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Funding for non-teaching staff ill-health retirement costs in local authority schools and academies

Section 37(4) of the Education Act 2002 s that provides that "costs incurred by the local education authority in respect of any premature retirement of a member of the staff of a maintained school, shall be met from the school's budget share for one or more financial years, except in so far as the authority agrees with the governing body in writing (whether before or after the retirement occurs) that they shall not be so met."
In order to help schools across a locality manage the potential financial risk of this, many local authority schools have had the option to pay into the LGPS (via their employer contributions), which provided for a central contingency within the pension fund that could essentially pay for ill-health retirement costs as they arose. The amount that could be paid out was limited to the contributions that had been paid in and so the level of assurance was limited and effectively meant that schools who made a claim, while there was money available, were covered. If there was no money remaining in the central contingency pot, then the school had to meet the liability themselves. This practice is one we are sure many business managers will be aware of and will have made contingency provision for, if all costs were not to be covered.
It has come to the attention of NAHT that in a number of localities, the option to pay into this central contingency has been removed. While in many cases this change has been implemented for a number of years now, we believe that some schools may be unaware of this alteration particularly as this may have only made a very small difference to the employer contribution rate they have been paying and as this may not have been clearly communicated as part of any notification on changes to employer pension contribution rates. While this is ultimately a local issue, we have raised our concerns about this with the Department for Education. 

Can the Local Authority just remove this provision?

There is no requirement for Local Authorities to consult on the decision about the level of the employer contribution rate to the pension fund at the point it is reviewed; they are able to set contributions to ensure cover for pension liabilities over a reasonable period of time.
However, NAHT is clear that the removal of the requirement for schools to contribute to the ill-health retirement annual allowance (as part of the employer contribution rate) and the ability of schools to access this contingency fund should always be clearly communicated to all relevant schools when they were notified of any revised employer pension contribution rates.

What does this mean for my school?

The approach in every local authority will be different, and therefore we would encourage members in the first instance to confirm whether the employer contributions rates they are making also cover payment into a central contingency pot, to cover potential ill-health retirement costs for non-teaching staff.
If this contingency has been removed we would recommend speaking to the local authority about this, perhaps through Headteacher Forums, to discuss whether this can be reinstated.  If this isn't possible, schools may look to self-insure, to carry a contingency fund to cover this risk or explore with the local authority whether there is some other arrangement that can be put in place by local schools to mitigate risk.
Please note that these pension-related costs relate to non-teaching staff only. Where a member of teaching staff is granted ill-health retirement from the Teachers' Pension Scheme, there is no cost to the school.

What if I'm in an academy?

This can also impact you. The contribution rate you pay into the LGPS may also have had this contingency element built into it. Again, we recommend checking whether this is something applicable to your school so you have some mitigation against a charge arising or whether this is something you need to address.

What about insurance?

As mentioned above this may be an option. One provider, Hymans, has produced some information linked below and a short video in relation to this which will give you more background to this issue and an idea of the sort of insurance available if needed - see www.hymans.co.uk/services/ill-health-liability.
First published 05 February 2024