Universities’ TPS costs ‘could fall by as much as 10 per cent’

Employer contribution rates to the Teachers’ Pension Scheme (TPS) may fall by as much as 10 per cent next year, experts predict, relieving pressure on cash-strapped post-92 universities.

Calls are growing for institutions to halt plans to change staff employment terms in light of the coming changes, with the chair of the House of Commons Education Select Committee the latest to criticise those setting up subsidiary firms to bypass having to offer the expensive scheme.

Universities required to offer TPS by law have recently been told to expect employer contribution rates, which currently stand at 28.68 per cent of pay, to fall from April 2027.

The expected drop has been triggered by forecasted changes to the Superannuation Contributions Adjusted for Past Experience (SCAPE) rate, which helps determine TPS contributions, and is linked to long‑term UK GDP growth.

John Ingoe, an associate partner at First Actuarial, said that TPS contribution rates are very sensitive to changes in the SCAPE rate.

“I think it would be reasonable to expect the employer rate to fall by between 5 per cent and 10 per cent of pay,” he said, “with the large caveat that this is subject to no changes being made to methodology or the Office for Budget Responsibility’s GDP projections.”

A 5 per cent drop would take the rate back to the 23.6 per cent it was in 2024, while a 10 per cent drop would take it closer to the 16.4 per cent it was in 2019.

But Ingoe did not expect the news to mean universities will begin scaling back on plans to move staff on to alternative pensions to reduce costs.

He said the “current uncertainty shouldn’t necessarily stop universities from making the changes”, but that “further analysis may be needed to make sure the rationale holds up over time and that this is communicated clearly to teaching staff”.

“The current uncertainty highlights one of the key challenges for employers in TPS: a lack of control over future costs. That doesn’t change once the 2027 employer rate is known – it simply pushes that uncertainty four years down the line,” he said.

Times Higher Education understands that an announcement by the government is expected soon, but a date has not yet been confirmed, causing frustration among staff who believe major restructures should be paused until the new contribution rate is known.

Tim Williams, principal (senior consulting actuary) at Barnett Waddingham, was more cautious on what the changes could look like, but agreed that a drop of between 5 and 10 per cent was a possibility.

“A small change in the discount rate – a quarter per cent – could very easily lead to a 5 to 10 per cent reduction in employer cost. It’s just that we can’t say with any certainty today that’s what the outcome is going to be, but it’s certainly a conceivable scenario.”

But he cautioned the Treasury “could decide to adjust the outcome to suit its own needs”.

“At a time of great financial pressure, reducing employer costs – and thereby reducing Treasury income – may not be desirable.”

Overall, it “would seem unwise to budget for cost reductions when the outcome remains so uncertain”, Williams said, adding that, for universities in the process of making decisions about their future, “finding out this answer as soon as possible is crucial”.

Last week, a report into university finances by the education committee recommended the government “could prohibit” the use of subsidiary firms “to avoid the requirement for TPS membership”.

Helen Hayes, chair of the education committee, told Times Higher Education that the recommendation needed to be viewed alongside other calls to provide greater support for universities with TPS costs.

She said that “universities have got a perverse incentive at the moment to create wholly owned subsidiaries as a workaround, and that isn’t an adequate way to proceed”.

“We recommended that the government look at steps that can be taken both to reduce the cost burden of the TPS through the valuation process, but also to help universities meet those additional costs,” Hayes said. 

“At the same time as that, it shouldn’t be possible for universities to do a workaround that effectively results in a two-tier staffing system within that university, where some staff have better terms and conditions than others working in the same institution, which I don’t think anybody could argue is a healthy thing for an institution long term.”

juliette.rowsell@timeshighereducation.com