The Department for Education has today confirmed an increase of 5 percentage points to the employer contribution rate of the Teachers' Pension Scheme (TPS) with schools' contributions set to rise from 23.6% to 28.6%.

The Government has committed to funding the rise for state schools and colleges for one year, but private schools are exempt.

With more than 300 private schools having pulled out of the Teachers’ Pension Scheme since 2018, the increase could see the trend continue for schools with tightening budgets, said Martin Willis, partner and head of independent schools at independent consultancy Barnett Waddingham.

He said: “This increase will be an unwelcome further cost for independent schools to weather in a challenging economic background -including inflation, energy costs and potential VAT changes - and will mean many schools, which had been considering their pension and benefit options, will now need to take action to manage their costs.”

He said it is critical that schools understand the impact that this change will have on their finances, to enable them to make the right decisions and engage with staff in relation to any proposals.

He added: “Failure to do either successfully, may pose a significant threat to a school’s long-term future.”

The announcement equates to a rise of more than 20% in employment costs for independent schools from April 2024 and follows the previous rise of 40% that took effect in September 2019, according to consultancy Broadstone.

Neil Barton, head of business development at Broadstone, said: “The rate rise will come as a shock to the diminishing number of independent schools that remain in the TPS.

“We know from recent conversations with our independent school clients that they fear this will affect pupil numbers, so the additional 5% needed for the TPS is a crushing blow and is likely to force even more schools to review their position regarding the TPS.”

He said he expected significant numbers of independent school operators and governing bodies will consider whether changes should be made.

Many schools that have exited the TPS have introduced defined contribution schemes with a higher-than-average employer contribution, but other alternatives like phased withdrawal, cost sharing and parallel schemes are worth exploring, he said.

Nigel Jones, head of consulting & actuarial at Broadstone, added: “This announcement looks to be the death knell for the participation of many independent schools in the TPS.

“The seemingly ever-increasing contribution burden coupled with the debate around whether the extra outlay actually derives any additional value will see many either fully exit or consider alternative approaches.”