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Teachers' pensions and education job losses in 2015

19th June 2019

The forthcoming rise in employer contributions to the Teachers' Pension Scheme added to National insurance increases could result in tens of thousands of education job losses in 2015-16 DfE has announced that the Teachers' Pension Scheme reforms will go ahead in April 2015 in the form that they announced in summer 2014. They have presented two sets of regulations to Parliament to implement some final changes. These include the post-2015 contribution rates and give legal effect to the increase in the TPS employer contribution rate will rise from 14.1% to 16.48% on 1 September 2015 with 0.08% of the rate being a levy to cover scheme administration. The consultation report is here Employee contributions change from 1 April 2015 and involve a new set of income bands which reflects the fact that post-2015 benefits will be counted on an average salary basis using actual rather than full-time equivalent pay. People earning less than £26,000 will pay 7.4% of their actual salary. People earning more than £75,000 will pay 11.7%. The six income bands will be indexed to CPI. DfE intends that the employer and employee rates should be fixed for a four year period to 2019 at which point the next actuarial valuation may result in changes. The prompt for the employer contribution increase is the actuarial valuation of the Teacher Pension Scheme which suggests that the scheme has a notional funding level of 92%. Various assumptions contribute to this conclusion including lower interest rates, expectations of future pay growth and evidence that many teachers will live into their nineties. A briefing note on the valuation is available here AoC's response to the teacher pension consultation a few months ago suggested that, even at this late stage, it would be worth making decisions to cut the employer contribution. We suggested that the period for recovering the deficit could be extended beyond 15 years and that the post-2015 scheme could be made less generous in terms of accrual rates or indexation. DFE is not keen to take forward these suggestions. Later in the 2015-16 academic year, employer and employee national insurance will rise in education as part of the wider reforms to the state pension. The standard employer contribution will rise from 10.4% to 13.8% from April 2016. Employees will pay around 1.4% more. The combined impact of this change and higher employer contributions will be a 5% supplement on the cost of employing a teacher in 2015-16. There appears to be an assumption in schools that DfE will cover these higher costs but there is no mention of this in the 2015-16 DfE school funding information published in July. DfE officials report that there are no current plans to provide additional money. It will also be technically difficult to do so in a way that did not trigger Barnett formula consequentials or claims from other public services for similar funding. Without additional money or action to reverse the changes, the pension and national insurance increases will cost schools and colleges a combined total of almost £1 billion. This will make it harder to afford pay rises and could cause tens of thousands of job losses, most probably among school and college support staff. Education will be hit particularly hard because a large share of budgets is spent on directly employed staff. The proportion of income spent on staf is around 55% in universities, 60-65% in colleges, around 75% in academies and an average of 80% in maintained schools. AoC has raised concerns on the issue for the last 18 months and will continue to do so, for example in our forthcoming Autumn statement submission.