It is a turbulent time for the independent school sector in the UK, with schools facing rising financial pressures from increasing staff costs and disruption from the introduction of VAT on school fees. Rumours abound that the budget could introduce National Insurance (NI) on employer pensions contributions. If true, this would further add to the pressures on the sector.
Our calculations show that NI on pensions contributions would add over 1% to total expenditure for the average school. Keep in mind that the average school operates a 4% surplus to allow for future maintenance and development, so this one measure alone would take a quarter of the surplus. The calcullation is based on the schools on Data Navigator for Schools database and assumes the current NI rate of 13.8%. Staff costs typically account for 60-70% of the total expenditure for an independent school and schools typically pay generous pensions contributions compared with other private sector small-medium enterprises.
At a time like this, being able to make data-backed decisions and benchmark yourself to your peers is a significant advantage and can provide reassurance for strategic choices.
Data Navigator is a free tool for independent schools. It is developed by Barnett Waddingham in collaboration with Independent Schools’ Bursars Association to enable bursars to be able to view and compare their financial performance to other schools and explore different forecasting scenarios.
For example, bursars can use the forecasting element of the Data Navigator to view how an increase in pensions costs might affect their overall finances – and more importantly, explore the subsequent impact of different mitigating strategies. The example below shows how the effect of a 13% increase in pension costs requires an offsetting 2% decrease in teacher salaries to remain budget neutral. The result on the school’s overall surplus gives an indication of how these changes might affect its financial performance, both in isolation and compared with the chosen benchmark group.
One of the great strengths of the Data Navigator is that it allows you to choose which schools to benchmark against – would you prefer to compare yourself to: schools near you, schools of a similar size, schools in an urban location, or some combination of all three? The Data Navigator allows you to select the characteristics of your benchmark group and view all your data alongside this comparator cohort.
Below you can see the distribution of employer pension contributions for teachers, for schools in the Data Navigator. The average rate (indicated by the red triangle) is 16%, which has been shown to be representative of the sector. A bursar seeing this could choose to compare themselves to a subset of these schools and use that to drive strategic decision-making. In the example below, the Demo School has an above average contribution rate and can conclude they might be relatively more impacted than their peers if NI were introduced on these contributions.
Any increase in staff costs may also require bursars to review their overall employee benefits and look for alternative ways to attract and retain talented staff. Barnett Waddingham supports schools and other businesses with the management of employee benefits, benefit design and implementation, and communications and offer an engagement platform with a range of flexible benefits which fit the needs of your teachers and support staff. Read more here.
If you are not yet part of the Data Navigator, you can click here for more info or book a call with one of our friendly colleagues to talk through our pre-population service and the benefits the Data Navigator offers.
Thanks to Chris Brownlie for substantial help on this article.
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