New education secretary Bridget Phillipson has been pulled into a row over plans by the country鈥檚 biggest academy trust to offer teachers a less generous pension for more pay. United Learning鈥檚 plan presents a tricky political situation for Labour 鈥 pitting its loyalty to unions and their concerns over pay and conditions against the academy freedoms introduced by the previous government. The proposal has also thrown up several questions 鈥 including over its legality, what powers government may have to intervene and whether it could cause the Teachers鈥 Pension Scheme to effectively collapse. Schools Week put these questions to several pension legal experts 鈥 here鈥檚 what they said… You can read the ins and outs of United Learning鈥檚 plan to offer its teachers an alternative pension here, alongside the criticism from unions here. Question: It is legal for state schools to offer alternative pensions? Answer in short: Yes, but it鈥檚 complicated All schools are required to ensure teaching staff 鈥渉ave access to鈥 the Teachers鈥 Pension Scheme (TPS), said Polly O鈥橫alley, head of education employment at Browne Jacobson. This also applies to non-teaching staff having access to the Local Government Pension Scheme (LGPS). For academies, this requirement sits in their funding agreements 鈥 a contract with the government setting out the rules an academy trust must adhere to 鈥 rather than set in law. O鈥橫alley (pictured right) said the wording means 鈥渢here is no obligation on academies to only offer the TPS or LGPS to staff鈥, a view echoed by other experts. 鈥淭herefore, if an academy trust wishes to also offer an alternative pension scheme with lower employee and employer contributions, theoretically it is not prohibited from doing so,” she added. The unions, which have opposed the move, also seem to acknowledge the law isn鈥檛 on their side. In a letter calling on government to intervene, they did not say it would break the law 鈥 merely that it 鈥渁t the very least, undermines the spirit of the pension regulations鈥. United Learning said it had taken advice and it believes the proposals are fully compliant with regulations. BUT there are complications… Q: Aren鈥檛 teachers supposed to be auto-enrolled onto the TPS? A: Yes, and this will still happen The law states teachers must be auto-enrolled onto the TPS. But individual teachers have long been allowed to opt out, for instance if they wanted more take-home pay instead. Teachers currently have to pay in between 7.4 and 11.7 per cent of their salary. Teacher Tapp data suggests two per cent of teachers are current opted out of the TPS. However, figures obtained by Wesleyan financial services suggest this figure is rising. United Learning鈥檚 proposals suggest it will meet the auto-enrol rules by offering an alternative pension to employees who choose to opt-out, O-Malley added. But Ian Thomas, director at Moore Kingston Smith Financial Advisers, said TPS regulations 鈥 which trusts must 鈥渃omply with鈥 鈥 state teachers who opt out must be re-enrolled every three years, unless exemptions apply. While this might not affect teachers, it would be an administrative task that United Learning will have to adhere to. The trust has also already said any teachers who opt out can choose to rejoin the TPS each year. Q. Might the allure of extra pay count as an 鈥榠nducement鈥? A: Appears to be a bit of a legal grey area, and experts are split It is illegal under section 54 of the Pensions Act 2008 for employers to 鈥渋nduce鈥 employees to opt-out of auto-enrolment 鈥 something United Learning will have to be 鈥渧ery careful鈥 about, said Penny Cogher, partner at Irwin Mitchell. The pensions regulator has taken 鈥渟trict action against employers who breach this鈥, she added. Employers can be fined or even face criminal proceedings. 鈥淎s the proposed rise in salaries announced at the same time does seem to be conditional on joining the new scheme; this does cause some concern,鈥 Cogher added. However, Thomas (pictured left) said that 鈥渁s long as the school is offering a qualifying workplace pension scheme as an alternative to TPS from the day immediately following the teacher鈥檚 opt out, inducement should not be an issue. 鈥淭he 鈥榯otal reward鈥 approach, where teachers are offered alternative pay, pension and employee benefit packages has of course been widely adopted in the independent sector over the past few years,鈥 he added. But Cogher said there is also a wider question that has “not been fully answered as to whether the mere existence of an alternative scheme in itself constitutes an inducement鈥. ‘Important’ workers make decision freely The states it is 鈥渋mportant that any entitled worker鈥檚 decision to opt out of, or leave, their current pension scheme should be taken freely and without being influenced by the employer鈥. Clear-cut cases relate to employers telling or coaxing employees to opt out. But in 鈥渓ess clear-cut cases鈥, the regulator 鈥渨ill have to carefully consider the employer鈥檚 behaviour to establish the true purpose behind their actions鈥, including looking at communication to employees. United Learning has been clear this is only an offer, and it has no preference either way what teachers choose to do. It has also said any money saved from employer contributions will be used to bump up pay 鈥 meaning the scheme is cost neutral. But the regulator鈥檚 website adds 鈥渢here may still be an inducement breach even if the employer did not make a financial gain鈥. Cogher added: 鈥淎dvisers like to say that this is not an inducement, but the black letter law does not confirm this. Reviews on misselling have taken a firm view against encouraging the change from a final salary to a defined contribution scheme as overall members lose out on this.鈥 Q. Can the education secretary intervene to stop this? A. Academy freedoms mean she currently has no power to do so Unions say United Learning鈥檚 plans are 鈥渨rong-headed and divisive鈥 and have called on new education secretary Bridget Phillipson to 鈥渆ncourage them to withdraw this proposal鈥. But does she have any power to do this? O鈥橫alley said there is 鈥渘o current law that prohibits an academy trust from offering an alternative pension scheme…on an optional basis, as long as those defined benefit schemes remain available to staff and there is no breach of the applicable pension regulations in doing so鈥. 