Employer contributions to the Teachers’ Pension Scheme have surged to 28.6% of salary for the 2024-25 financial year, a five-point increase that the UCEA says threatens the financial stability of higher education institutions. The rise marks the latest in a series of escalating costs that have placed unprecedented pressure on university budgets.
The Universities and Colleges Employers Association (UCEA) called the rising costs “poor value for money” in a recent report, warning they could push some universities toward failure or closure. For institutions already grappling with declining international student enrollments and frozen tuition fees, the pension burden exacerbates existing financial strains. The UCEA’s report noted that smaller and newer universities, particularly those classified as post-1992 institutions, are disproportionately affected, as they lack the endowments or diversified income streams of older, more established counterparts. These universities often operate with tighter margins, leaving little room to absorb unexpected cost increases without cutting staff, reducing student services, or scaling back research initiatives.
The rate is nearly double that of the Universities Superannuation Scheme (USS), which cut its employer contribution to 14.5% this January. A Northumbria University study last year found that a lecturer earning £57,500 costs an employer £16,500 annually in Teachers’ Pension Scheme contributions—nearly twice the £8,300 for an equivalent USS member.
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The disparity has left some institutions at a competitive disadvantage, the UCEA argued. Universities required to participate in the Teachers’ Pension Scheme are often unable to match the salary offers or research funding opportunities provided by institutions in the USS. This imbalance is particularly acute in fields with high demand for specialized staff, such as STEM disciplines, where universities must compete not only with each other but also with private sector employers offering more flexible pension arrangements. The UCEA’s report emphasized that the mandatory nature of the Teachers’ Pension Scheme removes any incentive for the scheme to improve its value proposition, as institutions have no ability to negotiate rates or explore alternatives.
Raj Jethwa, UCEA chief executive, said the mandatory participation in the Teachers’ Pension Scheme was unfair, particularly for universities that gained university status after the Further and Higher Education Act 1992. These post-92 members, which include many former polytechnics and colleges of higher education, were granted university status under the act but were simultaneously required to join the Teachers’ Pension Scheme as a condition of their new designation. Jethwa pointed out that many post-92 universities serve a higher proportion of students from disadvantaged backgrounds, meaning they already operate with fewer resources while facing greater demands for student support services. The additional pension costs further limit their ability to invest in facilities, scholarships, or staff development, widening the gap between older and newer institutions.
“There is no logical reason why institutions should continue to be compelled to participate when the costs are so high,” he said. The UCEA has argued that the current system creates an uneven playing field, where institutions with similar missions and student demographics are subject to vastly different financial obligations. The UCEA has also highlighted that the lack of choice in pension schemes contradicts the government’s broader push for market competition and institutional autonomy in higher education.
The UCEA has lobbied for regulatory changes to allow universities and staff to opt into alternative pension schemes, a flexibility already available to other employers. The association has proposed a phased approach, where institutions could gradually transition to alternative schemes over time. The UCEA has also sought government financial support to offset the rising costs, similar to aid provided to schools and further education colleges. In 2022, the government allocated £1.2 billion to schools and further education providers to help cover increased pension contributions, but universities remain excluded from these measures.
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Parliamentary briefings have acknowledged the financial strain on universities, citing stagnant tuition fee caps and reduced government grants as additional pressures. The tuition fee cap for undergraduate courses in England has remained frozen at £9,250 since 2017, despite inflation eroding its real-term value by over 20% during that period. While the Department for Education has allocated extra funding to some sectors, universities remain excluded from these measures.
The government has promised to review the issue but has not proposed solutions. In a written response to a parliamentary question in February 2024, the Department for Education stated that it was “monitoring the impact of pension costs on the higher education sector” but provided no timeline for action. The UCEA has requested a meeting with Baroness Jacqui Smith, Minister of State for Skills, to discuss the matter further.
As of March 31, 2024, the Teachers’ Pension Scheme had over 2.2 million members and 12,911 employers. Its latest annual report estimated the unfunded scheme’s liabilities at £290.7 billion.
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The scheme’s unfunded status means that it does not hold a dedicated pool of assets to cover its liabilities, instead relying on employer and employee contributions to pay pensions as they fall due. This model contrasts with funded schemes like the USS, which invest contributions to generate returns that help meet future obligations.
For now, universities in the scheme are left handling the gap between rising costs and limited options. The UCEA has cautioned that systemic reform is needed to ensure the viability of the higher education sector. Without intervention, the association warns, the pension burden could force universities to make difficult choices between maintaining academic quality, supporting student access, and preserving research capacity.
The debate over pension flexibility continues, with no clear path to relief in sight. University leaders have called for a cross-party commission to examine the long-term funding of higher education, arguing that the pension issue cannot be addressed in isolation from broader questions about tuition fees, research funding, and institutional autonomy.
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