Pension cost rise looming for universities

University pension costs rose slightly last year, but may increase significantly in 2016 as major reforms take effect, according to pension experts.

April 12, 2015

In its latest annual survey of university pension costs, actuarial firm Barnett Waddingham found employer contributions towards the sector’s main pension scheme, the Universities Superannuation Scheme, amounted to 10.2 per cent of total staff costs in 2013-14 – up from 10 per cent in the previous year.

Universities also paid an average of 3.6 per cent of overall staff costs into their own pension schemes for non-academic staff, known as self-administered trusts (SATs).

That is higher than the 3.3 per cent paid into SATs in 2012-13, says the report, Accounting for Pension Costs, published on 9 April.

The report includes information from 35 pre-1992 universities that run their own pension schemes.

Most non-academic staff at post-1992 universities belong to local government-run pension schemes.

The report also warns that major changes due to be introduced next year may have a cost impact for universities.

As well as the likely implementation of changes to the USS in April 2016 – which will see employer contributions increase from 16 per cent to 18 per cent until at least 2020 – changes to state pension rules will also affect universities, it says.

That is because employers will no longer be allowed to “contract out” of the second state pension from April 2016.

Under the existing regime, employees who enrolled on final salary pension schemes – such as the USS and some SATs – could choose to opt out of the additional state pension in exchange for paying a reduced rate of National Insurance contributions.

These rebates of 3.4 per cent of NI for employers and 1.4 per cent for employees will now be abolished, thereby increasing costs, Barnett Waddingham advises.

In addition, universities will also be required to disclose more details about their own share of the USS pension deficit, which is estimated at £13 billion, when they publish accounts starting on or after January 2015, the report warns.

“Specifically, where a commitment has been made to a deficit recovery plan for a pension arrangement, a liability equal to the present value of those future deficit payments will need to be recognised on the balance sheet,” it adds.

jack.grove@tesglobal.com

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Reader's comments (1)

More misery perhaps for the promoted grades is that the next government will cut pension tax breaks further. Labour perhaps most dramatically but given its such a hidden tax, expect a Tory led government to continue to keep taking too. Labour promised abolition of higher rate tax relief (long overdue, its a racket for the highest paid staff) on employee (but I think like the NI above they will act on employer pension contributions too). Everyone gets 20 % relief on pension contributions whether employee or employer. The majority of 34bn spent on tax relief for pensions goes to higher rate tax payers who get it at 40%, for those in favour in redistribution hitting the highest earning 10 % of society (all Professors fall in this range) would seem a good idea. My guess is the Tories will start down this road too. Your pension is going to cost a lot more if you are a high earner, it will cost you proportionately the same as a poor person, quell horror. By not indexing the threshold for a further 10 years, in a world of 2 percent inflation, the actual maximum pension in a FS scheme is about 35K in today's money. Less if inflation is higher. For a money purchase scheme, for the £1M non inflation cap buys around 32K but with no lump sum or other fringe benefits. Both these numbers anyway put a person in the top 30 % of UK earners (not pensioners), so not indexing the cap does not affect anyone but the rich. I suspect Labour will see this as sensible. Final note, 10 yr Swiss bonds turned negative so will German ones. Any hope for final salary schemes has been extinguished by these events.

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