Demystifying pensions for academies

Two significant costs to academy trusts are the payments made to the respective pension schemes: the Teachers’ Pension Scheme for qualified teaching staff, and the Local Government Pension Scheme for other (support) staff.

As with many aspects of finance, and pensions in particular, there is a lot of industry jargon which makes understanding these costs difficult. This guide will make things clearer.

Teachers’ Pension Scheme (TPS)

This pension scheme is known as an “unfunded, multi-employer, defined contribution pension scheme”. The keywords here are “unfunded” and “multi-employer”, which denotes that there will be no specific valuation placed on this scheme which can be attributed back to the academy trust.

Both the employer and the employee make contributions to this scheme, which are credited to the Exchequer, with the retirement and other benefits being paid out from public funds provided by Parliament.

The TPS is formally valued as a whole by actuaries approximately once every four years, with changes to the level of employer contributions being affected by the outcome of these valuations.

The only cost within the trust’s accounts are the employer contributions made. These are calculated as being 23.68% of the employees’ pensionable salary, and will be shown within direct costs within the notes to the financial statements.

The contribution percentage has increased from 1 September 2019, due to the implementation of the most recent valuation, which showed a deficit which required an increase in contributions to fund. In order to assist with this increased cost, every trust has paradoxically received an additional government grant to cover the additional costs. It is anticipated that this will continue in future years, but no confirmation to this effect has yet been received.

Local Government Pension Scheme (LGPS)

Where this pension scheme differs from the TPS is that for each employer, there is a separately administered fund i.e. within the pension pot there are both assets and liabilities which can be specifically attributed to the academy trust. This is what causes the inclusion of the pension scheme liability within the financial statements.

The LGPS is valued annually by a firm of actuaries, who produce a report valuing the obligations that each trust may have in the future concerning their current employees’ retirements. Whilst this is a significant number, it is merely included within the financial statements due to an accounting technicality, and shouldn’t unduly concern trustees and the senior leadership team, for the following reasons:

  • It is an estimate based upon the cessation of everything as at the year end date; this will never happen in practice.
  • Each scheme will hold a certain amount of assets (equities, properties, cash, etc) – more often that not, these will exceed calculation of the notional liability as at the year-end date recorded within the financial statements.
  • There is a government guarantee in place dated 18 July 2013 which guarantees the funding of any LGPS liabilities which occur following an academy closure.
  • As an LA maintained school, this ‘liability’ was still attributed to the school, but due to differing reporting requirements was not included within the school’s balance sheet.

Contributions to the LGPS depend on the individual fund to which the academy is linked. This is based on location, and unfortunately is mandated i.e. one cannot change this. As with the TPS, the level of contributions is based upon the performance of the fund. The changes to any future contributions will be communicated directly by the fund to the academy.

LGPS valuation is based upon various factors which include:

  • Discount rate (based on the Government bonds)
  • Assumed annual increase in salaries
  • Inflation
  • Estimated mortality rates

A formal valuation of the LGPS occurs every three years, with the latest one taking place in 2022. Annual valuations subsequent to this are based on estimates. The year ended 2023 is the first implementation of the latest triennial valuation, as shown in the diagram below.

Where are we now?

As per the table below, we are in Year 1:

(Year 1)
(Year 2)
(Year 3)
The most recent formal funding valuation was at 31 March 2022 Impact of 2022 valuation will be first shown in August 2023 disclosures Membership experience will flow through OCI – may be significant for academies Other assumptions reset as part of valuation e.g. new demographics


Source: Hyman Robertson

The annual actuarial report contains figures which need to be included within the financial statements. This is broken down in the pension note towards the end of the accounts, and separately disclosed within the support costs note under the heading ‘non-cash pension costs’.

The last two years

Whilst historically, the LGPS actuarial valuation has calculated a significant and increasing liability, the macro-economic conditions over the past two years have seen this liability reduce significantly, and in many cases completely so that it is in ‘surplus’ (i.e. an asset) as at 31 August 2023.

The main reason for this is the increased level of inflation, primarily creating a significant increase in the Discount Rate.  The knock-on effect of Covid-19 has also seen a slight reduction in life-expectancy.  This is shown in the table below.

How have the assumptions changed?

Change to What’s happened since
31 August 2022?*
Impact on
balance sheet
Discount rate Up by c8% pa Decrease obligations by c15%
Benefit increases (CPI) Small reduction in long-term market view Small decrease in obligations
Longevity assumptions Update to latest tables? If yes, small decrease in obligations
Other demographic assumptions Updated to valuation assumptions Small change in obligations, direction dependent on membership profile
Actual PI experience Was 10.1% April 2023 Increase in obligations
Overall impact   Improvement*

*To end of July 2023 market conditions/assumptions

Source: Hyman Robertson


With regards to how a pension asset is reported in the financial statements: to fully recognise the whole value of this figure, it needs be probable that the asset will lead to future economic benefits to the trust.  This would be in the form of a reduction in the contribution rates and / or a cash payout from the pension scheme.  Whilst a reduction in the contribution rates is a possibility, it is by no means is a probable outcome – indeed, with falling inflation, it is anticipated that the knock-on effect will lead to a fall in the Discount Rate, which in turn will impact future actuarial calculations thus re-creating an LGPS pension liability.

Contingent asset

If the actuarial valuation of the trust has been calculated as being an asset, our technical assessment – confirmed by the ICAEW – is that the asset should not be recognised within the financial statements of the trust – i.e. as part of the balance sheet.  Instead, a disclosure should be made within the notes to the accounts only, stating that there is a possibility of this asset being realised either in part or in full, only if it becomes probable that future economic benefit(s) will flow to the academy trust from this asset.

For more information, please get in touch with your usual Landau Baker / BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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