New education secretary Bridget Phillipson has been pulled into a row over plans by the country’s biggest academy trust to offer teachers a less generous pension for more pay.
United Learning’s plan presents a tricky political situation for Labour – pitting its loyalty to unions and their concerns over pay and conditions against the academy freedoms introduced by the previous government.
The proposal has also thrown up several questions – including over its legality, what powers government may have to intervene and whether it could cause the Teachers’ Pension Scheme to effectively collapse.
Schools Week put these questions to several pension legal experts – here’s what they said…
You can read the ins and outs of United Learning’s plan to offer its teachers an alternative pension here, alongside the criticism from unions here.
Question: It is legal for state schools to offer alternative pensions?
Answer in short: Yes, but it’s complicated
All schools are required to ensure teaching staff “have access to” the Teachers’ Pension Scheme (TPS), said Polly O’Malley, head of education employment at Browne Jacobson.
This also applies to non-teaching staff having access to the Local Government Pension Scheme (LGPS).
For academies, this requirement sits in their funding agreements – a contract with the government setting out the rules an academy trust must adhere to – rather than set in law.
O’Malley (pictured right) said the wording means “there is no obligation on academies to only offer the TPS or LGPS to staff”, a view echoed by other experts.
“Therefore, if an academy trust wishes to also offer an alternative pension scheme with lower employee and employer contributions, theoretically it is not prohibited from doing so,” she added.
The unions, which have opposed the move, also seem to acknowledge the law isn’t on their side. In a letter calling on government to intervene, they did not say it would break the law – merely that it “at the very least, undermines the spirit of the pension regulations”.
United Learning said it had taken advice and it believes the proposals are fully compliant with regulations.
BUT there are complications…
Q: Aren’t teachers supposed to be auto-enrolled onto the TPS?
A: Yes, and this will still happen
The law states teachers must be auto-enrolled onto the TPS. But individual teachers have long been allowed to opt out, for instance if they wanted more take-home pay instead. Teachers currently have to pay in between 7.4 and 11.7 per cent of their salary.
Teacher Tapp data suggests two per cent of teachers are current opted out of the TPS. However, figures obtained by Wesleyan financial services suggest this figure is rising.
United Learning’s proposals suggest it will meet the auto-enrol rules by offering an alternative pension to employees who choose to opt-out, O-Malley added.
But Ian Thomas, director at Moore Kingston Smith Financial Advisers, said TPS regulations – which trusts must “comply with” – state teachers who opt out must be re-enrolled every three years, unless exemptions apply.
While this might not affect teachers, it clearly will be an administrative task that United Learning must adhere to.
The trust has also already said any teachers who opt out can choose to rejoin the TPS each year.
Q. Might the allure of extra pay count as an ‘inducement’?
A: Appears to be a bit of a legal grey area, and experts are split
It is illegal under section 54 of the Pensions Act 2008 for employers to “induce” employees to opt-out of auto-enrolment – something United Learning will have to be “very careful” about, said Penny Cogher, partner at Irwin Mitchell.
The pensions regulator has taken “strict action against employers who breach this”, she added. Employers can be fined or even face criminal proceedings.
“As the proposed rise in salaries announced at the same time does seem to be conditional on joining the new scheme; this does cause some concern,” Cogher added.
However, Thomas (pictured left) said that “as long as the school is offering a qualifying workplace pension scheme as an alternative to TPS from the day immediately following the teacher’s opt out, inducement should not be an issue.
“The ‘total reward’ approach, where teachers are offered alternative pay, pension and employee benefit packages has of course been widely adopted in the independent sector over the past few years,” he added.
But Cogher said there is also a wider question that has “not been fully answered as to whether the mere existence of an alternative scheme in itself constitutes an inducement”.
‘Important’ workers make decision freely
The pension regulator’s website states it is “important that any entitled worker’s decision to opt out of, or leave, their current pension scheme should be taken freely and without being influenced by the employer”.
Clear-cut cases relate to employers telling or coaxing employees to opt out. But in “less clear-cut cases”, the regulator “will have to carefully consider the employer’s behaviour to establish the true purpose behind their actions”, including looking at communication to employees.
United Learning has been clear this is only an offer, and it has no preference either way what teachers choose to do.
It has also said any money saved from employer contributions will be used to bump up pay – meaning the scheme is cost neutral.
But the regulator’s website adds “there may still be an inducement breach even if the employer did not make a financial gain”.
Cogher added: “Advisers like to say that this is not an inducement, but the black letter law does not confirm this. Reviews on misselling have taken a firm view against encouraging the change from a final salary to a defined contribution scheme as overall members lose out on this.”
Q. Can the education secretary intervene to stop this?
A. Academy freedoms mean she currently has no power to do so
Unions say United Learning’s plans are “wrong-headed and divisive” and have called on new education secretary Bridget Phillipson to “encourage them to withdraw this proposal”.
But does she have any power to do this?
