Rising pension contributions for many newer universities could impact staff retention and result in further cost-cutting, bodies representing the higher education sector have warned.
From April 2024, employer contributions to the Teachers’ Pension Scheme (TPS) are set to increase by 5 percentage points to 28.68%, making it one of the most costly pension schemes for employers in the UK.
Many newer universities, those that were formerly polytechnics and were granted university status through the Further and Higher Education Act 1992, are required to offer TPS membership to academic staff under the legislation. Around 80 universities, educating around one million students, are obliged to offer the TPS.
Schools with staff in the TPS have been offered government subsidies to help with rising employer contributions, however the Universities and Colleges Employers Association (UCEA) and Universities UK have claimed that the Treasury has refused to extend the same support to universities in England and has not confirmed whether support will be offered in Scotland, Wales and Northern Ireland.
They have claimed that since 2019 the employer contribution to the TPS has risen by 12 percentage points.
“What is [already] a time of great uncertainty, universities will see an eye-watering increase in pension costs which only adds to their financial pressures,” said UCEA chief executive Raj Jethwa.
“We’re clearly disappointed that the contribution rate will increase [but] it’s unfair as well that universities in TPS won’t get the same financial support or subsidy that the government has provided to other providers, particularly schools, because that subsidy clearly shows a recognition by government of the impact of those increases.
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“It’s clear that the Treasury wants to keep institutions in TPS in order to keep the scheme sustainable….We need a longer term settlement for organisations to remain in TPS and we would really urge the Treasury to think again about this.”
The Universities Superannuation Scheme, which is used by 331 institutions, will have an employer contribution rate of 14.5% from January 2024, while the employer contributions to the Superannuation Arrangements of the University of London defined benefit scheme is 21% (16% for its DC scheme), according to Jethwa.
Sir Steven West, vice-chancellor at the University of the West of England, described the increase as anti-competitive, as his institution was having to compete for academic staff with universities that do not face such increases to their pension contributions.
Because the increase will not translate into improved benefits for savers, he said he expected staff to “start questioning where they will go in terms of their pension benefits and pay”.
“My university is between Bristol University and Bath University, and it costs me more to employ academic members of staff, so I’m immediately disadvantaged,” he said.
West added that universities would have to make “significant” cost-cutting decisions, including around pay, expenditure, outreach and student hardship funding. He calculated that from April to July 2024 his university would see an increase in unplanned costs of around £1.1 million as a result of the increase in pension contributions.
“This is going to leave some institutions at a competitive disadvantage in a period in which universities are having to work extremely hard to keep financially afloat,” said Vivienne Stern, chief executive of Universities UK.
“We’ve got a system that is based on the idea that universities compete on a level playing field, [but] the fact that universities in one part of the sector are locked in to this TPS pension scheme means that they are going to have to do that competing with one hand tied behind their backs. We need government to step in and sort that out.”
HM Treasury has been contacted for comment.
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