The publication of the latest valuation of the Teachers’ Pension Scheme (TPS) on 1 July 2026 has brought unexpectedly positive news for independent schools that remain in the TPS. From 1 April 2027, the TPS employer contribution rate will decrease from 28.68% to 17.68% of pensionable pay. This represents an 11 percentage point reduction and a fall of more than 38% in employer contribution costs.
Over the last decade, schools had faced dramatic increases in TPS costs, prompting difficult strategic decisions regarding participation in the scheme. Some schools withdrew from the TPS entirely, or implemented phased withdrawal, and others introduced hybrid arrangements.
Why has the contribution rate fallen?
The reduction in the employer contribution rate is a result of revisions to the SCAPE discount rate. This was an unanticipated change that has taken the sector by surprise. Teachers’ pension benefits are unaltered by the reduction in the employer contribution rate.
Schools that have already changed pension arrangements
Whilst the reduction will generally be welcomed across the sector, it will undoubtedly prompt questions from schools that took action to gain control over the spiralling costs of TPS membership. For many such schools, once the new contribution rate takes effect, employer contributions to DC schemes will exceed contributions to the TPS.
Schools are encouraged to review their current pension arrangements. It is possible that schools that fully withdrew from the TPS may wish to consider rejoining, or reducing the contribution rate to their DC scheme. Schools that implemented hybrid arrangements, might want to look at encouraging staff in the DC scheme to move back into the TPS. If a hybrid arrangement involved cost-capping and a pay reduction for those that remained in the TPS, then staff remaining in the TPS may be due an increase in salary. The precise next steps and consultation requirements for schools that want to re-visit their pension arrangements will depend upon the specific pension model that the school has in place and any documentation that underpinned contractual changes. We would recommend that legal advice is sought to assess the options available.
Is this the new normal?
Probably not.
Although the new employer contribution rate will apply from April 2027 and will remain in place for four years until the next valuation cycle, contribution levels remain heavily influenced by Government assumptions and valuation methodology. Future actuarial reviews could produce materially different results.
For that reason, schools should resist the temptation to assume that the current reduction permanently resolves concerns regarding pension affordability. The latest valuation provides welcome certainty for the short to medium term, but it does not eliminate long-term volatility.
How Moore Barlow can help
Please do get in touch if you would like advice on the TPS and your school’s pension provision. Our Independent schools lawyers can help you with every aspect of the process from the preparation and presentation of the business case, employment law implications, collective consultation and engagement with Teachers’ Unions.