O’Malley said there is “no current law that prohibits an academy trust from offering an alternative pension scheme…on an optional basis, as long as those defined benefit schemes remain available to staff and there is no breach of the applicable pension regulations in doing so”.
“Generally speaking, academy trusts do have a wide range of freedoms to opt in or out of national terms and conditions set via the Burgundy Book for teachers and Green Book for support staff,” she added.
“Any changes must be made with very careful thought and consultation, however.”
Thomas added that “where an alternative scheme is a purely voluntary arrangement, I can’t see how a government could prevent it under the current pension regulations.
“However we would always advise schools to take specialist legal advice before introducing any changes to their workplace pension arrangements.”
Q. Could United Learning’s pension plan ‘destabilise’ the TPS?
A. Seems like a questionable claim, but it could lead to a bigger taxpayer bailout
In their letter to Phillipson, unions claim that the plans could “all too easily lead to a drop in participation rates in the TPS, which may in turn threaten its stability and long-term future”.
Does this stack up?
The TPS is an “unfunded scheme”, which means the difference between the money paid out by the pension scheme to retirees, and the money coming in to the pension scheme in contributions from working teachers, is actually made up by the taxpayer, explains Thomas.
“In common with most mature defined benefit (DB) schemes, the contributions to TPS are now lower than the payments to retired members.”
In March 2016, the TPS was assessed to be £22 billion in deficit, which led to schools’ contribution rate rising substantially (they have more than doubled since 2012).
Thomas said a reduction in TPS membership would increase the taxpayer support needed in the short term to prop up the deficit, which could cause difficulties for the new government facing lots of spending pressures.
However, Thomas added any widespread take-up of such a scheme would also decrease public sector liabilities in the longer term.
“Whether a reduction in active TPS membership would destabilise the TPS is therefore questionable,” he added.
Harriet Fletcher, practice development lawyer at Irwin Mitchell, said the risk is “more of a snowball effect, if this proposal is not nipped in the bud by the education secretary.
“Ultimately the TPS is a pay as you go scheme so the contributions pay for the pensions that are paid out.”
Q. Will teachers be given enough information to make an informed decision on their pension?
A. Experts fear a general lack of understanding on pensions, but trust will pay for independent legal advice
Cogher said that “in a cost of living crisis, the proposal must seem quite tempting to a wide variety of teaching staff”.
But she said there is also an issue around “informed consent”.
“How much explanation will be given to the individuals about the true value of their benefit package in the TPS – not just pension but special terms for redundancy, early retirement, incapacity and dependant’s pensions on death?
“A defined contribution scheme just does not provide like for like.”
Linda Wallace, director of Wesleyan Financial Services, added the TPS also has the “major advantage of being index-linked”.
This “helps protect it from future increases in the cost of living and guarantees retirement income that is directly linked to a teacher’s salary. Any pension alternative that teachers might look to replace it with is likely to be far less generous.”
A Teacher Tapp survey suggests teachers may not be up to speed on how their pensions work.
Asked in 2022 if they were aware of the impact on their pension of a change in work – for instance reducing hours or taking maternite leave – over a third did not know. Just 12 per cent knew “exactly” the impact
United Learning chief executive Sir Jon Coles has said any teachers taking up the new option would have “access to independent financial advice funding by us”.
Q. What other things could academies use their freedoms to do, and is it right?
A. Most trusts still follow national pay and conditions – but this could change amid recruitment struggles
This is less of a legal issue, and more of a policy one.
O’Malley said there is a “broader conversation to be had about the extent to which trusts are exercising the freedoms they are afforded, and how these could help to support with recruitment and retention”.
“The vast majority have stuck to the Burgundy and Green Books [a national collective agreement between unions and employers on things including notice periods and sick pay] to avoid being out of step with the rest of the sector, but bold thinking could bring high rewards if executed properly and carefully.”
United Learning already offers better salaries than the national pay scales. Under its alternative pension plan, starting salaries for new teachers could rise to £45,000 in inner London, and £38,000 elsewhere.
It appears there may be appetite, too. A Teacher Tapp survey found more than one in four teachers in their 20s would take higher pay over a better pension.
Trusts may ‘need to get creative’
O’Mally added that with the “private sector able to provide a broad variety of benefits and flexibilities, many would argue that academy trusts need to get creative in finding new ways to remain an attractive employer of choice.
“For example, looking at various means of flexible working, moving from national to local pay scales, or introducing holiday buy-and-sell for those on 52-week contracts could be significantly attractive to prospective or wavering staff.”
There is also wider issue of competition – and while this may solve recruitment problems for United Learning, it could leave other trusts and schools who are unable or unwilling to make such an offer less attractive for workers and suffering as a result.
Some trust leaders have said it would be better for a wider conversation about such a scheme – with any changes done nationally through wider pay and condition rules so some aren’t left behind.
But Thomas added where a school is “proactively seeking solutions by increasing freedom and choice for individual employees to shape their remuneration, this must surely be seen as a positive initiative?”
