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

Academy schools could be facing 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, it was suggested by an accountancy firm recently.

The firm warned that the end of an NI opt-out – part of the introduction of a flat £144-a-week pension from 2016 – would generally cost secondary academies £100,000 a year, the equivalent of three salaries. It also said that primary academies could lose out by around £50,000 – the equivalent to two school posts.

The Government’s reform will merge the fixed basic state pension and the contribution-based second state pension into one 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 then increase employer contributions, which Chancellor George Osborne has said public sector bodies will have to find from their existing budgets, amounting to a cut in funding for services.

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

Across all academy schools, this would mean that an extra £200m would need to be found from budgets to meet these added costs.

This could be 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.’

Mr Hickie 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 much 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,” Mr Hickie said.

At Nicklin, we have many years’ experience in providing accounting and business advisory services to schools and academies and can provide advice on a range of areas including pension issues in order that academies make the most of the budgets available to them. For more information, please contact us.

Posted in Academies News.