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Teacher pension costs for colleges (and schools) may rise in 2019

19 June 2019

HM Treasury has been slow to confirm how much colleges, schools and universities will pay in employer contributions to the Teacher Pension Scheme (TPS). Contributions rose to 16.48% in September 2015 which added 1% to the total costs of a typical college. Government funding levels are so low that many colleges make deficits or barely manage a surplus so any increase is a problem. There are rules which decide how much employers and employees will pay. These rules were set out in the 2013 Public Service Pension Act which gives the Government Actuary Department (GAD) the duty to carry out an actuarial valuation every four years on the basis of instructions (directions) from HM Treasury. GAD's published a valuation of TPS in 2014 which reported a £15 billion deficit and a 92% funding level (see this AoC explanation of the valuation). Public sector pension schemes like TPS are not pension funds so the valuation assesses liabilities (future costs) against the assets of a notional fund). This valuation resulted in the decision to increase contributions in 2015 from 14.1% to 16.48%. GAD staff started its latest valuation of TPS in summer 2017 but there is no information about the results, There are, however, two reasons for suspecting there will be an increase: Back in the March 2016 budget, HM Treasury announced a reduction in the discount rate that would be used in this round of public sector pension valuations (from 3% to 2.75%). In the detailed forecasts published along with the budget, the Office for Budget Responsibility forecast an increase in employer contributions in 2019. AoC warned then that contributions might rise. This week's written statement of more funding for the NHS explains that HM Treasury will be providing an extra £1.25 billion to the NHS to help deal with the costs of higher employer contributions in 2019. The NHS pension scheme is now organised in a similar way to the Teacher pension scheme with a similar valuation from the government actuary. The valuation of the NHS scheme also published in 2014 reported a £10 billion deficit and 96% funding level, prompting an increase in employer contributions from 13.9% to 14.38%. The figures published this week imply a 20% increase in NHS employer contributions to something like 17% but no details are available. College governing bodies and leadership teams will be finalising their 2018-19 budgets in the next few weeks and will return 2018-20 financial plans to the Education and Skills Funding Agency (ESFA). ESFA will use those plans to assess the financial health of colleges and to judge whether intervention is necessary. Colleges spend a large share of their budgets on teachers (who are TPS members) and TPS contributions cost around 5% of their budgets. If there is going to be any change in employer contributions - or if there is going to be no change at all - they need to know now rather than later. It is very unhelpful that colleges (and schools and universities) have to make decisions about 2018-19 budgets without an important piece of information about their 2019 costs. College finances are on a knife-edge because of years of underfunding including the lack of recognition of inflation at a time when costs are rising, Consumer Price Inflation is above 2%.