Independent Schools Leaving the Teachers’ Pension Scheme: What It Means, Why It’s Happening, and What Schools Can Do Next

A growing number of independent schools have chosen to leave the Teachers’ Pension Scheme (TPS). 

Recent reporting, based on a Freedom of Information request, suggests that membership among independent schools fell from 1,066 on 29 July 2024 to 880 by January 2026, a drop of roughly 17%.

That change sits within a wider cost picture. VAT has been added to private school fees from 1 January 2025, with anti-forestalling rules pulling certain advance payments into VAT if they relate to education supplied from that date.

At the same time, several other cost lines have moved in the “wrong direction” for fee-funded education. TPS employer contributions increased from 23.68% to 28.68% from 1 April 2024.
Business rates charitable relief eligibility in England changed from 1 April 2025 for many private schools that are charities.

Employer National Insurance changes were also announced, increasing the rate to 15% from 6 April 2025, with a lower secondary threshold.

Below is a guide to what is happening, the drivers behind it, and the steps schools can take to make decisions that stand up to scrutiny.

What the latest data indicates

The FOI-based reporting shows a clear shift: a noticeable share of independent schools have left TPS since policy confirmation on VAT for fees.

It is also important to separate headline drivers from underlying trends. Sector commentary points to a longer-term pattern linked to pension cost pressure, with newer policy changes adding urgency and accelerating decisions.

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Key policy and cost changes affecting independent schools

Change	What changed	Effective date	Why it matters
TPS employer contributions	Employer rate moved to 28.68%	1 Apr 2024	Higher pension cost per teacher
VAT on private school fees	20% VAT applied to education and boarding supplied for a charge	1 Jan 2025	Higher gross fees or lower net income if fees held
VAT anti-forestalling	Certain advance payments caught if linked to supply from Jan 2025	From 29 Jul 2024	Limits “fees in advance” planning
Business rates charitable relief	Many private schools in England no longer eligible	1 Apr 2025	Material fixed-cost uplift for qualifying sites
Employer National Insurance	Rate up to 15% and threshold reduced	6 Apr 2025	Higher employment cost base

Why schools are leaving TPS

TPS is a defined benefit scheme with strong member value. That value carries a high employer cost. Why schools are leaving TPS often comes down to this pressure. When budgets tighten, pension cost becomes one of the biggest controllable lines for a school.

1) TPS Employer contribution pressure is structural, not short-term

Teachers’ Pensions confirms the employer contribution rate at 28.68% from 1 April 2024.

For schools with a large teaching payroll, even a small percentage change drives a large cash impact. Many bursars and governors will run scenarios that show pension cost growth outpacing fee growth over multiple years.

2) VAT on fees changes price, demand, and cash planning

VAT applies to private school education and boarding supplied for a charge from 1 January 2025.

A key operational point: VAT rules also apply to certain payments made from 29 July 2024 that relate to terms starting from January 2025.

This creates three common responses:

• Increase fees to pass on VAT fully, risking demand sensitivity.
• Absorb part of VAT, reducing margins.
• Redesign fee structures, bursaries, or boarding arrangements, with careful VAT treatment.

Government guidance also flags that some advance fee arrangements may still be within scope, depending on how the prepayment scheme works.

3) Business rates relief and employment taxes compound the squeeze

For many charitable private schools in England, charitable business rates relief eligibility changed from 1 April 2025.

Employer NIC changes add further pressure from 6 April 2025.

Even when each measure feels manageable in isolation, the combined effect can make TPS look like the “largest lever” available.

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Options schools consider before a full TPS exit

Leaving TPS is not the only route. Schools commonly assess a short list of structural options, then consult staff and unions where needed.

Option A: Remain in TPS and reprice fees or redesign budgets

This is simplest from an HR and recruitment perspective. It can be hardest for affordability and enrolment.

Key actions:

• Build a model for fee increases and bursary changes.
• Review VAT registration and VAT accounting approach.
• Tighten payroll forecasting and cash planning.

