Scenario 4

School 4 chooses to stay in TPS and ask teachers to fund the employer contribution increase by taking a pay cut, and offer an alternative scheme for teaching staff to select.

All existing, and future, eligible teaching staff will have access to TPS, where they will continue to build up their pension benefits, unless they choose to opt out.

Teaching staff who opt out will no longer be able to build up benefits in TPS, however, their existing TPS will be deferred until retirement, unless they re-join TPS with a future employer, or transfer their benefits to an alternative defined benefit pension scheme via a future employer.

The school may need to consider funding advice or guidance for all teaching staff, so that they understand the most appropriate option for them.

If the school offers TPS as well as an alternative workplace pension scheme, teaching staff must retain the right to opt in and out of TPS at any time.

 

Potential benefits

  • Teaching staff have the flexibility to choose either pension scheme.
  • The school can choose to have the new workplace pension scheme open to both teaching and non-teaching staff at no extra cost.
  • Although teaching staff who stay in TPS will have to agree to a pay cut, they’ll benefit from having continued access to TPS.
  • The school will set employer and employee contribution rates for the alternative workplace pension scheme, subject to statutory minimums.
  • Employee contributions to the alternative workplace pension scheme can be deducted on a relief at source or salary exchange basis, meaning a potential for NIC savings. Unlike TPS, the relief at source system would enable employees who earn less than the Personal Allowance to still benefit from tax relief on their pension contributions.
  • Continuing to offer access to TPS could be an advantage when recruiting.

 

Key considerations

  • Teaching staff are faced with the difficult decision of either staying in TPS and accepting a pay cut or leaving the scheme and opting into an alternative workplace pension scheme.
  • TPS may not be a viable option for those who can’t afford to reduce their take home pay.
  • A consultation period and contractual changes will normally be required and the school may incur legal and financial advice costs.
  • Contractual changes should detail if employees will cover the cost of future TPS employer contribution increases.
  • If the school offers access to TPS on a conditional basis there are potential employment, equality and tax laws. This is a complex solution and they will need to consider if they have the resources to implement it.
  • The government will continue to set the future employer and employee contribution rates and increases to TPS, potentially meaning further increases in the future.
  • The school will have to administer two pension schemes for teaching staff alone, plus any additional schemes they have for non-teaching staff.
  • There will be increased administrative costs.
  • If the school have some teaching staff in TPS who are on a reduced salary, and others in an alternative scheme, they will have a two-tier workforce.
  • Where teaching staff choose to stay in TPS and agree to a pay cut, future accumulation of benefits will reduce in line with the reduction in salary.