The cost of the giant Teachers’ Pension Scheme is “exacerbating” financial pressures being felt by many higher education organisations, according to a new report from the Universities and Colleges Employers Association (UCEA).
Employer contributions rose to 28.6% of salary for the 2024-25 financial year, up by five percentage points from the previous year. The UCEA argued in its report that this cost represented “poor value for money” for higher education institutions and “increases the risk of institutional failure and closure”.
The employer contribution compares unfavourably to that of the Universities Superannuation Scheme (USS), which lowered its rate to 14.5% from 1 January 2024, down from 21.6% previously.
Research published by Northumbria University last year found that a member of the Teachers’ Pension Scheme earning £57,500 cost £16,500 a year in pension contributions, compared to £8,300 for an equivalent member of USS.
“Higher education institutions face substantial financial challenges that have been exacerbated by the extraordinary increases in employer pension contributions.”
Raj Jethwa, Universities and Colleges Employers Assocation
The UCEA also claimed that universities that are required to be members of the Teachers’ Pension Scheme “face a competitive disadvantage” compared to those that do not face the same mandation. Universities that gained university status following the Further and Higher Education Act 1992 are required to offer membership of the Teachers’ Pension Scheme to academic staff.
In its report, the UCEA has called for regulatory change to allow higher education employers and staff “greater flexibility to participate in alternative schemes” outside of the Teachers’ Pension Scheme – an option that is available to other employers.
Raj Jethwa, chief executive of the UCEA, said: “Higher education institutions strive to be employers of choice and this includes offering competitive pensions as part of their overall reward package. But there is no logical reason why institutions should continue to be compelled to participate in the Teachers’ Pension Scheme when the costs are so high and the sector is being treated so unfairly.
“Higher education institutions in the Teachers’ Pension Scheme face substantial financial challenges that have been exacerbated by the extraordinary increases in employer pension contributions. The UCEA has lobbied successive governments for financial support for these increased costs for our post-92 members, which has been made available to schools and further education colleges.”
Recent parliamentary briefings have acknowledged the rising financial pressures on higher education providers, with headwinds including lower government grants and tuition fee caps not keeping up with inflation. While the Department for Education has provided additional funding for some employers, this does not include universities.
The government has previously pledged to investigate the issue further, but as yet has not brought forward any potential solutions. The UCEA has requested a meeting with Baroness Jacqui Smith, Minister of State for Skills, to discuss the matter.
As of 31 March 2024, the Teachers’ Pension Scheme had more than 2.2 million members and 12,911 employers. Its latest annual report and accounts estimated the unfunded scheme’s liabilities to be £290.7bn.
