15. Negotiations on pension schemes should be re-opened

Recommendation 15

HM Treasury, DfE and DCLG should re-open negotiations on the Teacher Pension Scheme and Local Government Pension Scheme to contain the costs of the scheme.

Pension costs are a major issue for colleges, schools and universities because all three sectors employ long serving staff with significant entitlements. Successive government departments have not done enough to manage the costs of large public sector schemes. Mistakes in the reform of the Teacher’s Pension Scheme (TPS) mean that employers now pay 16.48% compared to the 12.1% cost ceiling set out in the wake of the Hutton report[1]. Combined with the rise in employer’s National Insurance for public service employers in 2016, this added 5% to the cost of employing a teacher in 2015-16. There are likely to be further cost increases as a result of the current Local Government Pension Scheme valuation. This will assess the state of each fund as at 31 March 2016 and will vary contributions from April 2017 onwards. At the time of writing in January 2017, a number of colleges have been faced with substantial increases. The average employer contribution for colleges is likely to rise from 16% towards 20%[2]. The next TPS valuation is likely to cause a smaller but equally significant increase in costs from April 2019. 

Colleges and the rest of the education sector are locked into schemes which take a rising share of their budgets for pension costs at the expense of their ability to pay competitive salaries or employ the right people for their core tasks. The former Chief Secretary of the Treasury promised in November 2011 that the most recent set of pension reforms will last for 25 years[3].  This promise has been enshrined in law [4]. If the Government seriously wishes to contain public spending in the long term, it needs to consider further reform which reduces the direct costs for colleges, schools and universities by either making the core schemes cheaper and perhaps by allowing employees who value pensions more to pay higher contributions for the benefit.

 

[1] Colleges, schools and post-1992 universities pay 16.48% in employer contributions from September 2015. This includes a 0.08% levy to pay for administration. The 12.1% cost ceiling for employer contributions was promised in the provisional final agreement published by DfE in March 2012.

[2] AoC will be working with DfE and the Sixth Form College Association to gather better data on the LGPS valuations by March 2017

[3] HM Treasury written ministerial statement, 20 November 2011.

[4] Sections 21 and 22 of the 2013 Public Service Pension Act.