Our expert

  • David Collington

    David Collington

    Head of Benefits Consultancy

  • Whilst the Teachers’ Pension Scheme (TPS) remains an excellent way to provide defined pension benefits, many participating schools feel uncomfortable being bound by whatever changes future Governments choose to make.


    This, along with recent cost rises and the fact that the outcome of the 2020 valuation brings further uncertainty is prompting increasing numbers of independent schools to take a fresh look at their pension benefits.

    The 44% increase in TPS contributions (from 16.4% to 23.6%) implemented in September 2019, has led many independent schools to question whether continued participation in the TPS is still appropriate. Indeed based on the latest Freedom of Information request, over 260 schools have left, or given notice to leave the TPS which is around a one-quarter of all participating independent schools in England and Wales. Moreover, we understand that many more schools – including Scottish schools – are considering leaving and more still have taken actions around existing TPS pensions, such as cost sharing with staff.

    "If schools are reviewing pension offerings in isolation they could be inadvertently missing out on a great opportunity to modernise their wider approach to pension, reward and benefits. To help staff understand the true value of their reward and provide staff with new impactful remuneration flexibility."

    Total Reward - moving the focus away from salary

    We all know independent schools have so much to offer their staff. Despite this, when thinking about their remuneration, the overwhelming majority of teachers still focus on salary alone, or at best salary plus allowances.

    Whilst the independent sector is far from homogenous when it comes to remuneration, most have a compelling list of both financial and non-financial incentives. Aside from salary and allowances, other financial incentives such as pension, fee discounts for the children of staff and cheap accommodation can be difficult to quantify. Also, non-financial incentives are really important, but perhaps a little underappreciated. Indeed these set the independent sector apart; smaller class sizes, the opportunity to teach at a higher academic level, opportunities for extra-curricular participation, free lunches, free parking, access to sports facilities to name but a few.

    A number of schools are rethinking the way they communicate the real value of working at an independent school, by redirecting attention onto Total Reward - the total value of the remuneration package. The example below demonstrates how simple yet effective Total Reward can be:

    • Salary Focus – £50,000 – plus pension and benefits
    • Total Reward – £63,000 – including £50,000 salary, £11,800 pension contribution and £1,200 benefits

    You may feel that teaching staff already value TPS, and that is true. However, many do not have an appreciation of the current school contribution levels of 23.6% (plus an administration levy of 0.08%). Would a teacher with a salary of £50,000 appreciate that the school is contributing just under £12,000 per annum to the TPS? Total Reward would improve visibility, and in turn appreciation, of this contribution.

    "It could be as simple as making a conscious effort to shift culturally to more actively focus communications on Total Reward. However, many schools are looking at more formal interventions such as paper based or online Total Reward Statements."

    It is worth noting that, whilst Total Reward Statements have universal benefit, they are particular beneficial for schools where a large proportion of teaching staff are recruited from the state sector.

    Remuneration flexibility

    In the corporate world, the last decade has seen a sea change in the way pension and benefits are provided to staff. Employers have been moving from fixed ‘one size fits all’ packages to providing employees with increased flexibility. Schools that are considering new or parallel pension options have the unique opportunity to build in remuneration flexibility in order to empower staff to choose between pension, cash and benefits.

    Pension focused approach

    Let us consider a school whose governors have serious concerns about future TPS cost increases. As a result a new pension focused committee is established to consider the school’s approach. Whilst they decide that the TPS remains the default pension provision, they will offer a new parallel defined contribution pension. Staff choosing to move to the new defined contribution plan will benefit from a 20% employer contribution plus replacement life and sickness cover.

    This approach is commendable and clearly addresses the school’s concerns. By offering an easy to understand cost neutral alternative to the TPS, the school is focusing minds on the cost of pension provision. If the much feared increases in TPS contributions do happen, the school would be well placed to have a conversation with their teaching staff about costs and options.

    From the perspective of the employee, however, it offers little benefit to beyond offering more flexibility when they come to draw their pension benefits. It is for this reason that a growing number of schools are looking at adding flexibility during the saving stage with cash or flex allowances.

    Flex Allowance approach

    Let’s look at the same example but where the committee’s remit is wider than pensions. This subtle change in focus could potentially have fundamental significance.

