upReach calls for £300m Independent School Pension Levy to end the teacher recruitment
crisis and boost social mobility
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An estimated 2000 teachers leave state schools to teach in the private sector every year
(net).
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Teachers at private schools benefit from a pension subsidy estimated to be £500m.
On a day when eleven thousand BHS employees have discovered that their jobs are at risk and pensions
will likely be cut, the true value of having a government guaranteed pension is apparent. Those
employees - and others working in the private sector struggling to save or with small pension pots - may
be surprised to know that thousands of private sector employees get a public sector pension, guaranteed
by the government.
The vast majority of teachers at private schools benefit from the same very generous Teachers Pension
Scheme that state school teachers get.
Why does this matter for social mobility?
Firstly, it exacerbates the teacher recruitment crisis. ​Over 2,000 teachers (net) leave state schools to
work at independent schools each year​1​. While many teachers are committed to the state sector, it’s no
surprise that thousands leave when independent schools often offer a higher salary, longer holidays,
smaller classes, less behaviour problems to deal with and reduced bureaucracy due to being outside the
state system.
Secondly, at a time of austerity, the pension guarantee amounts to a £
​ 500m government subsidy to
2​
private schools​ .​ When those who are educated at these schools continue to have a stranglehold on top
jobs, this is inconsistent with the government’s stated commitment to improving social mobility.
In the March Budget, the Chancellor pencilled in increases in public sector pension contributions to better
reflect the higher cost of providing pensions when interest rates are at record lows. In fact, to buy the
same pension in the private sector costs far more than schools/teachers (or indeed hospitals/doctors)
themselves pay. Estimates put the cost of buying this privately at 49% or more of pay​3​, yet schools and
teachers currently contribute only 26%. In total, private school teachers benefit from a £500m subsidy
each year.
Indeed, a 2011 Report​4​ on public sector pensions by Lord Hutton, the former Labour cabinet minister, said
it was "undesirable for future non-public service workers to have access to public service pension
schemes.”
Last month, I asked Nick Gibb, Minister for Schools, why this subsidy exists, and was amazed when he
told me this was to enable “​fluidity between the sectors​5​.” I would welcome “fluidity” if it meant state
schools were gaining teachers, but when it is virtually a one way street in the other direction, encouraging
fluidity with a £500m government subsidy is completely inconsistent with government efforts to improve
state schools, social mobility and the life chances of the less well off.
A survey of private school teachers by a union suggested that 22% of them would be more likely to return
to state schools if they no longer benefited from the public sector pension​6​. This would imply over 13,000
teachers wanting to return to state schools​7​ - helping to solve their teacher recruitment crisis at a stroke.
Fluidity is actually a flawed argument anyhow. Private sector workers can move between firms without
membership of a pension scheme being any barrier. Indeed, Budget documents released last month
showed that a typical worker may have 11 different pensions in their lifetime. Why should teacher "fluidity"
be harmed by the need to be a member of a different pension scheme, especially now their scheme is
career-average rather than final-salary based?
However, since scrapping private school teacher eligibility would have negative cashflow implications for
the government​8​ it is unlikely to happen in practice.
One alternative idea that could help the government transform social mobility, is the introduction of an
Independent School Pension Levy.​ This would gradually add to the total pension contributions that
private schools have to pay, by 2% per annum, until it reaches a total of 40% rather than 26%, steadily
removing most of the government subsidy. If they don’t think this is good value, independent schools
could offer their own pension arrangement instead, like any other private company already does. Some
schools do that already, but few would leave the generous Teachers Pension Scheme. Most senior
leaders and decision makers would personally be significantly worse off financially if they left this
government-backed scheme.
This levy could ultimately raise ​£300m per year​9​, which could be used to fund measures that help
transform social mobility. An immediate priority might be focusing on ensuring undergraduates develop
the soft skills that employers prize, while laying the foundation for longer term change through improving
provision of extracurricular activities and high quality careers advice at schools. Large employers should
also be required to publish data on social diversity across the firm and in senior positions.