VAT policy detail is set out in GOV.UK technical guidance.

Option B: Phased withdrawal (existing members stay, new joiners do not)

Teachers’ Pensions describes “phased withdrawal” for independent schools: existing members remain in TPS, while new teaching staff enter an alternative pension arrangement.

This can reduce future cost growth without forcing immediate change for current staff. It also creates two-tier benefits, which can affect recruitment.

Practical issues to plan for:

• Staff consultation and contract wording.
• Auto-enrolment compliance for new joiners.
• Recruitment messaging and total reward strategy.
• Governance documentation and board minutes.

Option C: Full withdrawal and replacement scheme

This delivers the biggest cost change, plus the biggest employee relations risk.

Schools need to think about:

• Transition plan for all teaching staff.
• Alternative pension design and contribution levels.
• Timing and communications.
• Risk of staff churn and hiring difficulties.

VAT and pensions: the technical traps that cause problems later

Schools often face issues when decisions are rushed. These are the areas that regularly create future disputes, rework, or HMRC questions.

Common VAT pitfalls to avoid

• Assuming every advance fee payment avoids VAT: Anti-forestalling rules can apply to certain payments made from 29 July 2024 that relate to supplies from January 2025.
• Incorrect VAT treatment for mixed supplies: Education and boarding are within scope for VAT under the measure, and connected-party rules can be relevant.
• Weak evidence files: VAT positions should be supported by invoices, contracts, fee schedules, and clear tax point logic.

Common pension transition pitfalls to avoid

• Poorly structured consultation timetable.
• Lack of clarity on who keeps TPS access under phased withdrawal rules.
• Underestimating recruitment impact for shortage subjects.
• Failing to align HR, payroll, finance, and communications teams.

How We Help Schools

At Apex Accountants, we support independent schools through tax change, payroll cost pressure, and pension decision planning.

Our work typically covers:

VAT registration and VAT compliance

• VAT setup, systems, reporting processes
• VAT position reviews for fee structures and boarding
• Support with evidence packs and HMRC-ready documentation

Budgeting, forecasting, and cashflow modelling

• Scenario models for fee changes, bursaries, enrolment sensitivity
• Payroll and employer cost modelling, including NIC change impact

TPS cost reviews and pension transition support

• Cost analysis for stay vs phased withdrawal vs exit
• Implementation planning with payroll and HR teams
• Board reporting packs, decision logs, and risk registers

Governance and compliance support

• Term-by-term compliance calendar
• Finance controls, audit trail strengthening, management reporting

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Conclusion

TPS exits within independent schools are rising, with FOI-based reporting pointing to a drop from 1,066 participating schools on 29 July 2024 to 880 by January 2026.

The driver story is broader than one policy. TPS employer contributions increased to 28.68% from 1 April 2024.
VAT on fees took effect from 1 January 2025, with advance payment rules linked to 29 July 2024.
Business rates relief rules changed from 1 April 2025 for many charitable private schools in England, and employer NIC changes followed from 6 April 2025.

If your school is reviewing TPS participation, take a structured approach. Build a cost model, document assumptions, plan consultation properly, and validate the VAT treatment of fees and contracts.

If you want support with modelling, VAT compliance, or pension transition planning, contact Apex Accountants for a focused review.

FAQs 

Does VAT apply to independent school fees now?

VAT at the standard rate applies to private school education and boarding supplied for a charge from 1 January 2025.

Do advance payments avoid VAT?

Not reliably. Government guidance explains that certain payments made from 29 July 2024 relating to education supplied from January 2025 can still be subject to VAT.

What is the current TPS employer contribution rate?

Teachers’ Pensions states the employer contribution rate is 28.68%, effective from 1 April 2024.

What is phased withdrawal?

It is an alternative to leaving TPS. Existing members remain in TPS, while new teaching staff join an alternative pension scheme, subject to the rules and consultation expectations.

When did business rates relief change for private schools in England?

GOV.UK guidance sets out that from 1 April 2025, private schools that are charities in England no longer qualify for charitable business rates relief.