Potential decrease to the TPS employer contribution

The 2024 valuation of the Teachers’ Pension Scheme (TPS) has not yet been finalised. However, a significant indication of its likely impact on employer contribution rates has been provided in the recently published Public Service Pensions (Valuations and Employer Cost Cap) (Amendment) Directions 2026.

What the Government Actuary’s report indicates

There have been prior indications that the SCAPE discount rate would increase, which, in isolation, would be expected to reduce employer contribution requirements within TPS. The Government Actuary’s report supports this expectation and indicates that, when combined with changes to other underlying assumptions, employer contribution rates across the largest unfunded public service pension schemes are likely to fall.

On an aggregate, payroll-weighted basis, employer contributions across the four largest unfunded schemes are projected to decrease from approximately 29% at present to around 20% from 1 April 2027.

Implications for independent schools

For independent schools that remain wholly or partially in TPS, this represents a potentially significant reduction in employer pension costs. However, given the prominence of TPS contribution rates within the sector, this may create additional pressure to increase pay or enhance overall remuneration packages.

This may be particularly relevant for schools operating ‘total reward’ models, where pension cost assumptions are embedded within remuneration structures. In such cases, the implications will depend on how pension cost caps or assumptions have been defined, and whether reductions in employer contributions trigger corresponding changes in salary or benefits.

Schools with contractual provisions relating to contribution caps, salary adjustments, or cost-sharing mechanisms should carefully review the specific wording of these clauses. Legal advice may be appropriate to determine whether, and how, remuneration adjustments could be implemented.

Risks and uncertainties

The report also highlights important risks around the future outlook. In particular, it notes that the assumptions underpinning the valuation are based on economic forecasts that pre-date recent geopolitical developments, including the conflict in the Middle East. As such, any resulting economic impacts have not been reflected and will instead emerge in the subsequent 2028 valuation, potentially resulting in further changes to contribution rates at that point.

The impact on member (employee) contributions remains uncertain, as these may be adjusted depending on whether expected contribution yields align with scheme targets over the implementation period.

Finally, it should be noted that the information within the report is based on provisional valuation results. Accordingly, while it provides a strong indication of direction, it should not be relied upon as a definitive measure of future contribution rates.

How Moore Kingston Smith can help

A reduction in TPS employer contributions will have different implications depending on how your school’s remuneration structures, contractual arrangements, and pension strategy are currently configured. Our TPS team can help you assess the practical impact, review any relevant contractual provisions, and consider whether this creates an opportunity to revisit the pension options available to your staff.

For further information, please contact us to arrange a conversation or visit our schools and teachers’ pensions page.