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Academies, Teachers and Staff – the cost of retirement

Pensions are big news and rarely out of the financial press.  We are constantly being told that we are not saving enough for our retirement.  The employees of schools, including academies, are part of the decreasing number of employees who are fortunate to have access to final salary pension schemes.  BUT, and it is a big but, these pension arrangements are becoming an increasingly unknown financial burden for the Academy Trusts who employee the staff.

Academy employees will be members of either the Teachers Pension Scheme (TPS) or the Local Government Pension Scheme (LGPS).

The academy’s teaching staff will be members of the TPS which is an unfunded pension scheme where all decisions associated with the management of the scheme are undertaken by Parliament.  The financial implications for the Academy Trust are relatively straightforward as the Academy Trust will be responsible for the payment of the contributions and all data transfers as required by the scheme.  

All non-teaching staff employed by the Academy are entitled to membership of the LGPS which is a funded pension scheme administered locally by the Local Authority.  The funded nature of the LGPS has significant financial implications for the Academy Trust because as with most funded final salary pension schemes the LGPS is in deficit.

When a school converts to an academy the LGPS’s fund actuary will calculate the pension deficit which is attributable to the school’s employees.  This deficit will then be transferred to the Academy Trust.  The Academy Trust will be responsible for making employer contributions for its non-teaching staff members and a deficit payment amount in order to eliminate the deficit over a period of years.

There are, however, other pension costs which may not be as obvious but can have significant financial consequences for the Academy Trust.  These are:

  • Increasing a member’s pension – where the academies use their discretion to award additional pension to a member.
  • Early Retirement Strain Cost – in the event of the early retirement of an employee over the age of 55 due to redundancy, flexible retirement or other reasons
  • Waiving Actuarial Reductions for members retiring voluntarily from age 55
  • Ill health Early Retirement Cost – benefits are paid early and dependent of the severity of ill health with potentially large enhancements of service
  • The Triennial Valuation – when the Actuary undertakes a valuation of the fund and sets the revised employer contribution rate

On conversion it is important for the Academy Trust to seek advice and consider the above pension implications when reviewing the staff information as not to do so may increase the pension deficit and costs to eye-watering levels.

If you would like to speak to a member of our Education team please call 01274 306 000. We would love to hear from you.

About the Author

Tina Morris

Solicitor

Tina trained as a solicitor in a local authority before joining the Education and Charities team at…

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