Tag: Pension

  • Securing the Future: The case for Pension Reform in Post-92 Institutions

    Securing the Future: The case for Pension Reform in Post-92 Institutions

    • By Fiona Hnatow, Chief People Officer at the University of Portsmouth.

    In an era of mounting financial pressures across the UK higher education sector, the University of Portsmouth has not been immune to these difficulties. However, through considered efficiency programmes and an innovative approach to pension reform, we are emerging from the initial financial pressures into a stronger and sustainable position.  As one of the largest Post-92 institutions in the UK, the University plays a vital role in the local and national economy. With nearly 4,000 staff and 29,000 students, 6,000 of whom are international, the University is not only a major employer in the Solent region but also a hub of innovation, research and global engagement.

    In 2024 alone, the University contributed an impressive £1.4 billion to the UK economy, including £658 million in the Solent region and £505 million in Portsmouth, supporting over 8,800 jobs locally. These figures underscore the University’s critical role in regional development and its broader impact on the national landscape.

    By early 2023, it became increasingly clear that the UK higher education sector was heading towards a financial crisis. A combination of declining undergraduate and international student applications, rising utility and employment costs and inflexible pension obligations created a perfect storm, particularly for Post-92 universities.

    One of the most significant financial burdens facing these institutions is the Teachers’ Pension Scheme (TPS). Mandated by the Further and Higher Education Act 1992, Post-92 universities are required to offer TPS to all academic staff, with no option to opt out. In contrast, non-Post-92 institutions can offer alternative schemes, such as the Universities Superannuation Scheme (USS), which carry significantly lower employer contribution rates.

    As of April 2025, TPS employer contributions rose from 23.68% to 28.68%. This means that employing an academic on a £50,000 salary now costs Post-92 institutions nearly £9,000 more per year than their competitors. With further increases projected in 2026, the financial strain is only expected to intensify.

    The Reset Programme: A Strategic Pivot

    Recognising the urgency of the situation, the University of Portsmouth launched its ‘Reset’ programme in early 2023. This comprehensive initiative was designed to reduce both staff and non-staff costs, streamline operations and build a digitally enabled, efficient institution. The goal: to ensure both operational and financial sustainability in the face of unprecedented challenges.

    The Reset programme introduced a series of targeted workstreams over an 18-month period, including:

    • Creation of a staffing subsidiary (UASL) to employ new staff under a more affordable pension scheme.
    • Voluntary Severance Scheme to reduce the need for compulsory redundancies.
    • Enhanced vacancy management, filling only business-critical roles.
    • Non-pay budget reductions, including cuts to travel, training, printing, and consumables.
    • Removal of budget contingencies during annual planning.
    • Policy changes to limit professional accreditation and subscription costs.
    • Professional services reviews to centralise functions and reduce staffing levels.
    • Academic restructuring, including faculty mergers and rebalancing student/staff ratios.
    • Contracted services reviews to improve value for money.
    • Student retention initiatives to reduce withdrawals and protect tuition income.

    UASL: A Bold and Necessary Innovation

    In August 2024, the University launched University of Portsmouth Academic Services Limited (UASL), a wholly owned subsidiary created to employ new academic and professional services staff. While maintaining existing terms and conditions, UASL introduced a new Defined Contribution (DC) pension scheme through Aviva, offering a 12% employer contribution for permanent staff and 6% for casual staff. Additionally, the National Employment Savings Trust (NEST) scheme was introduced for casual workers, primarily students.

    This move was not taken lightly as the University recognises how important pensions are to attract and retain staff. However, it was essential to avoid the unsustainable costs associated with TPS and the Local Government Pension Scheme (LGPS). Importantly, all staff employed before August 2024 retained their existing pension arrangements, helping to maintain strong relationships with unions such as UCU and Unison.

    The TPS, and its statutory imposition on Post-92 providers, is a throwback to when institutions like the University of Portsmouth, as former polytechnics, were administered by their local authority. At the time, it made sense. But in the thirty years since we achieved full University status, it has become impossible to justify the retention of this outdated system. It is clear that those bodies responsible for setting and monitoring higher education funding, who are admittedly not known for their responsiveness, have failed to adapt to the realities of the higher education landscape. When vast swathes of the sector are faced with a worsening financial position, many of those being post-92 institutions, it is baffling that this outdated system remains to hinder determined efforts to manage institutional finances.

