Bursar’s Review ISBA Annual Conference 2019

There are pensions and of course, PENSIONS 59 @the_isba Annual Conference 2019 ADVERTORIAL payment of benefits to members, and the prospective benefits payable in the future to active and deferred members; and ■ future targeted benefits are then adjusted further so that the total value of benefits remains equal to the total value of assets in the scheme. Because CDC is based on fixed contribution rates, any funding shortfall can be covered by adjustment to member benefits, while still giving members the upside of a higher, targeted level of pension in retirement than they would receive from a standard group pension. Of course, there are also challenges − not least how to resolve the question of inter-generational fairness between, say, one group of members who retire in a period of strong investment performance and another who take retirement in less prosperous times. Pensions remain a highly emotive subject and any attempt to transition away from the TPS in its current form will undoubtedly receive a major pushback from both unions and TPS members. Following their launch by Royal Mail, CDCs are very much like the new kid experiencing their first day at school. The CDC model is expected to evolve over the next two to five years, supported by appropriate new law and regulation. That said, CDCs may, over time, prove to be a good fit on an industry wide-basis − particularly given the economies of scale offered by pooling employer contributions and scheme assets. Not only will schools have to deal increasingly sympathetically with their main asset − their teachers supported by their unions − but it’s also looking likely they’ll now have a black hole in their budgets to deal with that may run well into six figures. For private sector employers faced with spiralling pensions costs, the choice that many have taken is a straightforward one, the ending of defined benefit (DB) pension provision. This involves exiting the current scheme and providing staff with a standard group pension for future service − often with a generous (but fixed) employer contribution making up for their final salary entitlement. This option is, of course, open to schools wanting to exit the TPS. It would come with an obligatory consultation exercise and the need to work closely with the unions with varying degrees of comfort to achieve a suitable outcome. And of course even if a school did exit the TPS on the basis of cost, there would be little to stop staff jumping ship and going to another school still offering TPS membership. Are collective defined contributions the way forward? An option enabling schools to continue to provide top quality pensions but without the increased TPS costs is available through an evolution of the collective defined contribution (CDC) model. CDC pensions were piloted last year by Royal Mail and broadly operate within the following framework: ■ the pension scheme in question sets ‘targeted’ levels of benefits for members in retirement and is similar to a traditional DB pension scheme in this way; ■ importantly, however, contribution rates to a CDC scheme are fixed in respect of both employers and members, so the employers in the scheme are not exposed to the volatility of costs associated with DB arrangements; ■ in the event that total assets available to fund members’ benefits are less than the targeted benefits, then risk is shared between members collectively by making corresponding adjustments to the current CONTACT DETAILS If you would like to talk about CDCs or discuss the proposed changes to the TPS in more detail, please get in touch with our head of pensions, Andy Campbell, at acampbell@doyleclayton.co.uk 0207 329 9090 The autumn will bring a significant challenge for heads and bursars − the increase in required minimum employer contributions to the Teachers’ Pension Scheme (TPS).