    As an – albeit important – aside, whilst a contribution of 20% is broadly equivalent to the current TPS costs, it is somewhat out of kilter with the contributions offered by employers elsewhere. Indeed the latest Office for National Statistics ‘Annual Survey of Hours and Earnings 2020’ showed that only 2% of employers with Defined Contribution pension schemes contributed 20% or more.

    So, instead of offering the fixed option of a 20% employer contribution (plus life and sickness benefits) into the new parallel defined contribution plan, the school could look to introduce a Flex Allowance approach whereby staff have the choice – within predefined limits – to better shape their remuneration for their own circumstances. They have the flexibility to reduce their employer contribution from 20% and exchange it for a Flex Allowance to spend other benefits, additional taxable salary or a combination of both. Some will use the flexibility to maximise their take home pay, others will use it to redirect spend to benefits which are more appropriate to their immediate needs be it dental, cycle to work, critical illness cover or even electric car leasing. Importantly, this is not a one-off decision, the employee has the choice to change their selection as their needs or circumstances change.

    "Many teachers are understandably fervent defenders of their ‘gold plated’ TPS benefits and introducing remuneration flexibility does not need to leave these supporters disenfranchised. A school can still be fully committed to the TPS, retain it as the default and introduce the option of remuneration flexibility."

    Don’t get me wrong, pensions are important. The financial security of our staff in retirement is important but for many focusing on the ‘one day’ is not appropriate if they are struggling with the ‘today’ or ‘tomorrow’. To some individuals, remuneration flexibility will make a massive difference. The ability to increase their take home pay for a period to help pay off debt, purchase a new home or help with care costs has the real potential to improve their financial security and in turn their wellbeing. This in turn has benefits for the school through reduced absence and high engagement.

    So, who might be interested in the proposed pension flexibilities? Well it is important to remind ourselves that generalisations are often flawed as fundamentally everyone has different needs. That said, there are a few groups who typically find remuneration flexibility most beneficial:

    • Younger staff – who may prefer reduced pension savings for an increase in salary to allow them to save for a deposit to get a foot on the housing ladder
    • Young families – those who have the financial pressure of young children, especially those looking to buy their first family home
    • Staff close to retirement – typically with the “safety net” of a relatively large TPS pension who would be willing to try an alternative to give them a flexible amount above their accrued TPS pension

    Not all independent schools will have the time or appetite to introduce flexible remuneration, so it can serve as a clear way to differentiate your school in the competition for teaching talent. Under the current framework, state schools do not currently have the ability to introduce flexible remuneration. As such, this could provide a further incentive for some to move to the independent sector.

    A few words of caution

    Seek expert advice

    If you are introducing remuneration flexibility, there are a few areas which need a well-considered approach. Firstly you need to consider the interaction of this flexibility with so called ‘auto-enrolment rules’. Remember that by law, there is a minimum amount that must be paid into pensions, made up of a percentage of your staff's earnings and a percentage paid by you, the employer. Also, for any cash in lieu of pension you’ll need to take into account the fact that employer National Insurance would be payable.

    Take time to get the communication right

    When introducing new flexibilities, you have an inherent moral duty to help staff understand these. Also, whilst flexible remuneration is likely to be extremely attractive to some individuals, it’s important to remember that not all staff will value choice. Change, even if intended to be positive, can be perceived in a negative way so care is needed when building the narrative for communication and engagement with staff.

    More flexibility can mean more administration

    With HR and payroll resources in schools often having little or no additional capacity, it is important to keep administration to a minimum. Recent advances in benefit technology mean that online benefit platforms are becoming increasingly popular in the sector. Some platforms, including BW’s own 4me online engagement platform, can help facilichoice whilst streamlining administration.

    A final thought

    Albert Einstein is often quoted as having said that ‘in the middle of difficulty lies opportunity’ and that certainly is the case here. The very real concerns about current or future TPS costs do provide a unique opportunity to reconsider the way staff are remunerated – the opportunity to move the focus away from salary to Total Reward and introduce new innovative remuneration flexibilities, both of which have the ability to benefit your staff and in turn your school.

    With thanks to the ISBA, who originally published a version of this article in Autumn 2021.

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    Teachers’ Pension Scheme

    Most independent schools in England and Wales provide pension benefits for their teaching staff through the Teachers’ Pension Scheme (TPS), with Scotland using its own variant. Find out more about the risk to staff benefits, and how we can help.

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