While private schools could partly pass on their higher costs to parents in the form of slightly higher fees,
they might also be forced to reduce the premium that they pay their teachers compared to those in the
state sector. This would help teacher retention in the state sector, as well as encouraging many thousands
in the private sector to return.
At present, those from fee-paying schools dominate senior positions across society. Those from
independent schools represent only 7% of the population yet according to a recent Sutton Trust Report​10
account for:
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71% of barristers
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61% of top medical professionals
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50% of the Cabinet
This situation is projected to get even worse, with 70% of entrants into some top graduate schemes being
from fee-paying or selective schools​11​.
Many of those from less-privileged backgrounds often:
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Go to schools where ​careers advice​ is limited and where there are fewer opportunities to
participate in the ​extra-curricular activities​ that are so important in developing s
​ oft skills ​such
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●
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as ​confidence and leadership​ that employers value.
Don’t have the ​family networks​ to help identify career options open to them.
Struggle to gain relevant ​work experience.
Don’t understand the ​pathways to employment in professions​ such as law, banking and
accountancy.
While more students from less-privileged backgrounds are now getting into university, IFS research​12
published this month showed that university is not the leveller it might be, confirming a ​pay gap of 10% or
more​. In top jobs, those from more privileged backgrounds earn as much as 17% more than peers on the
same course at the same university.
Social mobility in the UK is worse than most developed countries, partly due to inequities in a polarised
education system. The government should remove this implicit pension subsidy, using the proceeds to
take positive steps to create a level playing field for all.
John Craven
Chief Executive, upReach Charitable Company
[email protected]
07971274469
Notes to editors:
upReach are the social mobility charity that supports students from less-privileged backgrounds to reach
their potential, helping them secure top jobs in the graduate labour market. The charity partners with
employers and universities to deliver a tailored programme of employability support to students at thirty six
universities.
John Craven joined upReach in January 2016 after an eleven year career in investment banking and three
years teaching Maths and Economics at state and independent schools.
www.upreach.org.uk
References​:
1​
Based on linear extrapolation (x1.25) from ISC data which represents 80% of privately educated pupils.
http://www.isc.co.uk/media/2661/isc_census_2015_final.pdf​ (See Table 15)
2​
In 2010, 62,439 teachers were in the TPS, which on an average salary of £35,000 and a 23% subsidy suggests a
£502m subsidy each year.
3​
Calculations suggest that the cost of buying similar pension public sector provision can be 49% or more of income,
compared to a 26% total contribution by schools, hence a subsidy of 23%. For example, Table 1 of the below report
estimates NHS CARE pension costs to be worth 49% of income.
http://www.if.org.uk/wp-content/uploads/2014/04/The-%C2%A3600-Billion-Question_Final.pdf
The subsidy can be estimated by determining what it would cost to purchase the same pension provision in the private
sector by buying index-linked government bond yields and annuities. It is equivalent to using a market-based discount
rate rather than the CPI + 3% discount rate chosen arbitrarily by the government.
4​
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/207720/hutton_final_100311.pdf
5​
Answer given by Nick Gibb MP to question asked at Sutton Trust “Best in Class - Improving Social Mobility”
conference.
6​
http://www.telegraph.co.uk/education/educationnews/8889759/Private-school-teachers-could-quit-over-pensions-refor
ms.html
7​
22% of 62,439 teachers = 13,736 teachers
8​
Since the Teachers Pension Scheme is a “pay as you go scheme” the government receive cash contributions from
employees and employers. If private schools were blocked from the scheme, the government wouldn’t receive these
contributions, but would still have to pay existing pensions.
9​
Based on a levy of 14%, eliminating most of the 23% subsidy, raising 14/23 * £502m = £305m
​http://www.suttontrust.com/researcharchive/leading-people-2016/
10​
11​
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/434791/A_qualitative_evaluation_of_no
n-educational_barriers_to_the_elite_professions.pdf
12​ ​
http://www.ifs.org.uk/uploads/publications/research%20summaries/graduate_earnings.pdf