26 September 2018
I was writing this blog yesterday when it came to my attention that schools have received an email notifying them of an estimated employer contribution rate increase to 23.6% for the period from 1 September 2019 to 31 March 2023.
The email appears to be have been sent via Employer Link with various members of the educational sector press commenting that it has been sent on behalf of the DfE.
My blog was going to begin by commenting on a written Ministerial Statement, published earlier this month, which gives some important information about employer contribution rates. This appears to have slipped under the radar for many academies, and I’ve only just become aware of the statement myself. This is perhaps because the statement covers all public sector pension schemes, and so covers the NHS, civil service and the armed forces etc. as well as Teachers’ Pensions.
The recent email, sent on 21 September, has been circulated by some academy finance staff on the FD forum and this has somewhat trumped the comments I was going to make. It appears from talking with our clients that not everyone has received the email.
Academy trusts have been expecting a rise in the employer contribution rate from April 2019 for some time, and we have advised for the past couple of years that pension actuaries have suggested the current 16.48% employer rate could rise to something between 18-20%. In the current financial climate even this level of increase would be a significant and costly change. In our experience most trusts have budgeted accordingly, with many building a mid-way 19% rate into their forecasts.
The statement published on 6 September covers public service pensions in general. It does not reveal what the employer rate will change to next year, but it does give some important information that will come as welcome news for academy trusts in the short term:
- Changes in employer contribution rates will take effect from September 2019, rather than from April 2019 as previously anticipated. This will give five months’ worth of contributions at the current lower rate, which will help academies’ budgets.
- The DfE have indicated that funding will be provided to academies, maintained schools and colleges for the period covered by the current spending review period (i.e. up to March 2020), with any future funding dependent on the next Government spending review due to take place in 2019. There is a precedent for this – back in 2003 the DfE covered the higher costs resulting from an interest rate change via a Teacher Pension Grant.
The email some schools appear to have received confirms all of the above but goes further by mentioning an estimated 23.6% employer contribution rate. The email makes it clear that the results are based on the Government Actuary’s Department calculations which provide indicative results of the 2016 TPS valuation, which affects the future level of contributions.
The current rate of 16.48% has been in force since 2015. We understand that if the expected increase is applied equally across all of the different public sector schemes – this is apparently unlikely – then the TPS rate would move to 21.1%. If the suggested rise to 23.6% is true then this is extremely worrying for academies and the education sector more widely.
What we do know is the five month delay in the implementation of the new rate will be welcome, as will any funded period, even a short one. Few academy trusts were anticipating this. However the promised funding only extends until March 2020 and there is no guarantee of how funding, if indeed there is any, will work beyond then. This mirrors the new Teachers’ Pay Grant which provides funding for some of the 3.5% rise in teacher pay spines from 1 September 2018 to 31 March 2020.
Academy trusts already operating on extremely stretched budgets will be waiting anxiously for clarification in the hope that the DfE can come up with some money from somewhere.
If you have any questions about the changes please contact me or your nearest UHY academy specialist.
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