Can pensions help edtech? The sad answer is no in the UK but yes in the rest of the world. And yes, Covid will have an impact.
The Teachers’ Pension Scheme (England and Wales) (TPS) is a scheme (not a fund, as it has no assets) with a £432 billion liability to its 1.3 million members. Yet, according to the recent £180m Prior Information Notice (PIN) tender, it wants to be ‘accepted as the best administered UK public service pension scheme’ (Notice number 2020/S 168-408191).
So how does this impact edtech and Covid?
First, while having no actual assets, the TPS and even larger NHS pension scheme can invest in anything just like a standard pension scheme. In contrast, Ontario Teachers’ Pension Plan (OTPP), set up about 30 years ago when the government realised that putting teacher pensions into low-risk and low-return bonds would see the scheme go bankrupt. Instead they set up a proper for-profit scheme that has become the most successful education pension scheme in the world with C$221.2bn (£130bn) in assets for 330,000 members. It’s also one of the top investors that few in edu or edtech have heard of (e.g. it achieved a 8.6% return in 2020).
Not only do they have a fully-funded scheme that doesn’t leave taxpayers liable for teacher pensions, they also invest in education. The latest is as lead investor in Applyboard’s C$375/£219m Series C, valuing the company at C$4bn/£2.3bn! Applyboard connects international students and recruitment partners to educational opportunities at institutions around the world.
But it’s not just OTPP who are interested in edtech.Two years ago I met with an Australian superannuation (pension) fund with assets of A$54bn/£30bn, looking to invest in edtech in the UK. Australia, like Canada, had a serious look at its pension scheme 30 years ago and came to what is known as ‘the Accord’, an agreement between the Labour and Liberal (Conservative) parties, employers and unions. This created a retirement saving scheme known as Superannuation or Super which now has over A$3tn/£1.63tn in assets and is seen as one of the most successful national schemes in the world.
UK edtech companies seeking funding see UK pension funds, along with the wider UK funds management community, as too risk-averse to invest. For successful edtech companies who want investment (and not all do, e.g. Twinkl) then seeking money from pension funds in Canada, US and Australia is a serious option.
Most UK taxpayers are now members of compulsory retirement schemes where employers contribute at least 3%. Teachers in government schools (and until recently almost all private schools) receive a 23.4% employer contribution. Employees in the private sector have an expected return of £3 for every £1 paid into their pensions over 20 years; a teacher can expect £9.84 and an NHS worker £10.35! UK Office of National Statistics also shows that average public service wages are higher than the private sector and in education the redundancy rate is ~4% compared with 30% in the hospitality sector.
The net effect of the lack of pension planning in the UK, plus the Covid borrowings, have now sent the national debt to 99% of GDP. It has created a risk-averse pensions sector that mostly eschews investing in edtech. Given the relative (pre-Covid) strength of the UK in global education, this is a tragedy both for UK edu companies and for taxpayers who are funding schemes for teachers that they can only dream of having themselves.
Applyboard’s success is a lesson that UK politicians, bureaucrats and fund managers should study. It was founded in 2015 by three Iranian students who had studied in Canada. Back then the market for international HE students was:
1 USA 2 UK 3 Australia 4 France 5 Germany 6 Russia 7 Canada Source
By 2020 this had changed to:
1 USA 2 Australia 3 UK 4 Canada
with Canada on trend to overtake the UK by 2025. Now while Covid has fundamentally changed the global HE student business, this shows that Canada does better than the UK at both teacher pensions (at least in Ontario) and attracting a growing number of fee-paying HE students.
This is all down to better long-term strategic policies. Sure the addiction of Australian and UK universities to fee- paying students is unhealthy, but the reason Australia got there is largely down to the success of IDP which, when founded back in 1969, was 100% owned by Australian universities (now listed and they own 50%). So IDP is older (52 years), larger and listed (ASX mkt cap A$6.81bn/C$6.31bn/£34.7bn) player but in just 6 years Applyboard’s grown into a serious (C$4bn /A$4.32bn/£2.3bn) competitor.
The UK’s lack of long-term strategic thinking in education and pension planning is hurting UK education and UK business. Will it change? Despite endless talking shops and reports, my experience of 20+ years in the UK (two inside Whitehall) is that policy is riven by politics and the dated notion that we still have the best edu system in the world (we don’t).
Watch out, not only are Covid and teacher pensions an enormous burden on UK taxpayers and the economy, we aren’t creating and then supporting successful the global edu startups whose profits will have to have to pay for education, health, and more in the decades to come.