Goodbye Mr Chips? Pension funding in the education sector

Gino Rocco, partner at Doyle Clayton Workplace Lawyers, lifts the lid off pension funding in the education sector

In the film Goodbye Mr Chips a young schoolteacher imposes strict discipline on his young charges, becoming a fearsome presence. Then a spirited young suffragette, played by Greer Garson, brings the Latin teacher out of his shell and makes him a loved member of the school – he also happened to be an excellent Latin teacher.
In the absence of Greer Garson, how do schools bring out the best in, and retain, good teachers? Salary and good pension benefits undeniably play a part. In 2016 a range of changes were announced in education and, despite the government’s commitment to protect core funding, in reality, schools will feel a cut in budgets – partly due to increased pension contributions.

Pension schemes

School leaders value pension benefits as an important part of the remuneration package. Teaching staff become members of the teachers’ pension scheme (TPS) and non-teaching staff become members of the local government pension scheme (LGPS). Both are public sector schemes and differ slightly in how they are funded. However, it’s important to note that schools have no control over their contribution rates in either scheme.

The teachers’ pension scheme

The TPS is an unfunded scheme and so schools have no investment issues to consider. The treasury makes good on the ‘pension promise’ as and when members’ benefits fall due. Since April 2015, benefits are based on the member’s career average salary; prior to that, benefits were based on final salary. Despite the level of benefits being curtailed in this way, school contribution rates – which are set by legislation – have increased and currently stand at 16.48% (up from 14.1% in 2015).

Local government pension scheme

The LGPS is a funded scheme and, again, benefits are based on a member’s career average salary. The LGPS is administered at a local level and each regional fund is governed by an administering authority which, in broad terms, performs a role comparable to that of a trustee in a trust-based pension scheme. Each fund will have its own funding history and some will be better funded than others. Consequently, schools in different areas will have different contribution rates and, once again, they have no control over those contribution rates which are set by the administering authority on advice from the fund actuary.

Rising to the challenge

If schools are to deliver on the government’s objective of maintaining standards with fewer financial resources then they have a growing challenge on their hands. With no control over pension contribution levels they will need to mitigate these rising costs in other ways and the only way schools can directly control expenditure on pensions is through the hiring, firing and/or non-replacement of staff. Those that have converted to academy status could take advantage of economies of scale by saving costs through the pooling of resources, such as school maintenance or IT support. Other schools will need to look for other ways of making efficiency savings to ensure they can afford their pension obligations.
What is clear is that pension contributions will remain a necessary and unavoidable part of a schools’ expenses and a key way of retaining their own ‘Mr Chips’.
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