Pension cost rise looming for universities

In its latest annual survey of university pension costs, actuarial firm Barnett Waddingham found employer contributions towards the sector’s main pension scheme, the Universities Superannuation Scheme, amounted to 10.2 per cent of total staff costs in 2013-14 – up from 10 per cent in the previous year.

Universities also paid an average of 3.6 per cent of overall staff costs into their own pension schemes for non-academic staff, known as self-administered trusts (SATs).

That is higher than the 3.3 per cent paid into SATs in 2012-13, says the report, Accounting for Pension Costs, published on 9 April.

The report includes information from 35 pre-1992 universities that run their own pension schemes.

Most non-academic staff at post-1992 universities belong to local government-run pension schemes.

The report also warns that major changes due to be introduced next year may have a cost impact for universities.

As well as the likely implementation of changes to the USS in April 2016 – which will see employer contributions increase from 16 per cent to 18 per cent until at least 2020 – changes to state pension rules will also affect universities, it says.

That is because employers will no longer be allowed to “contract out” of the second state pension from April 2016.

Under the existing regime, employees who enrolled on final salary pension schemes – such as the USS and some SATs – could choose to opt out of the additional state pension in exchange for paying a reduced rate of National Insurance contributions.

These rebates of 3.4 per cent of NI for employers and 1.4 per cent for employees will now be abolished, thereby increasing costs, Barnett Waddingham advises.

In addition, universities will also be required to disclose more details about their own share of the USS pension deficit, which is estimated at £13 billion, when they publish accounts starting on or after January 2015, the report warns.

“Specifically, where a commitment has been made to a deficit recovery plan for a pension arrangement, a liability equal to the present value of those future deficit payments will need to be recognised on the balance sheet,” it adds.

jack.grove@tesglobal.com