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University leaders in England have warned that a sharp increase in employer pension contributions next year will result in deep cuts to student welfare support and make it harder to recruit staff.
The heads of 80 so-called “post-92” universities and colleges that are part of the Teachers’ Pension Scheme (TPS), covering teachers in England and Wales, hit out at the government’s incoming state pension reforms.
From April 2024, institutions that are TPS members will be required to increase employer contributions by five percentage points from 23.6 per cent to 28.6 per cent.
“This makes the sustainability of institutions that already face stretched finances much, much harder,” said Raj Jethwa, chief executive of the Universities and Colleges Employers Association at a media briefing held by higher education leaders this week.
He added that schools enrolled in the TPS had been offered support by the Treasury to meet increasing payments but the university sector had not.
The 80 universities affected were required to remain members of the TPS when they transitioned from being government-run polytechnics to private-sector universities under the Further and Higher Education Act 1992.
Vivienne Stern, head of Universities UK, which represents about 140 universities, said it was unfair that post-92 universities were being penalised as a result of an “accident of their histories”.
She added that the pension reforms would distort the higher education market place. “This is going to leave some institutions at a competitive disadvantage . . . at a time when some universities are working extremely hard to stay afloat.”
The post-92 universities collectively employ about 110,000 staff and educate more than 1mn students. They are also among the country’s least well-endowed institutions that are struggling with financial deficits.
The university sector recently warned of structural economic challenges as wage bills and energy costs rise.
High inflation has eroded the real-terms value of tuition fees, which have been frozen at £9,250 a year for UK and Irish students since 2017, to below £6,500, according to analysis by the Russell Group of leading UK research universities.
Professor Sir Steve West, vice-chancellor of the University of the West of England, which has an annual turnover of £380mn, said the additional cost of pensions contributions for employers would total £1.1mn for the remainder of the academic year, rising to £3.5mn for 2024-2025.
He said the university would have to look at trimming operational costs to meet the payments, including delaying capital expenditure plans and reducing discretionary activities, including outreach work to attract less-privileged students.
The university may have to reduce hardship funds that support the least well-off, he noted. “This is tough stuff and it will have an impact on staff and students.”
The pension changes will also hit smaller institutions, such as music conservatoires that have less financial flexibility to absorb the new costs.
Linda Merrick, principal of the Royal Northern College of Music and chair of Conservatoires UK, an umbrella organisation, said the increase in employers’ contributions would be “incredibly difficult” for the sector to bear.
“The unintended consequence of this is that it will destabilise the conservatoires in the UK,” she added. “We’re internationally renowned . . . but we have limited options to absorb this.”
In contrast, contribution rates for the Universities Superannuation Scheme, the main retirement for the sector, are set to fall significantly for both employers and employees due to improvements in the plan’s funding position.
The education department said that since higher education providers were independent of the government it would not fund the costs of changes to the TPS scheme in the same way as for schools and colleges.
It added that the government provided financial support to the higher education sector of nearly £7bn per year, plus more than £10bn per year in tuition fee loans.
