Funding the pension gap

There has been much concern around how schools will financially manage the forthcoming increased teacher pension contributions. Joe Parfitt, partner at Litmus Partnership, discusses how schools can save funds by reviewing their operational efficiency whilst still maintaining quality

September marks a new dawn for teacher pensions, with employer contributions to the Teachers’ Pension Scheme (TPS) rising from 16.48% to 23.68% – an increase of more than 40%. Although this provides teachers with the comfort of a more secure retirement, there’s concern amongst education establishments around funding and how they will afford the increases.

Earlier this year the Department of Education announced that they will cover the rise in full for all state-funded schools and colleges during 2019–20; however, the same was not proposed for privately funded schools. It’s been widely cited that this will leave the independent education sector facing an increase in costs of around £100m per year from September 2019 onwards.

Of course, there are options for independent schools to simply withdraw their teachers from the TPS. However, this poses its own issues; teachers could leave the private sector in favour of the state sector, it could make it difficult for teachers to move freely between the two sectors and it could equally result in a shortage of teachers coming through to the private sector. 

However, it doesn’t necessarily have to be that independent schools decide whether to withdraw from the TPS or not – there could be another way. We’ve worked within the independent education sector for over 25 years, working with many establishments including St Paul’s School in Barnes, Westminster School and Bradfield College. We understand all the budgetary challenges that independent schools face.

We’ve helped hundreds of schools to secure a prosperous future by getting the best possible support infrastructure in place such as catering, housekeeping, facilities and grounds management. Each one of these non-core services is important in any school but arguably more so in private schools. Expectations amongst parents and pupils are often higher in independents, particularly where boarding is offered, and the school is promoting an environment that is a home away from home.

We work with schools to help them be more cost-efficient without compromising on the quality of services. This isn’t about simply cutting costs or switching services for ‘cheaper’ alternatives; it’s about becoming more operationally efficient and finding a way forward that works for everyone concerned – the school, pupils, staff and, importantly, those that provide specialist services, whether employed in-house or contracted out.

If you contract out catering services, reviewing the commercial terms is a good place to start. In many existing agreements, schools receive capital investment from their contractor to improve their facilities, funded through rebates they receive from suppliers. These investment deals may no longer be competitive or, worse still, have dried up despite a contract being extended.

Alternatively, some schools may not need investment or would prefer to reduce the operating cost of the service. Litmus has negotiated both improved investment terms and the option of receiving cash rebates, or credits, against the monthly contractor invoice to significantly reduce the operating cost of the services, with no impact at all on the service level or quality of food.

Not only this, but as part of any contract re-negotiation or in-house efficiency review, conducting a cost benchmarking exercise is key. The benchmark would include all costs associated with the services provided including purchasing protocols, the supply chains engaged and their pricing.

The outputs will help a school understand if the service costs are in line with industry norms, or not. It’s not unusual to see costs of £50k up to £100k being saved annually by undertaking a competitive tender, re-negotiation or review – significant sums of money, particularly in light of the pension contribution increases.

Food wastage control is also an area where a significant reduction in costs can be realised. This is also a topic that is under government spotlight with the appointment of the first-ever Food Surplus and Waste Champion in December 2018.

Many independent schools offer a full self-service offer where students have freedom to take as much food as they want.

An alternative is part-assisted service where the more expensive proteins and menu options are either served by staff or pre-plated, resulting in lower waste levels and greater cost control. This also enables schools to understand better if food is being wasted because a specific dish is simply not a popular option, or if students are being over-tempted, loading their trays too high and then finding themselves unable to finish their selections. 

But it’s not only catering where costs can be reduced, and services maintained or even improved. An end-to-end service and cost audit of a contractor or in-house service will reveal where a cost/value relationship can be re-aligned. Be it housekeeping, facilities or grounds maintenance, there is always room for cost improvements, often linked to service enhancement.

Streamlining costs, rigorously and regularly sense-checking that the services in place are the best options for the school and ensuring best value is being delivered will definitely help fund the pension gap.

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