Are you an employer with employees in the Teachers’ Pension Scheme (TPS)?
While the above rulings do not affect the cash position of an organisation, the forthcoming changes to the employer contribution rate of the Teachers’ Pension Scheme following its revaluation at 31 March 2016 will have an adverse impact on cash payments and accurate budgeting will become even more crucial over the next few years.
TPS rate changes: the facts
The employer contribution rate increased to 22.8% from the current 16.48% from 1 April 2019 for a period of four years. The Department for Education has agreed that the revised rate will only be implemented from 1 September 2019 with the new contributory rate for employers being 23.6% (to make up for the six month lag).
TPS rate changes: the impact
Across the education sector, this increase is expected to cost £1.1 billion in 2019-20, of which around £80m is expected to impact the further education sector, and state-funded schools a further £830m. An open consultation period was commissioned to gauge the response in the sector and the results, published in April 2019, confirmed that the government will fund both further education colleges and schools for their respective 2019/20 financial years. But, their position for the funding of the 2020/21 financial year and beyond remains unclear.
The government have also confirmed that they will not fund independent schools, Universities and other organisations providing higher education, although a consultation, which closed on 3 November 2019, proposes that independent schools are allowed to make phased withdrawals from the scheme.
Are you an employer operating in a defined contribution scheme?
For those employers operating defined contribution schemes, the minimum level of pension contributions under the auto-enrolment legislation increased to its full level from April 2019. While the Government has not officially announced any further planned contribution changes, this could happen in the future with most people currently likely to have a shortfall in retirement income.
As well as the rise in contribution levels, many changes have occurred since auto-enrolment was initially introduced in October 2012.
These changes include but are not limited to:
- The timings of contribution increases
- Alternative definitions to earnings periods
- The categories of statutory letters and the prescribed wording within them
- Declaration of compliance requirements
- The immediate duties for new employers
- Exemptions from the auto-enrolment duties
In the first two quarters of 2019 alone, as a result of country-wide auto-enrolment inspections instigated by the Pensions Regulator, 74% of the checks identified a breach in the legislation, with 76% of these resulting in enforcement action being taken. (Source: The Pension Regulator’s Compliance and enforcement quarterly bulletin April – June 2019).
With these points in mind, employers should aim to keep abreast of new auto-enrolment legislation changes in these areas and we would suggest that this is a good opportunity for employers to reassess their pension arrangements to ensure both compliance and best practice are met.
Regardless of sector, all organisations are encouraged to plan ahead with their budgeting and financial management in order to continue meeting day-to-day operational needs while also meeting their longer term pension obligations, especially in an increasingly uncertain UK political and economic climate.
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