United Learning, the biggest academy trust in England, is aiming to introduce the radical scheme at nearly 100 schools this April.
United Learning’s CEO, Sir Jon Coles told The i Paper the plan could offer “a model for the public sector generally”.
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Read MoreBut unions have heavily criticised the idea, with Unite, which represents workers in councils, schools and the NHS, describing such a trade-off as “rearranging the deckchairs on the Titanic”.
Under the scheme, staff contribute a minimum of 7.4 per cent of their salary and schools contribute 28.6 per cent.
It is thought that the academy group would be the first state schools to offer this kind of plan.
“The huge increase in the cost of public sector pensions in the last decade has been a major factor in suppressing public sector pay and therefore in reducing the attractiveness of public sector jobs to talented graduates.
He insisted that a model of higher pay with reduced pension was “the most promising way of making public sector roles more attractive at a time of recruitment and retention difficulties and tight public finances”.
If United Learning’s scheme is rolled out successfully, it could increase pressure to explore broadening out the format.
Pepe Di’Iasio, general secretary of Association of School and College Leaders (ASCL), said: “We don’t think that teachers should have to choose between a decent pension and decent pay. They are entitled to both.
Dr Patrick Roach, general secretary of the NASUWT teaching union, added: “We remain concerned about the potential negative impact this plan could have on teachers’ future financial security.
Last summer, unions said they had urged Education Secretary Bridget Phillipson to encourage United Learning to scrap its plans to offer the pension scheme.
But the Department for Education has refused to comment on whether it has done so on multiple occasions.
Pensions reform explained: what the changes mean
How the TPS works
The TPS is a defined benefit (DB) pension scheme. This is different to the defined contribution (DC) pension schemes most private sector workers have.
In DC schemes, workers pay a portion of their salary into a pension pot every month, as does their employer. The minimum split is 3 per cent for the employer, and 5 per cent for the employee.
That money goes into a pot that is invested and saved for when the worker hits retirement, when they can draw from it.
With a DC scheme, the employee has no pot. They are paying into a pension scheme to become a member of that scheme and receive a regular payout when they retire.
Under the TPS scheme, staff contribute a minimum of 7.4 per cent of their salary and schools contribute 28.6 per cent. This percentage however is almost irrelevant to the individual, it is used to fund the pensions of current retirees.
The employee is simply building up an annual entitlement for their retirement, in return for paying into the scheme, and this is usually worth 1/57 of their annual pensionable pay for each year they work.
Some private schools have withdrawn from the TPS in recent years because the contribution rate that schools must make for their employees to be members has increased multiple times, most recently employer contribution rate will increase from 23.6 per cent to 28.6 per cent from April 2024.
Private schools have had to fund this increase themselves but state schools have been given additional funding to cover the cost.
What is the change that teachers are being offered?
Under the plan, teachers will be able to stay in the TPS if they wish to.
Those who want to can opt out of the TPS and choose to contribute 0, 5 or 10 per cent of their salary into a new pension scheme.
United Learning would contribute at least 10 or 20 per cent and the savings the trust made would be used to increase pay.
As an example, a teacher currently paid £39,000 would be paid £45,000 instead, and given a 10 per cent pension contribution, which would still be higher than the 3 per cent most in the private sector receive from their employer.
How much less will a pension be worth if a teacher accepts the scheme?
Comparing how much less a pension will be worth if a teacher chooses the alternative scheme is difficult, as the two schemes operate differently.
With the TPS, teachers generally accrue 1/57th of their pensionable pay as an annual entitlement in retirement, which is then increased as prices inflate. So in today’s money, a teacher on £40,000 would accrue an annual pension of £701.75 for each year worked.
If they had a contribution of 10 per cent from their employer instead, and paid in 5 per cent themselves, then a teacher on £40,000 would pay £6,000 per year into their pension.
How much this would be worth in retirement would depend on how their investments performed, and they would be responsible for ensuring the money lasted throughout their later years.
It’s likely the pension would end up being lower than they would receive if they remained part of the TPS.
What has the Government said about the scheme?
The Department for Education has so far declined to comment on the new scheme, despite multiple requests from The i Paper.
More widely, last year, the civil service’s chief operating officer Cat Little floated the idea of changing the way officials are paid, possibly including an increase in salary with less generous pensions to compensate.
Cat Little said: “The questions that we need to look at are, you know, what’s the balance between pay and pensions? How do we really focus and segment our pay on the skills that we most need to recruit and retain within the Civil Service?”
Multiple government sources told The i Paper at the time that the suggestion was not being actively worked on.
Will other public sector workers be offered this change?
At the moment, other public sector workers will not be offered the chance to take up the new scheme.
But Sir Jon Coles has said the new scheme could be a “model” for the public sector as a whole.
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