The Government has issued its response to the recent consultation on changes to the Teachers' Pension Scheme (TPS), set out in the Teachers' Pensions (Miscellaneous Provisions) (Amendment) Regulations 2021.
The consultation response confirms the Government's plan to allow a phased withdrawal for independent schools from the TPS and provides final detail of the protections available to certain existing TPS members. Phased withdrawal will allow independent schools to gradually leave TPS by continuing to offer TPS membership to existing staff; while having the discretion to not offer TPS membership for new staff.
In this article, our pensions experts take a look at the Government response to the consultation and highlight what employers need to know.
Key points to note for independent schools
1. The government confirms its intention to allow independent schools to gradually withdraw from TPS participation - and provides more detail
For some time the Department for Education (the DoE) has been considering how to provide more flexibility for independent schools to gradually withdraw from TPS participation over time. This is known as phased withdrawal.
Phased withdrawal will allow independent schools in England and Wales to opt out of TPS participation for teaching staff hired in the future, whilst allowing existing employees who are active TPS members to retain that membership. The policy intention is to stem the flow of the large numbers of independent schools who have already left the TPS in recent years, and the many more who have expressed an interest in doing so in face of the increased employer contribution rate introduced from September 2019. (This discretion to leave is not available to other scheme employers in the TPS).
In late 2020 the Department for Education published its initial response to its consultation and confirmed its intention to amend TPS rules to allow phased withdrawal. The latest consultation response confirms the protections that will be available to existing TPS members in the proposed regulations:
- A teacher who opted out of the TPS would be eligible to be re-enrolled where that election to opt out took effect before the date that the school became a phased withdrawal school;
- A teacher who is a deferred member immediately before the phased withdrawal date due to a period of non-pensionable family leave, non-pensionable sick leave or unpaid leave (for no more than five years) would be eligible for re-enrolment into the TPS on their return to employment with the same employer; and
- A teacher who leaves pensionable service after their school is accepted for phased withdrawal, due to family leave or sick leave (of no more than five years) would be eligible for re-enrolment into the TPS on their return to employment with the same employer.
2. Will withdrawal stem the flow of independent school exits from the TPS?
The consultation detail is, in places, startling. It confirms that nearly 60% of independent schools do not currently participate in the TPS. In addition to the many independent schools that have already left the TPS more than 120 further schools are considering their options in relation to the scheme. Whilst there has been opposition to phased withdrawal in some quarters, the joint Independent Schools Council and Independent Schools' Bursars Association response recognises that, unless phased withdrawal is introduced, more schools are likely to consider exiting altogether.
In our view, whilst phased withdrawal may assist some independent schools in managing the increased employer contribution rates, the reality is that many independent schools do not want to create a two-tier workforce of teaching staff comprised of TPS and non TPS members. In addition, many schools feel that phased withdrawal simply doesn't go far enough to assist in managing the increased costs of TPS participation in the short term. We expect that independent schools will continue to consider their options in this area.
What happens next?
The timetable for these changes to be introduced is fast. The regulations amending the TPS are expected to be laid before parliament in July 2021 and are expected to come into force with effect from 1 August 2021.
Meanwhile, the TPS administrator is working on guidance for independent schools that are considering phased withdrawal, which will set out employer obligations and how members may be affected. On an individual level the biggest change will be that where a teacher with prior TPS membership moves to a phased withdrawal school they will become a deferred TPS member with no entitlement to ongoing active membership. Such teachers would still be entitled to re-join the TPS in the event of joining employment with another TPS participating employer.