If you work in the Independent School sector, you may be asked to sacrifice pay to absorb some of the 43% hike in employer contribution. The reduction in income is a way of allowing teachers in these schools to stay with the Teachers’ Pension Scheme. This has become known as a “hybrid” arrangement.
Why is this “hybrid” arrangement necessary?
A 43% rise in employer contributions is causing financial challenges for independent schools. They are struggling to meet this cost and continue to make a profit from the business. Therefore, the only way they can justify staying within the Teachers’ Pension Scheme is by asking the teachers to meet some of the costs by taking a pay cut.
How has it been received?
Unions have broadly criticised the move to this “hybrid” model. Asking teachers to bear the brunt of employers’ pension contributions is seen as an excuse to cut their pay. The response at a school in Cheshire was more militant, as they threatened to go on strike straight after being offered this hybrid scheme. The suggestion that they make a salary sacrifice caused uproar and anger. NEU, the teaching union, said other schools were considering similar action.
COO at The Taunton School in Somerset said that half the school’s teachers had opted into the scheme. The other half of the teachers in this Independent School has opted for a defined contributions scheme that is linked to market fluctuations. This second option allows participants to vary the size of contributions and so have more control.
It is thought that 5000 teachers from the Independent Sector will be taken out of the Teachers’ Pension Scheme due to this increased contribution.
Why would you choose to stay with the Teachers’ Pension Scheme?
A defined contribution scheme may feel like a better option, as it gives the flexibility to manage contributions. However, the fluctuation in the value of the defined contribution pension could leave you with a smaller fund when you retire.
To understand better the benefits of the Teachers’ Pension Scheme, or consequences of leaving it, you should speak to an independent financial advisor. It is essential to know how the additional investment now could mean a more comfortable life in the future.
The content in this article was correct on 17th December 2020. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your Teachers’ Pension Scheme. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.