The announcement from the government revises the employer contribution rate of the Teachers’ Pension Scheme (TPS) from 23.6% to 28.6%. This equates to a rise of over 20% in employment costs for independent schools from April 2024 and follows the previous rise of 40% that took effect in September 2019.
Almost 340 independent schools have left the TPS since 2019 due to increasing employer contributions, and more than 120 have implemented ‘phased withdrawal’ (the withdrawal of the TPS to new members of staff only) since the provision was introduced in 2021.
Neil Barton, Head of Business Development at Broadstone, said: “The rate rise will come as a shock to the diminishing number of independent schools that remain in the TPS. It comes at a time when many schools in the sector are battling financial challenges. In September, Labour announced that it will add VAT to private school fees within its first year of government if it wins the next general election.
“We know from recent conversations with our independent school clients that they fear this will affect pupil numbers, so the additional 5% needed for the TPS is a crushing blow and is likely to force even more schools to review their position regarding the TPS.
“We expect significant numbers of independent school operators and governing bodies will consider whether changes should be made. Many schools that have fully exited the TPS have introduced defined contribution schemes with a higher-than-average employer contribution, but other alternatives like phased withdrawal, cost sharing and parallel schemes are worth exploring.
“Broadstone has significant experience in this sector and stands ready to support schools that may want to consider their options.”
Nigel Jones, Head of Consulting & Actuarial at Broadstone, added: “This announcement looks to be the death knell for the participation of many independent schools in the TPS.
“The seemingly ever-increasing contribution burden coupled with the debate around whether the extra outlay actually derives any additional value will see many either fully exit or consider alternative approaches. We expect a busy market helping independent schools consider their options throughout the next few years.”
