Hutton pensions plan hits pockets

Higher contributions mooted as universities call for freedom from public schemes. John Morgan writes

October 14, 2010

Up to 200,000 higher education staff with public-sector pensions face cuts to their take-home pay, while universities have asked to be freed from such schemes.

Lord Hutton's government-commissioned review of public-sector pensions, published last week, has major implications for universities and their staff.

In post-1992 institutions, academics are eligible for the Teachers' Pension Scheme and non-academic staff are catered for by the Local Government Pension Scheme. Staff at some pre-1992 universities are also eligible to join these plans, and some members of the academy can claim the NHS Pension Scheme.

Lord Hutton's initial recommendations state that members should make higher contributions to help meet rising costs. A decision on the exact rise is expected in the Comprehensive Spending Review on 20 October.

Any increase will cause unhappiness among university staff, whose pay award for 2010-11 is likely to be well below inflation for the second successive year - and may be frozen for a further two years.

An estimated 200,000 higher education staff are eligible for public-sector pension schemes, although they form a small proportion of the total membership, giving universities little control over the running of the schemes.

Universities are unhappy about having their contribution rates to the Local Government Pension Scheme set by regional fund managers, and dislike the investment strategies pursued by some.

The Employers Pensions Forum's submission to the Hutton review says: "The current regulations that oblige many higher education institutions to offer the Teachers' Pension Scheme and Local Government Pension Scheme are seen to be incompatible with the autonomous status of institutions."

It adds: "We would like to suggest that in this fundamental review, the opportunity exists to free institutions from their obligations to deliver a pensions system in exactly the public-sector manner."

Lord Hutton's options for longer-term reform of public pensions, to be set out next year, include replacing "unfair" final-salary benefits with career-average pensions, and increasing the retirement age.

The changes should apply for new members and the future service of current members, he argues, saying "intergenerational fairness" demands similar treatment.

Ongoing changes to higher education's private schemes appear to be out of step with Lord Hutton's recommendations.

Proposed changes to the Universities Superannuation Scheme, which covers pre-1992 staff on higher pay grades, would create a two-tier system - with current members remaining on final-salary deals and new members being offered lower-value career-average schemes.

Lord Hutton also rejected the introduction of defined-contribution schemes for the public sector, saying that there should be no "race to the bottom" to match the private sector.

But universities such as Birmingham, Sussex and Warwick have already dropped final-salary plans for new support staff, introducing inferior defined-contribution deals for those lower-paid, mainly female workers.

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