Teachers offered higher pay but less generous pension under new scheme

A number of schools are considering offering their staff higher pay in exchange for lower pension contributions, in what appears to be a first in the public sector.

United Learning, the country’s largest state schools group, is proposing a new pension option for staff that would allow starting salaries of up to £45,000 but would see them receive less generous pension contributions.

All UK state schools must automatically enrol their staff in the Teachers’ Pension Scheme (TPS), a generous defined benefit (DB) scheme which guarantees staff a fixed annual income in retirement based on their salary throughout their career.

This differs from most private sector pension schemes, known as defined contribution (DC) schemes, in which employees pay contributions into a pot which they then draw on in retirement, but can theoretically be depleted.

Under the TPS scheme, staff contribute at least 7.4% of their salaries to fund current pensions, and schools 28.6% – although this money is used to pay the pensions of currently retired staff.

The proposed project, first reported by Schools WeekThis would mean that teachers’ pension contributions would be lower. For example, United Learning says that a teacher currently paid £39,000 would receive £45,000 and a 10% pension contribution.

A 10 percent contribution would still be higher than the 3 percent minimum that many private sector workers receive, although defined benefit pensions like the TPS are known to be very generous, and so opting out could lead to a less lavish retirement.

School management believes this will “attract” new teachers.

A United Learning spokesperson said: “This proposal is an exciting new option for teachers, allowing us to offer, for example, starting salaries of £45,000 plus a 10% pension in London. We believe this will attract a whole new group of people to teaching. It also provides an attractive pension for hundreds of colleagues who have chosen not to participate in the teachers’ pension scheme because of its costs.”

“This won’t suit everyone. The traditional option, which includes TPS, will continue to be available to all current and future colleagues, exactly as it is today. Both options have the same cost to us. The new option simply allows us to invest more in salary and less in retirement than the traditional option. There will be no pressure to choose one or the other and colleagues will be free to move between the options year after year, depending on their needs and preferences.”

Experts have already said I that higher wages and lower pensions might be a better way to boost public sector recruitment without incurring additional costs.

In April, economist Jack Worth of the National Foundation for Educational Research (NFER) said I“What is clear is that the defined benefit nature of the teachers’ pension probably makes it very generous in relative terms and costly for the government, while the teaching workforce is currently relatively young and so may value the long-term benefits of a generous pension less than the current salary advantage.”

Experts warned that employees considering accepting the offer should consider both the positive and negative aspects very carefully.

Tom Selby, director of public policy at AJ Bell, said: “Any decision to reduce your pension in favour of a higher salary is a significant financial decision and the best course of action will vary from person to person. Anyone who chooses to accept lower pension terms should be fully aware that while they may have more money today, they will be sacrificing a more secure retirement in the future.

“That’s not to say that this decision is wrong, particularly when someone is struggling to make ends meet today, but rather that it highlights the importance of thinking carefully about such an offer. For those who are unsure, it’s probably wise to speak to a regulated financial adviser to fully understand the implications.”

And former pensions minister Sir Steve Webb, now a consultant at LCP, said: I that if more schools began offering alternatives to TPS, it could create a funding problem for the program, since current contributions fund retirement payments for former teachers.

“If this measure were to become widespread, it would reduce teachers’ and schools’ contributions to the TPS, which would reduce the amount available to pay today’s retired teachers,” he said.

“On the other hand, if the government levied a 45% tax, including employer national insurance contributions, on the extra pay, that would soften the blow,” he added.

Hundreds of independent schools have already opted out of TPS and enrolled their staff in alternative programs because of the increased cost to employers.

And I It has been reported that some private schools are now incentivising staff to leave the programme, with cash offers of around £2,000 in some cases.

United Learning is currently in talks with teachers’ unions, who have criticised the proposals.

Paul Whiteman, general secretary of the head teachers’ union NAHT, described the plans as “alarming”.

Union leaders have written to Education Secretary Bridget Phillipson to “encourage” United Learning to halt its plans.