Getting a grip on pension and benefit costs in 2020...

There’s no doubt that 2020 hasn’t turned out the way anyone expected (or if you did, well done you and can I please have a note of next week’s Lottery numbers?)

With a global recession already looking likely at the beginning of the year, the advent of Covid-19 only exacerbated trading conditions for companies in almost all industries - and independent schools are no exception.

These days, it’s a rare company in the private sector that offers a Defined Benefit (DB) pension scheme due to the sheer cost of contributions and associated benefits.

Up to this point, one exception has been independent schools - but this could be about to change, and for good reason.

The costs of membership of the DB pension schemes offered to school staff around the UK (the Teachers’ Pension Scheme (TPS), Scottish Teachers’ Pension Scheme (STPS) and Scottish Teachers’ Superannuation Scheme (STSS)) have increased substantially over recent years, with an expectation that this will increase again in the future (possibly sooner than originally thought due to the McCloud judgement).


Budgetary pressures

As is the case for companies in all industries, increasing pressure on budgets in 2020 means that Bursars and finance teams are looking for ways to manage their costs - and if this is you, then now might be a good time to review your existing DB pension scheme.

We can help you to assess the impact on your costs of moving to a Defined Contribution (DC) pension scheme, where you have control over how much you contribute.

This approach will allow you to have certainty over costs while still providing a valuable benefit to staff.

Remember, a DB pension scheme promises to pay out an income to members based on the scheme rules, at an unknown cost to both you and your teaching staff.

This certainty can often be a big factor in any change discussions.

Why Defined Contribution?

A Defined Contribution (DC) scheme can be beneficial because of the certainty of cost to you and your staff, as well as the additional flexibility for staff to ensure that the amount of money they put in - and how they draw their benefits - fits their lives.

Fundamental to this change will be finding a provider that can support you and setting a contribution rate that is affordable but valued by your staff.

Whilst a DC scheme doesn't provide a guaranteed level of income, it does have benefits:

  • Providing an affordable and flexible pension

  • An efficient way to save that will help employees save towards good retirement outcomes

  • Transparency over their savings and costs

  • The option to pay contributions via salary sacrifice – a cost-effective way to boost savings

Why now?

If your school wants help managing staff pension costs, now might be a good time to review your existing DB scheme.

Exiting the current scheme may not be the right option for all schools, but we can support you in assessing the impact. In November 2020 the Government also confirmed that from 2021 it will legislate to allow phased withdrawal from the TPS, which may be another option you wish to consider.

If you decide to go forward with a pension change, it will no doubt be a challenging time for the school. We can help you navigate this through:

  • Putting in place a market-leading benefit structure for you and your staff.

  • Communicating the change clearly and effectively to staff

  • Educating your staff on pension savings – the complexity of pensions can often cause undue worry

  • Ensuring you have the due diligence in place to justify the change should your decision to change be challenged later

To talk about how we can help you, click here to contact us.

Posted by Graeme Bell

Topics: Workplace Savings, occupational dc


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