Defined Benefit  

Govt refuses to fund pension increases at universities

Govt refuses to fund pension increases at universities

The government will not give extra funding to universities and independent schools to make up for the impending hike in pension contributions those institutions are facing.

In its response to a consultation on funding increases to teachers’ pensions employer contributions, published yesterday (April 10), the Department for Education said tests had shown other schools in the sector were more in need of the funding available.

The decision is expected to lead to some universities and independent schools leaving the Teachers’ Pension Scheme.

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The DfE had conducted analysis on each sector and found state schools and further education colleges were in high levels of need for additional support, and they will receive £830m and £80m of extra funding in 2019/20, respectively.

Higher education institutions such as universities and independent schools on the other hand will have to find their own funds to cover the hike in employer contribution rates.

Rates are set to increase up to 13 per cent this year in public sector schemes, due to lower growth in the economy, with the exact amounts depending on the scheme.

In September, the government announced it would be changing the rate used to calculate the liabilities of public sector schemes "to reflect the Office for Budget Responsibility’s long-term growth forecasts" and total employer contribution rates could increase by between 5 and 13 per cent of pensionable pay as a result.

These rates will be paid from April 2019 to end of March 2023, and the government's actuary department will calculate the employer contribution for each scheme as part of its valuations.

Currently, public and private schools all contribute to the Teachers’ Pension Scheme, making it easier for teachers to move between the two sectors.

The DfE stated it recognised the cost pressures the increases in employers’ contributions will place on independent schools, as well as their desire to have greater flexibility over their status in the scheme.

As such, the government will begin to consider allowing these schools to leave the scheme via phased withdrawal.

This approach would enable a school to retain its current teacher members in the scheme but would close the scheme to new entrants.

This approach would be optional to all independent schools who are members of scheme, and a consultation will be launched on this, the government added.

Steve Webb, former pensions minister and director of policy at Royal London, noted that whereas state schools will get a refund for their extra employer pension contributions, neither independent schools nor universities with members in the Teachers’ Pension Scheme will get a refund.

He said: "For independent schools this is already leading growing numbers to pull out of the Teachers’ Pension Scheme altogether which will affect teacher mobility between the state and private sector and will increase costs to parents.

"For universities this is simply a spending cut, as the money for these contributions will have to be found from elsewhere. This does seem an arbitrary way of squeezing the independent schools sector and the university sector for what is essentially just an accounting change."