University leaders have called on the Westminster government to help “cushion” the sector against impending hikes in pension contributions or they will be forced to cut back on staffing and course provision.
Employers are bracing for a rise in what they have to pay into the Teachers’ Pensions Scheme (TPS) from April next year, with an increase of between five and 10 percentage points possible.
Changes are being made to the government-run scheme after a long review of the mechanism for calculating the likely future cost of public sector pension obligations. The Treasury announced in March that – because of lower official growth forecasts – employer contributions for all those enrolled would have to go up.
Graham Baldwin, the vice-chancellor of the University of Central Lancashire and chair of MillionPlus – which represents modern universities – said, although the final contribution rate is still unknown, every one percentage point increase would cost Uclan £700,000.
Overall, “we are talking about an increase for us of between £3.5 and £7 million which is very, very significant,” he warned, adding that he saw the issue as “one of the most significant challenges universities face in terms of funding”.
Professor Baldwin said that the increase in TPS costs comes at an already difficult time for universities and the uncertainty was making budgeting for next year very difficult.
The recent nationally negotiated pay award had added £9 million to staff costs while the ongoing fee freeze, high inflation and energy costs were also contributing to financial pressures.
“Every time we move to create some headroom and a financial cushion, something seems to come along that we have no control over that then takes us back to where we were,” he said.
The TPS contribution increases “will mean there are certain things we won’t be able to do. We will have to reduce costs to come in on budget,” Professor Baldwin added.
TPS is the second most significant pension scheme in British higher education, after the Universities Superannuation Scheme (USS), which has been the subject of a lengthy industrial dispute after cuts to benefits were implemented in April 2022.
It is used primarily in post-92 institutions and higher education colleges and covers roughly 110,000 staff who teach more than 1 million students.
At 23.7 per cent, contributions to TPS are already higher than the 21.6 per cent employers pay into USS, with the latter likely to decrease in the coming years.
Steve West, president of Universities UK and vice-chancellor of the University of the West of England, said another hike in contributions would make it “much more expensive for post-92s to employ academic staff compared to those in USS” and he feared “we will start to see the sector being pulled further apart”.
A 5 per cent increase in TPS contributions would cost institutions £125 million per year, equivalent to 1,700 academic jobs, he warned. At UWS, he was projecting increases of between £5 and £7 million.
Professor West said the “cushion” of subsidies was needed to protect university budgets from the worst of the contribution hikes in the short to medium term; as was offered to schools and colleges the last time changes were made.
Otherwise, universities “will be looking at viability of courses and maybe closing them” as well as “certainly looking at staffing levels”, he said.
Raj Jethwa, chief executive of the Universities and Colleges Employers Association (Ucea), said a range of institutions would be affected by the TPS changes and “many had been struggling before you add in this unforeseen complication”.
