Are pensions for teachers about to change?

Penny Cogher, recently spoke to leading trade publication, Schools Week, about the plans of United Learnings, the country’s biggest academy trust, to offer teachers a less generous pension for more pay.

Her views are summarised in a Q&A here.

To read our more detailed responses to the questions posed, here are the views of Penny, along with other members of the Pensions team, Michael White and Harriet Fletcher.

Q. Is it legal?

A. United Learning are not alone in the wider industry in trying to actively manage their pension costs in the TPS.  They have been careful to clarify that joining their alternative pension plan is optional for employees, but in a cost of living crisis, the proposal must seem quite tempting to a wide variety of teaching staff. For an employee member to cease contributing to TPS lawfully, they would need to complete an opt-out under Reg.28 of the Teachers’ Pensions Scheme Regulations 2014 so United Learning will have to be careful that their alternative offer does not form an inducement for employees to opt out of the TPS under the auto-enrolment laws, as this could cause United Learning to get into serious trouble with The Pensions Regulator- see below. While United Learning would clearly want as many teaching staff employees as possible opted out in favour of the new pension arrangement, it remains to be seen exactly how many members with a right to be in TPS will actually do so. 

Should members wish to join the new pension scheme, there is also the practical consideration that many individuals have their right to TPS membership enshrined in their employment contract. To put them in another scheme would require a formal variation although this could be achieved in practice by individual’s opt out of the TPS and their consent to be a member of the new pension scheme instead, noting that wages will be deducted and paid to the new scheme. However this does also raise the question of informed consent. How much explanation will be given to the individuals about the true value of their benefit package in the TPS – not just pension but special terms for redundancy, early retirement, incapacity and dependant’s pensions on death. A defined contribution scheme just does not provide like for like. The fact that an employee can move from the one type of scheme to the other may not make that such of a difference when considering this. 

Also, as we are sure United Learning will be aware, they won’t want to cease participation entirely in the TPS. This is because TPS can impose exit charges on employers in these circumstances.  

On the question of inducements, section 54 of the Pensions Act 2008 clearly prohibits employers from inducing employees to opt-out of pension schemes and indeed the Pensions Regulator has taken strict action against employers who breach this. As the proposed rise in salaries announced at the same time does seem to be conditional on joining the new scheme; this does cause some concern. There is also the question that has not been fully answered as to whether the mere existence of an alternative scheme in itself constitutes an inducement. Advisers like to say that this is not an inducement, but the black letter law does not confirm this. Reviews on mis selling have taken a firm view against encouraging the change from a final salary to a defined contribution scheme as overall members lose out on this.

Q. Does government have the power to stop a trust doing this? 

A. State schools are in a different position to private schools who have been given more freedom to run their operations. It is obviously open to the new Secretary of State for Education to categorically nip this idea in the bud, as has been requested by various unions, the day after the proposal was announced. Additionally state schools were given extra funding from 2019 to cover the increase in employer contributions but private schools were not given this and instead were given the freedom to move away from the TPS if they decided to do so. 

Q. Does the unions' argument stand up that lots of people stopping paying into the TPS would destabilise it?

A. The risk we think is more of a snowball effect if this proposal is not nipped in the bud by the Secretary of State for Education. Ultimately the TPS is a pay as you go scheme so the contributions in pay for the pensions that are paid out. 

For more information about this please speak to our pensions team.