There is another big pensions problem in higher education

Universities richly prize their autonomy.

Sure, there’s stuff they have to do if they want to retain access to government funds, but as a whole there are no constraints on what they get up to otherwise. It’s kind of a big deal.

There are, however, a group of universities that operate under a very expensive constraint, one that makes it far more expensive for them to employ staff because of what basically amounts to a “job tax” – a payment made to the government that will shortly rise to 28.6 per cent of every qualifying academic salary.

Our story starts in 1988, and the legal separation of the polytechnics from their local authority – via the creation of “higher education corporations” in the 1998 Education (Higher Education Corporations) Order, made under powers created in sections 121, 126, and 232 of the Education Reform Act.

As polytechnics, local authorities treated polytechnics as big schools. And as in schools, staff who taught were enrolled on the Teachers’ Pension Scheme (TPS – then the Teachers’ Superannuation Scheme or TSS), and staff who did not teach got access to the Local Government Pension Scheme (LGPS). When polytechnics became higher education corporations, funded and regulated by the Polytechnic and Colleges Funding Council, these expectations continued.

You know how this story goes – in 1991 John Major’s Higher Education: A New Framework white paper kicked off the process that concluded, via the 1992 Further and Higher Education Act, with former polytechnics gaining degree awarding powers, university title, and access to research funding on the same terms as established universities.

Universities, starting back in 1974, had spun up their own Universities Superannuation Scheme. As a “real” fund (not backed by the state) It was way more expensive for providers than the teachers’ scheme (18 per cent employer contributions in 1991, compared to 8 per cent for the TPS). Indeed, HEFCE initially compensated older universities for this disparity via a funding premium.

Even so, it was recognised that some “new” universities would want to join USS (certainly staff, who would make the same six per cent contribution either way, were keen) so the white paper made it clear that there would be no government funding for this transition and “amendments to the regulations” would be made to allow these new institutions to stay in the TPS.

In all the excitement – we were inventing price groups and raising fee levels (then paid direct by the government) at the expense of institutional funding (what basically amounted to a block grant), inventing a new method of assessing teaching quality, and minting a load of new universities in an act that still annoys people to this day – this particular clause got little attention.

It eventually found its way into a series of regulations ending with the Teachers’ Pension Scheme Regulations of 2014. If you look at schedule 1, part two, section 15 you’ll see that universities established on or after 6 May 1992 are among those who have teachers (academics really) with “service pensionable without election”: regulation speak for “you get this pension if you work for the kind of thing defined in section 90 of the 1992 FHEA”. So, more compel than allow, really.

All of these providers have to offer TPS – there’s no choice for them (though there is in practice a choice for employees who already hold a USS pension, which is why so many higher education corporations have to deal with USS too) – even if it suddenly gets really expensive and everyone else (apart from private schools) gets a bailout (one of a series) from DfE.

This, in a nutshell, is why a big chunk of the higher education sector is very unhappy about TPS. They have to pay a lot of money – that to be clear, does not directly benefit employees – to the government, for something they might not want to be involved in at all. And they don’t get any more money to do it with.

There’s not many answers that immediately come to mind- either DfE allocates some funding for this purpose, which feels unlikely given the past few years and the general state of public finances, or the government makes new regulations to allow universities to opt out of TPS. The latter would, of course, lower the income of the scheme (by about 8 per cent overall) and annoy academics – who quite like having a pension backed by government.

So the government and the sector need to be creative to mitigate what Universities UK’s Steve West has been describing as an “immediate disadvantage” – on that is already having a material impact on affected providers.