Legal & business Teachers’ Pension Scheme

Teachers’ Pension Scheme

Stuart Darke and Nerys Owen look at the Teachers’ Pension Scheme for England and Wales, and how participants, including many music teachers, may be affected by recent changes to government funding for the scheme

Above: Nerys Owen, Senior Legal Adviser

Above: Stuart Darke, ISM Director of Legal Services The ISM cannot give pensions advice, since it is a regulated activity, but our legal team regularly offers guidance and support in many other ways relating to pensions.

The Teachers’ Pension Scheme (TPS) for teachers in England and Wales is a defined benefit scheme, based on salary and service. Unlike a defined contribution scheme, where the final amount depends on the value of investments, placing all the risk as to the eventual size of the pension pot on the prospective pensioner, TPS participants receive a guaranteed pension based on their final and/or a career average salary. There are similar schemes for teachers in Scotland and Northern Ireland.

Visiting music teachers (VMTs) and peris face a unique set of challenges in relation to the TPS, stemming from their variable hours and pay and the precarious nature of their working conditions. Problems include employers demanding that VMTs and peris enter into contracts of ‘self-employment’, shifting responsibility for pension provision entirely onto the teacher and away from the school; failure to supply accurate data to the TPS, resulting in prolonged under-payment that is difficult to track or quantify; the categorisation of VMTs as ‘tutors’ or ‘support staff’, so as to exclude them from the TPS altogether; and very low wages, often combined with working for multiple employers, resulting in inadequate retirement provision. TPS in the independent sector

Changes to the landscape of music teaching mean that VMTs and peris are disproportionately represented in the independent sector, where teachers are currently facing a particular threat, stemming from government changes to TPS funding. From September 2019, employer contribution rates under the TPS rose from 16.48% of salary to 23.68% following the 2016 TPS actuarial valuation.

The government agreed to fund the full cost of these increased contributions for state schools, local authorities, music services and music hubs, leaving independent schools to fund the increase from their own resources. By January 2022, almost 300 independent schools (around one quarter of all participating independent schools) had either already left the TPS or had informed the Department for Education of their intention to withdraw, jeopardising the pension arrangements of thousands of teachers.

Independent schools continue to consider whether to remain in the TPS especially as the fallout from the COVD-19 pandemic lingers and schools assess their finances. Some schools have told their teachers that if they are to remain in the TPS they will have to accept cuts to their current pay. Such schools have argued that they only have a finite pot of money and that the only way of remaining in the TPS is to lower pay levels for teachers. Naturally the ISM would not recommend that any music teacher offers to reduce their current pay as this will have an impact on their pension in the future, as well as meaning a pay cut during these hard financial times.

Phased withdrawal

In another significant change to the law, since 1 August 2021 independent schools have been free to carry out a ‘phased withdrawal’, opting out of TPS participation for future staff, while allowing existing staff to remain as members. TPS participation in these schools will wither on the vine as staff change jobs or gradually retire. This change further destabilises the working conditions of new entrants to the music teaching profession, creating a two-tier workforce. It is also likely to impact on job moves between schools, as participation in the TPS becomes an increasingly premium contract term. However, there are a very small number of schools that have asked for a phased withdrawal from TPS, which shows that this might not be an option in many places.

Challenges to the TPS

TPS members have a contractual right to maintain their existing pension arrangements. Just like any other contract term, pension rights can only be changed by agreement, following meaningful consultation (the employer should explore all ideas reasonably put forward by the employee’s representatives to avoid making the changes, including finding other savings). Under pensions law, that consultation must last at least 60 days. Schools have used ‘fire and rehire’ tactics where contractual changes have not been agreed. This has been countered in some schools by teachers’ trade unions taking strike action.

In most independent schools, there is no recognised trade union, and instead the employer must arrange elections for employee representatives to participate in the consultation. The employer must give employee representatives all the relevant background information they need, including accessible financial information so they can fully understand the employer’s proposals and their implications for members, and the business case as to why change is necessary.

As part of such consultations ISM has seen schools propose that they should remain in the TPS until a certain date and then withdraw. Sometimes this is associated with the 2020 valuation of the TPS which may mean changes to contribution rates from April 2024. However, it is too early to say that employer contributions will increase or what an employer’s financial situation will be in two years’ time. Members would be well advised not to accept arguments that a decision should be made now about what the TPS or a school’s financial situation might look like in several years’ time.

The employer must conduct the consultation in the spirit of reaching agreement. An employer that has already made its mind up, or that seeks to limit the scope of the consultation, risks a financial penalty, known as a ‘protective award’, plus the threat of a £50,000 fine by the Pensions Regulator.

If you hear that your pension is under threat, get in touch with our legal team at legal@ism.org as soon as possible. Read our previous feature to learn more about the ISM’s education report Music: A subject in peril?