A proposed increase in the Teachers’ Pension Scheme (TPS) from 1 September 2019 represents another demand on budgets for the independent school and academy sector.

Indications from the Treasury show that the employer pensions contribution rate will increase from 16.48% of pensionable earnings to 23.6% – a large increase of over 40%.

An increase such as this will have a significant impact on budgets, as 80% of school costs are staffing, with 90% of this being teachers’ salaries. There was an expectation that the rise would be in the region of 19%, so an increase such as this represents a sizeable additional cost.

To increase the employer contribution rate for TPS by over 40% would mean a medium-sized independent school or academy, with a teacher pay cost of £5 million would be required to find an extra £360,000 per annum.

Impact on academies

The Department for Education (DfE) are currently indicating that they will fund part of the increase in the first year. This opens up the question of what will happen after this, and with such a weighty increase to find in their biggest cost it looks inevitable that we will see more mergers and collaborative working across academies.

Impact on independent schools

There are not many schools able to absorb a cost increase of this magnitude, or be able to pass this on to parents in the form of increased fees. It becomes a matter that will be at the top of the agenda for any finance committee, as they reconsider their strategic plan, review teacher cost saving measures such as contact time and class sizes and utilise teaching assistants that are not part of the TPS.

Next steps

Schools will want to revisit their budgets and forecasting sooner rather than later, and academies should keep an eye out for further announcements from the DfE regarding any potential future funding.