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Home/News/Teachers Pension/Schools face drastic rise in pension contributions

Schools face drastic rise in pension contributions

30/01/2019 Racheal Smith

 

Proposed Teachers Pension Increase 2019

HM Treasury has undertaken a valuation of public sector pension schemes, including teachers’ pensions.  UK schools, as a result, are set to face a substantial increase in pension contributions in 2019.

The proposed Treasury changes could prove worrying for head teachers, as it will result in much higher costs for employers.  This cost will also have an impact on colleges. This teacher pension increase in 2019, is a result of the Autumn budget that saw a 6% increase in contribution from the NHS and the civil service, and a 7% increase in contributions from the Teacher Pensions’ Scheme.

Currently, the changes are said to be provisional.  The Treasury has issued a draft direction to the Government Actuary.  These directions are now open to a brief period of consultation but are expected to be finalised shortly.  The anticipated increase in contribution could total £4 billion for schools and colleges.

What does this mean for our schools?

The contribution from your school to your pension has held at 16.48% since 2015.  You, in turn, contribute 9.6% on average, though some higher paid professionals in teaching will pay more. Source: Association of Colleges (AoC)

The contributions for the teachers’ pension, UK wide, is an expense borne by the school as part of its wages bill, a bill which often takes the majority of the total school budget.  According to Schools Week, this change in employee contributions could see an increase to 23%. If you imagine the cost for your pension to the school per month, multiplied over the year, then you can appreciate the rise in contribution is significant just for you as an individual.  Then, you need to add on all the contributions for all the staff within the school.  It is easy to see how this burden could cripple a school’s budget.

Schools will be supported by the DFE, with additional funds guaranteed for schools in 2019.  However, this is due for review, and the future depends on the next spending review.

Why has this happened so quietly?

The first answer to this question is that pensions can be a heavy topic, difficult to understand and always in the future.  The increase has come from changes in CPI rate, cost of operations and a shift in the way the law is written.  Therefore, many people find the reason for the increase incomprehensible and therefore difficult to challenge.

Another reason there has been limited fuss about the strain placed on schools is because the DFE have offered time-limited support to cover the sudden increase in expenses.  However, this is not likely to completely cover the increased costs, nor is it expected to continue. 

In short

What does this all mean? First, it means it could become more expensive for a school to employ you.  This means there could be an increased threat of redundancy in schools.  Second, it means that reports that school budgets have gone up is mitigated by the fact that schools pay more in pension contributions back to the government.  It is interesting to read this report from the AOC, which calls this a stealth tax aimed at funding the budget increase for the NHS.

It is worth keeping an eye on the news and ear open in the staffroom, to stay up-to-date on how this change might impact your school. If you are concerned, you can contribute to the government consultation up to February 12th 2019.

 

The content in this article was correct on 31st January 2018. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your pension contributions but cannot comment on the impact on your school. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.

Posted under: Teachers Pension

Tagged in: Contributions



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