Three years on, TPS pensions are still very expensive for higher education

Back at the end of 2024 the Universities and Colleges Employers Association (UCEA) chief executive Raj Jethwa wrote to the Department of Education to raise the issue of higher education participation in the Teacher’s Pension Scheme (TPS).

The issues are well documented and have been for some considerable time. The group of higher education providers created in 1992 from former polytechnics, and a small number of other former public sector providers, are required to participate in both the TPS and the Local Government Pension Scheme (LGPS). It is expensive, and higher education providers – unlike schools – are not compensated for the way it was made even more expensive in 2023.

Early in 2025 Jethwa got a response to his letter from Jacqui Smith, who was “considering the issue carefully”. There was also a line in the White Paper:

We will seek to better understand concerns within the post-1992 higher education sector about pension provision, noting that defined benefit pensions are an important and valued part of staff remuneration.

And that’s as far as things had gotten. A new position paper from UCEA (accompanied by another letter to Smith) attempts to set out the impact of university participation in TPS: poor value for money that could be spent on actual education, and a competitive disadvantage for some providers (compared to peers that do not have the participation obligation placed on them).

Currently providers using the Universities Superannuation Scheme (USS) make an employer contribution of 14.5 per cent of salary, with employees chipping in a further 6.1 per cent. The TPS provider down the road pays a jawdropping 28.68 per cent of salary as a pension contribution, while employees add a further 7.4 to 12 per cent.

UCEA argues that this disparity makes it harder for TPS providers to recruit and retain staff – as well as adding considerably to the cost of running a provider (around £15m a year for one larger post-92). In an environment where universities are urged to make cost savings, it feels rather perverse to stop them making one saving (by shifting from TPS to USS) in particular.

Most other TPS sectors in England (schools, FE colleges) have been funded by the Department of Education to offset these costs – the exception is independent schools, but these are not mandated to use TPS and are gradually withdrawing from the scheme.

In some cases individual staff (around 15 per cent of those eligible) have chosen to opt out of the scheme altogether, even where there are no provider-level alternatives available. And some UK HE providers have attempted to cut their costs by employing staff via subsidiaries that are not required to use TPS and offering a similarly valuable (but lower cost) alternative – a practice that has not been popular among employees or their representatives.

UCEA is not making a universally popular argument around giving providers the right to leave TPS. Clearly some staff value the existence of a government backed pension, despite the expense – and the UCEA position is that providers should have “full flexibility” to choose which pension schemes to offer to their staff. This would halt the increasing proliferation of subsidiary employment, and – by lowering the cost of employing staff – have an impact on the growing number of redundancies in the sector.

Rather than the disorderly shift to other methods of employment – which makes staff more uncertain about their pension planning, fragments the sector even further, and makes some employers more attractive to staff than others – the ask is for a regulatory change that would allow universities to leave TPS (and possibly also LGPS).