Sam Brodbeck: teachers’ public/ private pensions partnership

 Teachers in fee-paying schools have been able to share in a government-backed DB scheme. But contribution hikes mean they now face a difficult choice says Telegraph personal finance editor Sam Brodbeck

Hard-pressed staff having to make complicated decisions, fears of a mass exodus of senior workers, and a government  scrambling to react.

No, I’m not talking about the NHS taper debacle – which has quite rightly gobbled up the lion’s share of pensions press coverage in recent months. This scandal, on the other hand, has gone almost unnoticed.

It involves thousands of teachers at Britain’s fee-paying schools who are members of the government-backed Teachers Pension Scheme.

As with all defined benefit schemes, the cost of providing benefits is rising fast. Following the schemes’ review, held every four years, schools and sixth form colleges are being told to stump up 40pc more to fund staff pensions.

The increase in contributions, from 17 per cent of salary up to nearly 24 per cent, will cost state schools nearly £1bn. Or it would, had the Treasury not agreed to meet the costs. Though admittedly this promise only lasts as long as the next Spending Review, when the Government may not be so generous. That said, it has committed to maintaining NHS pension funding no matter what.

Quite rightly, fee-paying schools are having to pay their own way . For Daily Telegraph readers this raises the spectre of yet more increases to schools’ fees, which have increased far above inflation for years.

Parents wealthy enough to be able to afford to send their offspring to schools now charging an average of more than £14,000 a year will not be flush with sympathy.

Luckily for me, my little darling is a long way away from formal education yet and unless my employer is overcome by sudden and dramatic generosity, higher fees won’t be a concern for us.

No, it is the teachers who should be most concerned. Until now they’ve enjoyed the well- behaved pupils and extra-long holidays of the private school sector, but with the generous benefits of the state sector.

However, around 100 of the 1,000-plus fee-paying schools have already informed the Government they intend to leave the Teachers’ scheme and set up alternative arrangements, rather than meeting the rising costs.

The increase in contributions, from 17 per cent of salary up to nearly 24 per cent, will cost state schools nearly £1bn. Or it would, had the Treasury not agreed to meet the costs. Though admittedly this promise only lasts as long as the next Spending Review, when the Government may not be so generous

So where does that leave the teachers?

Those schools that have decided they won’t meet the funding costs themselves are either switching to defined contribution schemes, with all the investment risk and lack of index-linking that brings, or asking staff to contribute more.

Others are dodging the decision entirely – and asking teachers to decide. One school, £11,000-a-term Taunton School in Somerset, is offering a “hybrid” solution. It is asking its 200-strong staff to decide between staying in the existing DB scheme (and bridging the gap between the new and old contribution rates themselves) or switching to a DC scheme.

Those who plump for the DC scheme would receive the same employer contribution as before. At just under 17pc of salary, it is a rate far above the private sector DC norm. They would also swerve what would appear to be a pay cut, in comparison to their colleagues who remain in the old DB fund.

Of course, there’s a third option of opting out of all the schemes, in exchange for a very tempting bump to pay packets.

I can feel the wince of advisers reading this who remember the pension misselling scandal of the Nineties – not to mention the flood of controversial transfers in the wake of the pension freedoms and British Steel debacle.

Taunton School says staff will have to take regulated financial advice, but you don’t need a long memory to know there are sharks out there keen to help you “liberate” your cash from the clutches of a nice safe DB scheme.

As it happens, my mum is  in  receipt  of a Teachers’ pension, after 40 years’ in the classrooms of north London comprehensives. You may think that no teacher in their right mind would give up a DB scheme. But I fear if my mum is anything to go by then not every teacher or public sector worker is aware of just how good their pension is.

Is this the next pension mis-selling scandal? Let’s hope not.

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