Teachers’ Pension Scheme – option for “Phased Withdrawal” for Independent Schools

Withdrawing from the Teachers’ Pension Scheme

Faced with the ongoing costs and risk exposure associated with defined benefit pension provision – pressures which have been exacerbated by the impact of Covid-19 – many independent schools have been forced to review whether they can continue to provide their teaching staff with membership of the TPS as part of their terms and conditions of employment.  

However, although a school’s leadership team may be able to set out a clear financial rationale for proposing a TPS withdrawal, this needs to be balanced against a number of competing pressures within the school and its sector – in particular the need to retain and reward talent, to ensure that the school’s pension benefits remain competitive and the potential disparity in pension benefits between older staff with long TPS service, and younger staff who have only been in the scheme for a relatively short period of time.  

Faced with a possible TPS withdrawal, many independent schools have found themselves going through tricky and bruising employment and pension consultations with staff and unions, which even if resulting in a “successful” eventual TPS exit inevitably have a negative effect on staff morale and the teaching staff’s relationship with management.

Phased withdrawal 

Acknowledging the difficulties associated with a TPS withdrawal, and with a view to balancing some of these different factors, the government changed the rules around TPS participation from 1 August 2021 to allow independent schools to exit the TPS in a different way – through the “phased withdrawal” model.  

Under phased withdrawal, rather than ceasing future accrual of benefits for staff in the TPS entirely, membership in the TPS can be “frozen” for an independent school at a particular point in time.  This means that existing TPS members remain in the scheme and accrue future years of service, but no other new staff can join the scheme in the future, other than any staff who are subject to a bulk TUPE transfer from another participating school.

Of course, legally, there are still loopholes to jump through regarding consultation and potentially changes to employment terms and conditions as well, and phased withdrawal is also not without its potential downsides – not least the risk of a school developing a future “two-tier” workforce between TPS and non-TPS staff at a later date. That said, on the face of it, the phased withdrawal model in theory does offer a neat “halfway house” which avoids the fallout from the school proposing a full TPS exit whilst allowing the school to still balance and hedge some of its future risk on pensions.  

If you are interested in knowing more about options around TPS exit, and whether the phased withdrawal model could be a sensible fit for your school, please contact our Head of Pensions, Andrew Campbell, in the first instance.

This article was originally published in the ISBA newsletter.