鈥淕enerally speaking, academy trusts do have a wide range of freedoms to opt in or out of national terms and conditions set via the Burgundy Book for teachers and Green Book for support staff,鈥 she added. 鈥淎ny changes must be made with very careful thought and consultation, however.鈥 Thomas added that 鈥渨here an alternative scheme is a purely voluntary arrangement, I can鈥檛 see how a government could prevent it under the current pension regulations. “However we would always advise schools to take specialist legal advice before introducing any changes to their workplace pension arrangements.鈥 Q. Could United Learning鈥檚 pension plan 鈥榙estabilise鈥 the TPS? A. Seems like a questionable claim, but it could lead to a bigger taxpayer bailout In their letter to Phillipson, unions claim that the plans could 鈥渁ll too easily lead to a drop in participation rates in the TPS, which may in turn threaten its stability and long-term future鈥. Does this stack up? The TPS is an 鈥渦nfunded scheme鈥, which means the difference between the money paid out by the pension scheme to retirees, and the money coming in to the pension scheme in contributions from working teachers, is actually made up by the taxpayer, explains Thomas. 鈥淚n common with most mature defined benefit (DB) schemes, the contributions to TPS are now lower than the payments to retired members.鈥 In March 2016, the TPS was assessed to be 拢22 billion in deficit, which led to schools鈥 contribution rate rising substantially (they have more than doubled since 2012). Thomas said a reduction in TPS membership would increase the taxpayer support needed in the short term to prop up the deficit, which could cause difficulties for the new government facing lots of spending pressures. However, Thomas added any widespread take-up of such a scheme would also decrease public sector liabilities in the longer term. 鈥淲hether a reduction in active TPS membership would destabilise the TPS is therefore questionable,鈥 he added. Harriet Fletcher, practice development lawyer at Irwin Mitchell, said the risk is 鈥渕ore of a snowball effect, if this proposal is not nipped in the bud by the education secretary. 鈥淯ltimately the TPS is a pay as you go scheme so the contributions pay for the pensions that are paid out.鈥 Q. Will teachers be given enough information to make an informed decision on their pension? A. Experts fear a general lack of understanding on pensions, but trust will pay for independent legal advice Cogher said that 鈥渋n a cost of living crisis, the proposal must seem quite tempting to a wide variety of teaching staff鈥. But she said there is also an issue around 鈥渋nformed consent”. “How much explanation will be given to the individuals about the true value of their benefit package in the TPS 鈥 not just pension but special terms for redundancy, early retirement, incapacity and dependant鈥檚 pensions on death? 鈥淎 defined contribution scheme just does not provide like for like.鈥 We should listen to teachers on pension flexibility Linda Wallace, director of Wesleyan Financial Services, added the TPS also has the 鈥渕ajor advantage of being index-linked”. This “helps protect it from future increases in the cost of living and guarantees retirement income that is directly linked to a teacher鈥檚 salary. Any pension alternative that teachers might look to replace it with is likely to be far less generous.鈥 A Teacher Tapp survey suggests teachers may not be up to speed on how their pensions work. Asked in 2022 if they were aware of the impact on their pension of a change in work 鈥 for instance reducing hours or taking maternite leave 鈥 over a third did not know. Just 12 per cent knew 鈥渆xactly鈥 the impact United Learning chief executive Sir Jon Coles has said any teachers taking up the new option would have 鈥渁ccess to independent financial advice funded by us鈥. Q. What other things could academies use their freedoms to do, and is it right? A. Most trusts still follow national pay and conditions 鈥 but this could change amid recruitment struggles This is less of a legal issue, and more of a policy one. O鈥橫alley said there is a 鈥broader conversation to be had about the extent to which trusts are exercising the freedoms they are afforded, and how these could help to support with recruitment and retention鈥. 鈥淭he vast majority have stuck to the Burgundy and Green Books [a national collective agreement between unions and employers on things including notice periods and sick pay] to avoid being out of step with the rest of the sector, but bold thinking could bring high rewards if executed properly and carefully.鈥 United Learning already offers better salaries than the national pay scales. Under its alternative pension plan, starting salaries for new teachers could rise to 拢45,000 in inner London, and 拢38,000 elsewhere. It appears there may be appetite, too. A Teacher Tapp survey found more than one in four teachers in their 20s would take higher pay over a better pension. Trusts may ‘need to get creative’ O鈥橫ally added that with the 鈥減rivate sector able to provide a broad variety of benefits and flexibilities, many would argue that academy trusts need to get creative in finding new ways to remain an attractive employer of choice. 鈥淔or example, looking at various means of flexible working, moving from national to local pay scales, or introducing holiday buy-and-sell for those on 52-week contracts could be significantly attractive to prospective or wavering staff.鈥 There is also wider issue of competition 鈥 and while this may solve recruitment problems for United Learning, it could leave other trusts and schools who are unable or unwilling to make such an offer less attractive for workers and suffering as a result. Some trust leaders have said it would be better for a wider conversation about such a scheme 鈥 with any changes done nationally through wider pay and condition rules so some aren鈥檛 left behind. But Thomas added where a school is 鈥減roactively seeking solutions by increasing freedom and choice for individual employees to shape their remuneration, this must surely be seen as a positive initiative?鈥