    The results have been significant. In 2024/25 alone, the University is on track to save over £1 million, with projected savings rising to £2.8 million in 2025/26 and £4.4 million in 2026/27. Moreover, the new pension schemes have proven attractive, particularly to early-career professionals, international staff, and those on lower salaries—groups that had previously opted out of TPS due to affordability concerns.

    Balancing Innovation with Risk

    While the creation of UASL has delivered substantial financial benefits, it has also introduced new challenges. Notably, Research England and UKRI have begun placing restrictions on the eligibility of subsidiary-employed academics for research funding and participation in the Research Excellence Framework (REF). This poses a significant risk to the University’s research ambitions and its ability to compete on a national and global scale.

    Despite these concerns, the University had to weigh the risks of innovation against the very real threat of insolvency. Without decisive action, the financial outlook would have been dire. In 2023/24, the University had budgeted for an income of £321 million but achieved only £304 million, resulting in a £9.2 million deficit—despite achieving £19.7 million in Resetsavings. For 2024/25, the budgeted income is £290.5 million, with a projected deficit of £2.9 million, inclusive of £24 million in planned savings.

    A Call for Sector-Wide Reform

    The University of Portsmouth’s experience is not unique. Many Post-92 institutions across the UK are being forced to consider similar measures, simply to remain viable. In Scotland, the government has stepped in to support institutions facing equivalent pension cost increases, highlighting the uneven playing field across the UK.

    The University is now calling on the Department for Education and the UK Treasury to reform elements of the Further and Higher Education Act 1992 that tie Universities to an outdated, restrictive and overly costly pension scheme and advocates for greater flexibility in pension arrangements. Such reform would allow institutions to manage their finances more effectively, attract and retain top talent, and avoid widespread job losses and regional economic disruption. Our view is that it is wholly unfair that the Government have subsidised schools and further education colleges in England to compensate for the rising cost of TPS, yet Higher Education Institutions have not.

    Conclusion: Leading Through Change

    The University of Portsmouth has demonstrated that with strategic foresight, bold decision-making, and a commitment to collaboration, it is possible to navigate even the most challenging financial landscapes. However, we continue to advocate that reform is urgently needed for the good of the sector as a whole, to ensure long-term sustainability.

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  • Universities and the Teachers Pension Scheme: the time for change is now

    Universities and the Teachers Pension Scheme: the time for change is now

    Welcome back. The HEPI blog is now up and running again on a daily basis, landing in your inbox at 6:30am. (The pieces we ran over the break are available here.) If you are not already subscribed, you can sign up at the bottom of this page.

    Spaces are still open for our in-person Symposium with CBDU on Thursday 16th January: you can register here.

    Today’s piece is by Jane Embley, Chief People Officer, Northumbria University and Professor Tom Lawson, Deputy Vice-Chancellor and Provost, Northumbria University.

    The end of the Universities Superannuation Scheme (USS) pensions dispute in the summer of 2023 was the source of much relief in the sector. University employees in the scheme saw both their pension benefits restored to the levels they had been before the USS valuation of 2017 and a reduction in their contributions (from January 2024) from 9.8% to 6.1%. Employers could reverse the significant liabilities that had previously been skewing their financial statements and their contributions to USS were reduced from 21.6% to 14.5%. The Financial Times declared that ‘the cost to UK universities of providing pensions for employees is poised to fall by hundreds of millions of pounds after the sector’s main retirement plan swung into surplus after more than a decade of being in deficit’.

    But for many institutions the great pensions crisis was not over: indeed it had only just begun. For at least 80 universities, USS is not their main pension scheme, because those that gained university status through the 1992 Higher Education Act are required to offer Teachers Pension Scheme (TPS) to their academic staff. This includes institutions like Northumbria University, which has significantly developed its research intensity over the last decade and seeks to compete with other research intensives. The disparity in the costs of TPS and USS means that competition is no longer on a level playing field.

    Northumbria has more than 200 staff who are members of USS, but all of those have joined the university as existing members of that scheme. All other academic colleagues must be enrolled in TPS and cannot, at present, voluntarily become members of USS. Indeed those who join as members of USS also retain a right to be enrolled in TPS if they wish. Around 50 modern institutions employ some members of USS however the underlying requirement to make TPS available to university-employed academic staff is the same.

