State pension changes ‘leave academies facing £200m funding hole’

20 Feb 14
Academy schools face a £200m funding black hole as a result of changes to National Insurance contributions that form part of the government’s introduction of a single-tier state pension, an accountancy firm has warned.

By Richard Johnstone | 20 February 2014

Academy schools face a £200m funding black hole as a result of changes to National Insurance contributions that form part of the government’s introduction of a single-tier state pension, an accountancy firm has warned.

UHY Hacker Young said today that the end of an NI opt-out – part of the introduction of a flat £144-a-week pension from 2016 – would typically cost secondary academies £100,000 a year, equivalent to the salaries of three teachers. Primary academies could lose out by as much as £50,000, equivalent to two posts.

The government’s reform will merge the fixed basic state pension and the contribution-based second state pension into a single payment. 

As part of the change, the opt-out that allows employers to not pay NI contributions into the second state pension for those enrolled in occupational schemes will be abolished. This will increase employer contributions, which Chancellor George Osborne has said public sector bodies will have to find from their existing budgets. The government has been warned such a policy would amount to a funding cut for services.

Analysing the impact on the almost 1,700 secondary academies and more than 1,450 primary academies, UHY Hacker Young said contributions would increase by 3.4% to 13.8% of salaries.

Across all academy schools, this means £200m would need to be found from budgets to meet the extra costs.

The change represents the first major challenge for academy governors, the firm’s head of academies Allan Hickie said.

‘These changes are going to have a massive impact on academies’ budgets, creating a big black hole in their finances. Some tough decisions are going to have to be made, and soon, so that the necessary plans can be made ahead of time.

‘Unless extra funds are provided from central government to cover the shortfall, which seems unlikely at this stage, substantial efficiency savings are going to have to be identified and built into academies’ three-year financial plans now.’

He highlighted that many schools faced a dilemma in their bid to recoup the money, as staff costs account for as much as 80% of total spending.

‘Even if they wanted to, many academies will find it difficult to make the needed staff cuts.

‘The smaller primaries in particular are already very tight on teacher numbers, and it would be a very unpopular route to take.’

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