This blog was kindly authored by Jane Embley, Chief People Officer and Tom Lawson, Deputy Vice-Chancellor and Provost, both of Northumbria University.
It is welcome that the government’s recent white paper acknowledges the very real funding pressures on the university sector and outlines some measures to address them. It is rather disappointing, however, that one of the causes of that financial pressure recognised by both employers and trade unions – is somewhat sidestepped – namely the crisis in the post-92 institutions caused by the Teachers’ Pension Scheme (TPS). While the government has pledged to better understand the problem, this will presumably lead to a period of consultation before any new proposals come forward. The cost of TPS compounds the financial difficulty of many institutions, and the severity of the current situation means the moment for change is now.
The TPS cost crisis
At the beginning of 2025, we wrote a piece for this website that outlined the problem in general terms, and particularly, for Northumbria University. To briefly summarise, post-92 institutions are all required to enrol their staff who are engaged in teaching in TPS. The cost of TPS for employers (and employees) is rising, and having historically been similar to other pension schemes in the sector is now much more expensive than schemes such as the Universities Superannuation Scheme (USS) or the local Government Pension Scheme (LGPS). TPS employer contributions are now 28.68% whereas for USS they are 14.5%, and for Northumbria’s LGPS fund are 18.5%.
This means that for an academic salary of £57,500, in addition to NI costs, the employer pension cost is £8,300 per annum for USS, but for a TPS employee it is £16,500. Put simply, it is now considerably more expensive to employ a member of staff to do the same job in one part of the sector than another.
The figures are striking. For every 1,000 staff, an institution would face more than £8M per annum of additional costs if their colleagues were members of TPS rather than USS. For Northumbria, given the number of colleagues we have in TPS, the additional cost of this scheme compared to USS is more than £11M per annum. To put it another way, the fees of more than 800 Northumbria students are fully consumed by paying the additional cost of TPS, versus USS.
Why alternatives fall short
There are ways that universities can find alternatives to TPS – institutions can take steps to employ their academic staff via subsidiary companies and reduce pension costs by using defined contribution schemes. This has multiple disadvantages for individuals as well as institutions – not least because colleagues employed by that mechanism are not counted within the HESA return, for example, and as such are not eligible for participation in the Research Excellence Framework or for Research Council funding. As such, colleagues employed via such mechanisms cannot fully contribute across teaching and research and may find it difficult to progress their careers or move between institutions in the future.
At Northumbria, as a research-intensive institution, we did not consider the above to be a path we could take. As there are no clear proposals forthcoming from government we have had to seek recourse to a different solution.
Northumbria’s strategic response
As we predicted in our previous blog, individual institutions have no choice but to take control of the total cost of employment. Since then, at Northumbria, we have been thinking about how we might do just that. We have settled on an approach that follows a three-part solution, something which we believe offers flexibility and choice while managing the University’s pension costs down to an acceptable level in the medium to long term.
First, we are offering colleagues in TPS an attractive alternative – the main pension scheme in the sector, USS, following a recent agreement to change our membership terms. Over 200 colleagues at Northumbria are already members (having joined Northumbria with existing membership), and going forward, USS membership will be available to all our academic colleagues. Of course, we acknowledge that there are differences in the membership benefits of each scheme. USS is a hybrid scheme with defined benefits up to a threshold and then defined contributions beyond that. TPS is a career average defined benefit scheme. We will help our TPS members with this transition by providing personalised, independent financial information and guidance, as pensions are complex and any decision to move from TPS to USS will need careful consideration.
However, we do need to be confident that we can address the very high cost of TPS employer pension contributions, and have recently begun discussions within our university about moving to a total reward approach to remuneration.
Using the two pension schemes, we want to provide colleagues with the choice as to how much of their total reward they receive as income now and how much we pay in pension contributions.
For each grade point in our pay structure, we are aiming to establish a reward envelope, based on the total cost of salary plus employer pension contributions, reflecting USS rather than TPS rates. As such, a colleague remaining in TPS would have no reduction in their salary, although they will, initially, have a total reward package that exceeds the envelope for their grade point.
Our goal will be to increase the total reward envelope for each grade point each year by the value of the pay award determined via national collective pay bargaining. In this model, the cost of the total reward envelope will be the same, but colleagues will be able to choose how they construct their reward package based on their own personal preference or circumstances. Salaries for colleagues who are members of USS will increase in line with the rest of the sector. Those colleagues who choose to remain in TPS will not see an increase in their take-home pay, as this, plus the cost of their pension contributions, exceeds the envelope for their grade point. However, over time, when the value of the total reward envelope for colleagues in USS and TPS has equalised, the salaries for those choosing TPS will increase again.
Looking ahead: a fairer, sustainable future
We understand that many of our colleagues might find this change unpalatable; however, we feel the additional monthly cost of almost £1M cannot be justified. While to some this will be controversial, ultimately, our proposed approach will mean that over time (likely to be up to seven years) the reward envelope (or cost) for USS and TPS employees will have equalised and as such we will have eliminated the differential costs of employing these two groups of colleagues undertaking the same roles, and be on an equal footing with other universities.
We anticipate that by adopting this approach USS will, in time, become the normalised pension scheme for our academic staff, as it already is across the pre-92 universities. Along with competitive pay, colleagues will be members of an attractive sector-wide scheme, with lower personal contribution levels resulting in higher take-home pay. Of course, we will keep the whole approach under review as the employer pension contribution rates change over time, and we will be actively engaging with our colleagues over the coming months to seek their views on our proposal and to shape our future plans.
Finally, we are also encouraging our colleagues to consider carefully whether to opt out of TPS and join USS now. In order to gain traction and make earlier progress, we are offering existing salaried staff in TPS the choice to move early, with the University recognising this decision via a one-off payment, which shares the longer-term financial benefit of this with the University. Colleagues may receive the value of the savings made over the first year – typically between £5,800 and a maximum of £10,000 – as a taxable payment or via a payment into their pension, subject to a number of conditions in relation to their future employment.
As we have outlined, the time for change is now, and we cannot wait for the outcome of a consultation or for the government to decide how it will seek to address this obvious disparity in the sector. Ultimately, we believe that moving towards a total reward approach, as outlined above, is advantageous for both the University and for our colleagues. It provides choice – no one will be forced to leave TPS, and as such, colleagues can continue to choose to receive the benefits of that scheme by more of their total reward being paid in pension contributions than salary. Or colleagues can choose to access more of their total income now in their salary, while joining a hybrid pension scheme that is already in place across the sector and which delivers defined benefits, and defined contribution benefits for higher earners. We believe that this is a novel approach to what has been, for some time, an intractable problem in the sector.