    Since 2023 the cost of TPS to both employees and employers has significantly diverged from USS. While employers’ contributions to the two schemes tracked one another closely until October 2019, they then began to diverge radically when TPS employer contributions rose to 23.68% while USS was at 21.1%. But in April 2024 the gulf between the two schemes became a chasm – TPS contributions rose by 5% to 28.68% as USS employer contributions went down to 14.5%.

    The difference in percentage terms is stark. But when you start to think about the financial cost for institutions it is all the more so. The pension cost (to employers) for a typical academic salary of £57,500 is £8,300 per annum for USS. For a TPS employee, it is £16,500. At an institutional level that means that for every 1000 staff earning this salary in TPS, the annual cost is £8.2 million greater than if those same employees were members of USS. For a professor earning £85,000 the difference is as much as £12,000 per full-time colleague. As Northumbria’s experience shows, these are additional costs being carried in one part of the sector for essentially the same staff.

    The situation is compounded by the nature of TPS as a scheme. Unlike USS, employers have no say in how the TPS is run and have no levers to keep employer (and indeed employee) contributions down. This is simply a cost handed down to universities by the Treasury. But unlike schools, to which the Treasury through the Department for Education provides additional funding to cover TPS cost increases, universities receive no relief and simply have to absorb these costs into their already stretched budgets. And unlike schools in the independent sector, which were permitted to stop offering TPS to new staff, universities are obliged to continue to offer TPS – whatever alternatives they can develop for their staff.

    The impact of this is extraordinary. It essentially means that in one part of the sector, it costs employers the same amount in on-costs to employ 503 staff as it costs to employ 1000 staff elsewhere. Quite apart from the burden this places on institutions, it is deeply anti-competitive.

    What then is to be done? The path forward is beset by problems. Unless there is legislative change, modern universities will be required to continue to make TPS available to all academic colleagues and, it bears repeating, will continue to have no say at all in the running of the scheme.  

    Of course, one option is to do nothing, but the finances of the sector mean the status quo is extraordinarily difficult to justify. Doing nothing embeds an unfairness that makes the government’s stated priorities for university reform more difficult to achieve. To put it crudely, it costs more for some institutions than others to employ academic staff, and as that resource is derived (at least in part) from student fee income then those institutions will require more students to fund the salaries of staff. For every 1000 staff earning £57,500 it would require all of the fees from 859 additional UK undergraduate students just to fund the difference in employer pension contributions.

    Institutions can employ new colleagues via subsidiary companies in order to give themselves the freedom to offer more affordable pensions to new employees. But this approach has many potential pitfalls. It would not help to reduce the costs in relation to existing staff, so would be slow to have any impact, and in any case it remains unclear what the status of such employees is according to HESA – which could among other things impact the ability of individuals to make a contribution to future REF exercises with the attendant implications for future funding. Employment through a subsidiary, even with all terms and conditions being the same but being out of scope for recognition within the REF, is also likely to be a less attractive prospect for employees.

    It seems likely that until solutions are found, many institutions might find themselves having to rethink their ability to participate in national collective pay bargaining. With higher pension costs and higher National Insurance contributions, it may be necessary, for now at least, for institutions to take control of salary increases to contain the total costs of employment. This is not an attractive option, but it is hard to think of any others that would be as swift and effective in containing cost increases, although of course it would come with its own industrial relations challenges.  

    Ultimately all institutions value their academic staff immensely and we want to provide access to attractive pension schemes. However, the lack of institutional control over which pension scheme can be offered, and the high, fixed nature of the employer contribution to TPS (which is not directly linked to any improvement in benefits for the individual) cannot be sustained. The timing of the current challenge could also not be worse. Institutions are grappling with a whole range of financial pressures, and as a consequence dealing with TPS remains in the ‘too hard’ box for many, not least because we genuinely cannot find the solutions without some form of intervention. But as the sustainability of institutions becomes all the more scrutinised, and as the sector needs to find financial efficiencies to address the concerns expressed by the Secretary of State for Education earlier in 2024, we do urgently need to find a way forward.

    Obliging institutions to continue to offer TPS places greater financial constraints on precisely those universities that might do the most to widen access and give greater opportunity to those from disadvantaged backgrounds as per the government’s priorities. It is an obvious unfairness that some of students will go to institutions where it is substantially more expensive to employ staff than in other institutions that are more traditionally regarded as elite. The time is now to remove this inbuilt, and presumably unintended, unfairness and end the obligation upon modern universities to offer TPS. If that happens individual institutions and the sector as a whole can begin to chart a path to a more sustainable position in the future.

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