Universities look for ways out of TPS as contribution rates soar

UK sector leaders have called for the government to review universities’ participation in the Teachers’ Pensions Scheme (TPS) ahead of a big hike in employer contributions that will increase staff costs by millions of pounds at a time of squeezed finances.

Raj Jethwa, the chief executive of the Universities and Colleges Employers Association (Ucea), and Vivienne Stern, chief executive of Universities UK, have written to the higher education minister Robert Halfon asking for “greater flexibility” around the requirement that post-92 universities offer the scheme to their academic staff.

From 1 April, employers’ contributions to the government-run TPS will increase by 5 percentage points in England and Wales to 28.68 per cent after a recalculation in the likely future cost of public sector pension obligations due to lower official growth forecasts. In Scotland, TPS rates will increase from 23 per cent to 26 per cent and in Northern Ireland they will go up from 25.1 per cent to 29.1 per cent.

The hikes come months after employer contributions in the other main higher education pension fund – the Universities Superannuation Scheme, used by older universities – dropped to 14.5 per cent. 

Unlike schools, higher education institutions have not been given any financial support by the Treasury to cope with the increases and the changes come as the “financial environment continues to grow ever more challenging for universities”, the letter states.

It says that 46 per cent of post-92 institutions have already had to make redundancies since August 2023, according to Ucea’s consultation of members at the start of this year’s pay negotiation process. This compares with the 27 per cent of institutions that made redundancies during the 2022-23 academic year.

For these institutions staff costs represent around 57 per cent of expenditure, with pensions costs making up around 13 per cent of this total even before the new contribution rates are applied, the letter says.

“What our members need now is practical assistance to be able to manage their own finances to ensure their businesses remain sustainable, to protect jobs and the services they provide to students,” Mr Jethwa and Ms Stern write.

They argue that “universities must have the ability to manage their total expenditure” but the rate rises as part of the TPS are out of the control of individual institutions.

Alongside a call for a review into continued participation in the TPS, the letter highlights that a consultation was held in 2019 on institutions’ involvement in the Local Government Pension Scheme (LGPS) – which is used for non-academic staff – but this issue was not resolved.

In 2019, the then Ministry of Housing, Communities and Local Government proposed to end the requirement for higher education institutions to offer new employees access to the LGPS, which has average employer contributions of between 14 and 18 per cent, in favour of giving employers greater flexibility. 

The letter states that Mr Jethwa and Ms Stern will soon write to local government minister Simon Hoare on this point.

“Although the specifics of the schemes may differ, the principle remains that post-92 [higher education providers] need greater control over the pension schemes they provide to their staff, now more than ever,” the letter says.

tom.williams@timeshighereducation.com