Written by Jamie Burdess, Principal Consultant at Broadstone and
Gemma Woodhouse, Partner at Penningtons Manches Cooper LLP
The challenges independent schools face in sustaining membership of the Teachers’ Pension Scheme (TPS) are well known. Governors are under pressure to balance the total reward they want to offer teachers with the rising and unpredictable cost of TPS.
Add to that the financial strain of VAT on school fees, employer National Insurance (NI) contributions rising to 15%, and the potential loss of business rates relief. So, it’s no surprise that since 2019, 405 schools have exited TPS, with 297 opting for phased withdrawal. *
The introduction of the Employment Rights Act 2025 adds a further layer of complexity, as the Act restricts how schools can lawfully implement pension changes by significantly limiting the use of dismissal and re-engagement for changes to contractual pension arrangements, making voluntary agreements more critical than ever.
What are your options?
The options available to you remain largely unchanged. Schools can:
- Exit TPS entirely
- Adopt phased withdrawal
- Offer a hybrid model, where teachers choose to stay in TPS (often at personal cost) or move to a Defined Contribution (DC) pension plan
What are the risks?
TPS remains a highly valued benefit for many teachers. Any change can affect morale, retention and relationships between teachers and the school. As a trusted partner to many independent schools, we understand the emotional, financial and operational impact of pension changes – and the importance of getting it right. All parties need to understand the risks and challenges before entering conversations or a guided consultation process.
Whilst it’s always hoped staff will voluntarily agree to changes through a consultation process, this can be unlikely because many believe TPS is a significant benefit which should not be lost.
The Employment Rights Act 2025 brings major changes to how employers can vary contractual terms, such as pension entitlement and contributions with effect from January 2027. The Act introduces new statutory restrictions on dismissal and re-engagement, preventing employers from using “fire and rehire” to impose certain types of contractual changes without agreement because of changes likely to come into effect from January 2027. Pensions are explicitly treated as a “restricted variation” under the new Act.
It is expected from January 2027 that it will be automatically unfair to dismiss an employee because they refuse to accept a change to TPS participation or any alternative pension arrangement. This means that:
- Schools cannot force pension changes by dismissing and rehiring staff
- Pension changes can only be implemented with voluntary agreement, and
- Attempting to impose a pension change could lead to significant risk of claims in the Employment Tribunal.
Where previously dismissal and re-engagement was a possible, though potentially risky, route to implement contractual changes to pension entitlement, this mechanism is now severely restricted under the Employment Rights Act 2025 unless employers want to face claims for automatically unfair dismissal.
The Act also changes rules around industrial action, including a reduction of the required notice period from 14 to 10 days, increasing the ease and likelihood of union action during pension change proposals.
Even with a full and proper consultation process, schools still face risks. These include negative publicity, trade union involvement, and low morale among staff. There’s also the potential for employment tribunal claims, especially if staff believe the consultation was flawed or the business case wasn’t strong enough.
That’s why it’s important for schools to seek appropriate advice, communicate openly and transparently with staff, explore all available options, and meet their legal consultation obligations.
What should schools do?
A consultation process increases workload for senior management and inevitably causes disruption among the workforce and school community. However, this is favourable over an approach that does not properly vary an employee’s contract.
Consultation is essential, not just legally, but ethically. Under the Employment Rights Act 2025, consultation is no longer just the preferred route, it is the only lawful method for varying pension provision. Schools must communicate openly, consider all options, and take expert advice. Failing to secure agreement means the school cannot impose changes and may be required to continue offering TPS, even if financially unsustainable.
Schools should review their recruitment practices and probation processes to account for the shorted qualifying period for unfair dismissal and ensure that managers and HR teams are trained on the implications of the new Act. Contract templates and internal policies should be updated in advance of the changes coming into force.
Wider reward considerations for schools
Schools should use the consultation process as a catalyst to review their broader reward strategy, rather than focusing solely on pensions.
A structured audit of total reward can help assess cost, value and equity across the workforce while also benchmarking provision against peers and the wider labour market and identify opportunities to reshape spend while maintaining staff engagement.
Given the long standing cost and complexity of the Teachers’ Pension Scheme, full alignment of pension provision across all staff groups is rarely practical. Instead, schools are placing greater emphasis on employee benefits that sit outside core pension provision to provide a more equitable employee solution which can be adapted more readily. Health, Wellbeing and Protection benefits are becoming an important lever within modern workforce strategies, helping schools respond to recruitment and retention challenges while meeting rising expectations around wellbeing, financial security and fairness.
Health, Wellbeing and Protection initiatives are widely valued and typically offer better value when implemented on a whole-of-workforce basis. A whole-of-workforce model prioritises rapid access to clinical triage, diagnostics, physio and short-term mental healthcare, which can help cut absence costs, reduce presenteeism and improve overall employee experience during times of change.
Alongside this, salary exchange arrangements can support affordability by improving tax efficiency for both schools and employees, provided they are carefully structured, clearly communicated and aligned with HMRC guidance. Salary exchange can form part of a broader, joined-up reward review, helping schools manage cost pressures without undermining trust or engagement at a time when voluntary agreement and staff confidence are more critical than ever.
Who can we help?
Employee benefit consultants like Broadstone and employment law specialists like Penningtons Manches Cooper LLP can help schools navigate the complexities of pension change, from strategic planning and risk assessment to consultation and implementation. We understand the sensitivities involved and work closely with governors and senior leaders to ensure decisions are well-informed, legally compliant, and communicated with clarity and care.
*Source: FOI request to DfE, July 2025.
