Pensions crisis may threaten pay rises

March 18, 2005

University employers this week warned that future pay rises could be in jeopardy as institutions are forced to divert cash to deal with a crisis in pensions.

The stark warning, from the Universities and Colleges Employers' Association, means that much of the hard-won income from top-up fees will go to covering hugely increased employers' pensions contributions.

Geoffrey Copland, chairman of Ucea, said: "This money has to come out of the pay bill. It will limit the funds available for pay in the future.

"Having to make this money available for increased pension contributions has a significant impact on expenditure. It is an increase that universities have no control over. They have to pay it."

Dr Copland said that there was no suggestion that final-salary schemes would be abolished in higher education.

But he added: "We have to be open about their cost when we talk about salaries."

The scale of pension fund deficits, mainly in schemes for university support workers, could at a stroke wipe out the discretionary reserves of scores of universities, leaving them with net deficits.

Almost a fifth of the entire sector's discretionary reserves could vanish.

Ian Crawford, chair of the pensions working group of the British Universities Finance Directors Group, said: "The Government is putting extra money into higher education, much of which will have to go into badly funded pension schemes."

New universities will be particularly hard hit.

Michael Driscoll, vice-chancellor of Middlesex University and chair of Campaigning for Mainstream Universities, has written to Ruth Kelly, the Education Secretary, and to the Higher Education Funding Council for England drawing attention to this "massive and iniquitous increase in pension costs".

Professor Driscoll writes: "I would be grateful for any indication as to whether specific funding might become available in the future."

The funding council is to review the situation.

Many of the problems lie with local government pension schemes that pay the pensions of support workers in all new universities and some old universities. These schemes were valued last March, but universities are only now being told how much their contributions will rise. They have to find the money by April 1.

Many old universities have in-house pension schemes for support staff - a number of these are also in deficit.

The Teachers Pensions Scheme, which covers about 20,000 lecturers in new universities, is also subject to a review. The employer contribution rose from 8.35 per cent to 13.5 per cent in April 2003.

Only the Universities Superannuation Scheme, which covers the pensions of academic and academic-related staff in old universities, is in good health.

One of the worst hit institutions is Brunel University. Employer contributions to its local government scheme have increased to 48 per cent - a rise from £1.8 million to £5 million.

The university declined to comment, saying that it was holding detailed discussions with the London Pensions Fund Authority on the matter.

Middlesex University will see its pension contributions increase to 26 per cent over three years. By 2007, it will have to find an extra £3.7 million a year.

"This is a significant part of our annual turnover," Professor Driscoll said.

The University of East London is facing a hike in contributions - from 6 per cent to 16 per cent, which amounts to an extra £1.8 million and represents a sizeable chunk of the £14 million the university hopes to make from top-up fees.

In November 2003, Hefce produced a report on pensions in the higher education sector. It estimated that pension deficits amounted to £810 million.

It said that once these were included on balance sheets, as required under incoming accountancy regulations that bring the UK more in line with Europe, the sector's discretionary reserves of £4.4 billion would be reduced to £3.6 billion.

The situation is unlikely to have improved significantly since the report was published.

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