It’s all Academic George…

David Davison

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In the 2016 Budget George Osborne announced his plans that all schools must become academies by 2020 or have official plans to do so by 2022.

There may well be very sensible reasons for doing this I’m sure some would argue, but if the move is to be a success,the Government needs to pull their finger out and actually commit to a change which has been proposed right back to 2010 when the whole Academy experiment began. The Government since then has been very deftly saddling these shiny Academies with a mountain of pension debt, passing across £Bn’s of pension liabilities to often unsuspecting schools/academies.

So, the Government is completely responsible for the payment and security of all staff pensions in the maintained school sector. However, on transfer to Academy status, the Academy becomes wholly responsible for pension provision. This might not seem like a big issue but in fact it could be huge, potentially £m’s of liabilities and £100,000’s of increased contributions.

The Teachers’ scheme covers academic staff and it is unfunded, so other than the potential future increase in contributions (which George also announced in the Budget), it doesn’t really represent any additional risk.

However, non academic staff participate in the local government pension scheme (‘LGPS’) which is a funded scheme, and this exposes the Academy to significant additional risk / cost in a number of areas:

  • All historic accrued liabilities will be transferred to the Academy. This means that they are likely to become immediately responsible for very significant past service deficits with associated costs and also completely responsible for the volatility of these liabilities in future and fully funding them.
  • The Academies are likely to be moved away from the protective ownership of the public sector to ‘pooled’ arrangements, which will result in higher contributions than would be the case when they were in the maintained sector.
  • There is no consistency of practice between LGPS and each academy, must negotiate with their local LGPS actuary, which can result in very material inconsistencies. This is also likely to mean that the Academies will incur additional actuarial advisory costs.
  • It is likely that more staff will become eligible for the LGPS as a result of auto-enrolment, with associated additional costs, but no additional funding.
  • The pension deficits are likely to be very visible on Academies’ statutory accounts, as any deficit will be disclosed as a negative on their balance sheet.
  • Numerous maintained schools have resisted the transition to Academy status for this exact reason, but this may no longer be possible.

There has been pressure on the Government since 2010 to address this, and former Education Minister Michael Gove did express the view that Academies should be no better or worse off than maintained schools. However, the Government has done absolutely nothing to look to actually achieve this, leaving Academies exposed to greater risk, benefiting from less protection and facing increased costs.

If schools are to be forced to make the move to Academy status, the Government needs to address this issue to avoid a needless drain on educational resources, with a commensurate worsening in our children’s educational future.

David Davison

Post by David Davison

Specialist consultant on pensions strategy for corporate, public sector and not for profit employers

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