher Tapp posed the question, “When was the last time you checked if your pension statement is correct?” A total of 6,363 teachers responded to both this inquiry and the question regarding pension flexibility.

Employee Age

Teachers in their twenties are nearly three times more likely to consider trading some of their pension for a higher salary compared to teachers in their fifties. Additionally, they are significantly more likely to be uncertain about their decision: over half of the teachers in their twenties are either eager to make the trade or unsure about how they would proceed.

Experience Level

Teachers with fewer than five years of experience are more than twice as likely to consider trading part of their pension for a higher salary compared to those with over 20 years of experience. While some of this disparity can be attributed to the age differences between the groups, it’s also possible that those earlier in their careers may not envision a long-term future in teaching and therefore prefer the immediate flexibility that a higher salary offers.

While the approach offer of a higher salary in exchange for a less generous pension reflects a growing trend to introduce greater flexibility in teacher compensation, it could lead to further divisions in staff preferences. Ultimately, the success of such schemes will depend on whether they strike the right balance between meeting teachers’ current financial needs and supporting long-term retirement security.