The scheme was proposed by a group of around 100 schools, but faced opposition from the Department for Education
A group of schools has abandoned a plan to offer higher salaries to its teaching staff in return for smaller pensions after the Government intervened to stop it.
Last year, United Learning, the biggest academy trust in England with 93 schools, wanted to offer the scheme to thousands of teachers.
It was initially planned to launch the scheme in April, but was blocked after intervention from the Department for Education, which wrote to it expressing opposition.
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It said it still planned to bring the offer back to the table at a later date, but has now said it cannot “realistically do so” in the face of government opposition.
Teachers in state-funded schools – excluding some supply staff – are automatically enrolled in the teachers’ pension scheme (TPS), a generous defined benefit (DB) scheme that guarantees staff a fixed annual income in retirement based on their salary throughout their career.
But United Learning’s plan would have meant a teacher earning £39,000 could receive a pay-rise to nearly £45,000 in return for lower employer contributions to a separate scheme, known as a defined contribution (DC) pension.
Under a DB scheme, there is no pot and contributions fund the pensions of those already retired, and entitle the payee to a pension when they retire. A DC scheme sees someone pay into a personal pot, the size of which, on retirement, will determine their pension.
After the scheme was announced, the Department for Education wrote to the trust and told it that it opposed the plan, and that it faced the threat of a financial notice to improve, which would come from the Education and Skills Funding Agency (ESFA).
The trust said it was told its funding could be ringfenced and that they would not be able to access this cash unless it was being used to pay for membership of the TPS.
United Learning’s chief executive, Sir Jon Coles, said at the time:“We still want to go ahead with the plans to offer this scheme, but given the Department’s position on this… its impossible for us to go ahead in April.”
Teaching unions, which also opposed the plan, suggested in the summer that United Learning had agreed to drop the proposals, but the school group itself had not commented officially.
But now, the school group has confirmed to The i Paper that the changes will not go ahead.
A spokesperson for the trust said: “Despite enthusiasm from teachers for the initiative, the pushback we received from the Government has unfortunately meant we’ve had to drop our plans.
“We remain entirely confident that we were legally within our rights to do what we proposed and that it would have been good for teachers and for children.
“However, the Government made clear that because teacher and employer pension contributions are used to subsidise public expenditure, they would oppose in all available ways anything which might lead to reduced payment of those contributions to the Exchequer.
“We could not realistically enter into a protracted dispute with our main funder in these circumstances without it harming our existing schools.”
It said it seemed “like a major missed opportunity” to trial reform of public sector pensions.
Many pension and public sector experts are supportive of changes to public sector pensions, but they could come with short-term challenges at the Treasury.
It was suggested the Government was considering the idea for the public sector as a whole as recently as December, though it has since said it is not doing so.
A major challenge is that DB pension schemes pay the pensions of retired staff from current staff contributions.
This could mean that if public sector staff were to opt out of their schemes en masse, and therefore stop paying pension contributions, the schemes might require the Government to find other sources of funding to pay them, for instance, more borrowing.
Due to the scale of the TPS, United Learning’s move alone would have been unlikely to cause funding issues, but other trust leaders had told The i Paper they were considering implementing similar schemes if the United Learning plan had been implemented.
When the plans were first announced, ex-pensions minister Sir Steve Webb told The i Paper: “If this became widespread, it would cut contributions from teachers and schools into the TPS, which would reduce the amount available to pay today’s retired teachers.”
The Department for Education declined to comment.
The plan explained
The Teachers Pension Scheme, which most teachers in the UK are enrolled in, is a defined benefit (DB) pension scheme. This is different to the defined contribution (DC) pension schemes most private sector workers have.
With a DB scheme, the employee has no savings pot. They are paying into a pension scheme to become a member of that scheme and receive a regular payout when they retire.
Under the TPS scheme, staff contribute a minimum of 7.4 per cent of their salary and schools contribute 28.6 per cent, which is used to fund the pensions of current retirees.
The employee builds up an entitlement for their retirement and this is usually worth 1/57 of their annual pensionable pay for each year they work.
Under the plan, teachers would have been able to stay in the TPS if they wished to.
Those who wanted would have been able to opt out and increase their pay. They could move between the TPS and the alternative at least once a year.
As an example, a teacher currently paid £39,000 would be paid just under £45,000 instead, and given a 10 per cent pension contribution.
Comparing how much less a pension will be worth if a teacher chooses the alternative scheme is difficult, as the two schemes operate differently, but it’s very likely that the pension they would have received under the new scheme will end up being less generous than what they would receive if they remained part of the TPS.