Pension crisis on cards

University non-teaching staff are more likely to become embroiled in the pensions crisis besetting the private sector than their academic colleagues, according to credit ratings agency Standard & Poor's.

None of the non-teaching staff pension schemes at the five universities publicly rated by the agency is in surplus - and two are facing serious deficits.

In July last year, the University of Sheffield's scheme was reported to be £14.7 million in the red, while Nottingham University's was close behind at £11.2 million. The other universities rated were King's College London, Bristol and Lancaster.

The picture is rosier for teaching staff. The Universities Superannuation Scheme (USS) for the pre-1992 universities remains in surplus, but it has also been hit by the fall in financial markets - it has dropped from 108 per cent in 1999 to 101 per cent in 2002. The Teachers' Pension Scheme, the counterpart to the post-1992 institutions, is effectively underwritten by the Treasury.

Chris Kaufman, national secretary of the Transport and General Workers'

Union, said: "Once again support staff are feeling the draught - this time on pensions. The 1999 Bett committee clearly identified discrimination against non-teaching staff as a big issue and we now want to see the government afford some protection to schemes that are at risk."

Strong student demand and "robust business-risk profiles" were likely to protect the traditional universities from the consequences, according to Standard and Poor's. "Post-1992 universities bear the primary risk of a fund deficit and consequent top-ups," the agency said.

The options for schemes in deficit were to increase employer's and/or employees' contributions; to review (downwards) the benefits payable to current and prospective members; or to do nothing in the hope that the returns on investments would recover sufficiently to restore the funds to surplus.

The latter was the most risky option, according to credit analyst Craig Jamieson. "This strategy relies largely on the recovery of the financial markets from the levels they had reached when the most recent actuarial valuations or reviews were carried out. In most cases this was July 2002 and financial markets have recovered to some extent since then. The recovery would need to be longer and more pronounced to return the funds properly to surplus."

Mr Jamieson said: "For non-academics at pre-1992 universities the deficits vary in size, but at the moment are manageable relative to overall debt and income levels. For pre-1992 university academics, that also doesn't pose a problem as USS is in surplus and has not had its university contribution changed following the most recent actuarial review.

"For post-1992 universities, it is more difficult as we can't comment on non-publicly rated clients. But I have looked through several sets of publicly available annual reports, and the scale of deficits for non-teachers varies a lot and can be substantial in relation to income and debt levels."

Sheffield has already taken steps to pull back the deficit, by increasing the employer's contributions and talking to staff unions about renegotiated benefits.

Nottingham said it had already made adjustments to the employee benefits structure and was keeping the situation under "constant review".

Standard & Poor's warned that universities' credit quality could be "negatively affected" if they failed to address shortfalls.

But even taking action could be damaging. Mr Jamieson said: "Any increase in current costs resulting from pension fund deficits is likely to erode the weak financial profile of the sector further and reduce operating income and cash available for debt service."