TPS costs may fall – what it means for independent schools
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Pensions advice for independent schools
Providing tailored pensions advice for independent schools, focusing on risk management and strategic alternatives to the Teachers' Pension Scheme (TPS).
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Contributions to the Teachers’ Pension Scheme (TPS) are falling in 2027. What does that mean for independent schools?
After years of increasing TPS costs the contributions schools are required to make will reduce to 17.68% of salaries (a reduction of 11% of salaries from the current position) from April 2027.
The potential savings could be material. For example, for a teacher earning £45,000 a year, the current cost of employment, once TPS contributions and employer National Insurance are taken into account, is around £64,000. From April 2027, this could fall to around £59,000, representing a saving of almost £5,000 per teacher.
However, while this'll be welcome news for independent schools that still have teachers in TPS, it may also have implications for the 680+ schools that have taken action in recent years to manage their TPS costs.
As a matter of good governance, all independent schools should consider what the reduction in TPS costs will mean for them and their teachers, and how they should respond. Even taking no action should be an active decision that has been properly considered and recorded.
What should independent schools be considering?
This will depend on what action (if any) the school has taken to manage TPS costs.
Consider any previous communication with teachers. What have you said about TPS costs? Have increases been used to justify restrictions on pay increases? If so teachers might expect falling TPS costs to trigger higher pay rises.
Bear in mind the risk of contributions increasing again in the future. Schools that reacted quickly to the news of the first large increase in TPS contributions in 2019 by exiting TPS were typically able to lock in lower DC contributions that schools that waited. Schools should therefore monitor the likelihood of contributions increasing again in 2031 (as a result of the 2028 valuation).
Consider how DC contributions compare with reduced TPS contributions. If the main rationale for leaving TPS was to reduce costs and DC contributions will be higher than TPS contributions from April 2027, there may be pressure from teachers / unions for the school to rejoin TPS. Schools should however be wary.
Schools that wish to rejoin TPS will normally be required to provide a bond or indemnity to the scheme. There is also the risk of TPS contributions increasing again in the future and changes in employment rights mean that exiting TPS for a second time would be much more difficult.
Consider how DC contributions compare with reduced TPS costs. If DC contributions are higher ceasing to be a phased withdrawal school might look attractive, but schools should be cautious for the reasons outlined in 2 above.
If phased withdrawal is maintained it’s possible that some teachers in TPS might decide to opt out of TPS and join DC to access the higher contributions. This would accelerate the reduction in the school’s exposure to future TPS contribution volatility.
Generally, this approach involved teachers that chose to remain in TPS accepting lower pay than those that opted for the DC alternative. The two options were normally designed to be broadly cost neutral to the school. When TPS contributions reduce in April 2027 this cost neutrality is likely to be distorted. Schools should consider how to respond. Possible options include:
- No action.
- Increasing salaries for teachers in TPS (to the same level as for those in DC).
- Adjusting DC contributions for teachers in the DC arrangement.
- If increasing salaries for teachers in TPS doesn’t achieve cost neutrality providing them with ‘top up’ contributions to the DC arrangement.
The most suitable approach will depend on the school’s objectives and what was communicated to teachers when the options were made available to them.
How we can help
We advise over 100 third sector and charity clients including independent schools. In recent years we have successfully helped many independent schools to navigate increases in TPS contributions and are therefore ideally placed to help you manage the new challenge of reducing contributions.
How do you run a successful consultation?
If you decide you want to develop a proposal for exiting TPS, or make other changes to manage pension costs, it’s crucial to get that proposal and the accompanying consultation process right. From our experience of working with schools, we outline the key milestones and outcomes from a successful TPS exit that we implemented in 2019.
7-Month activity window |
Date (2019) |
Initial advice given to the school. |
February |
Decision made to run a consultation and offer a 2x matching DC scheme with a maximum employer contribution of 16%. Decided to open with an employment consultation to ensure process was complete by the end of the academic year. |
April |
Feedback on consultation. Agreed to improve the offer and pay a further 2% for one year. |
July |
99% of teachers consented. Remaining 2 teachers left meaning notice periods didn’t have to be run. |
August |
August left TPS and teachers enrolled in a DC scheme - support during withdrawal process with TPS. |
August 31st |
Pensions advice for independent schools - July 2025
Independent schools are facing a number of financial challenges.
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Understanding your Teachers’ Pension Scheme options
With independent schools facing a number of financial challenges, could tackling rising pension costs help put your school on a more secure financial footing?
Understanding your Scottish Teachers’ Pension Scheme (STPS / STSS) options
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An update on your TPS options - June 2023
In response to rising employer contributions, 330 independent schools have left TPS since September 2019. A further 93 have stopped putting new teachers in TPS by using phased withdrawal.
In this webinar, we share a market update, the challenges faced by schools looking to exit TPS and how to deal with them. We were also joined by Steven Edwards from Standard Life who share details of how Standard Life can support schools looking to set up a DC pension scheme.
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