Pension revamp could cost millions

October 18, 2002

New universities are worried that they may be left paying millions of pounds to cover increased contributions to lecturers' pensions.

Employers have been asked to increase their contributions to the Teachers' Pension Scheme by at least 4.75 per cent from next April. The cost for the average new university could reach £2 million.

Most lecturers in post-1992 universities are covered by the TPS, and most in old universities are covered by the Universities Superannuation Scheme.

The government has said it will cover employers' additional TPS costs, but universities are unsure how much extra money will be made available to them to meet the higher contributions and how this money will be made available.

Geoffrey Copland, rector of Westminster University and chairman of the Coalition of Modern Universities, said: "To have an increase of this sort and not be compensated would be disastrous.

"The indication is that money will be made available, but we will have to have it as soon as possible."

Teachers and lecturers in the scheme pay 6 per cent of their salary towards their pensions and employers pay 8.35 per cent of salary. The balance comes from the exchequer.

The revaluation of the TPS to take account of pensions increases will be subject to a new methodology from April next year. This means that employers' contributions will rise to at least 13.1 per cent, with a corresponding reduction in the exchequer's contribution.

A letter sent to universities last month from the Department for Education and Skills says that it is likely that the employers' contribution rate will rise above 13.1 per cent because an increase in the numbers of lecturers and teachers reaching retirement age.

The letter says that the government has added a sum reflecting the 4.75 per cent rise in employers' contributions to this summer's spending review settlement for education.

But as the employers' contribution rate is likely to rise above 13.1 per cent, this may be too little.

The Higher Education Funding Council for England said that it did not know how universities would be reimbursed and that details would be published with the annual grant letter, due in November.

The DFES has been working with the Treasury and has reassured universities and other sectors such as schools and further education that funding will be made available.

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