This excellent article ends where it could begin. Raj Jethwa‘s comment that
“This level of uncertainty makes it extremely difficult for higher education institutions to take long-term financial decisions on, for example, courses and staffing levels when such a significant element of their cost base is so unpredictable.”
Teachers’ Pension Scheme employer contribution rate to fall by 11 percentage points
The employer contribution rate for the Teachers’ Pension Scheme (TPS) will be cut by 11 percentage points from 1 April 2027.
Following the completion of the scheme’s 2024 valuation by the Government Actuary’s Department (GAD), the employer contribution rate will be reduced from 28.6 per cent to 17.6 per cent.
The contribution rate aims to meet the current and projected cost of benefits for members, and its reduction will not affect the level of benefits members are building up in the scheme.
GAD’s analysis of the scheme’s cost control mechanism found that the core cost cap cost of the scheme was 8 per cent of pensionable pay, which is 2.9 percentage points below the 10.9 per cent employer cost cap.
As the core cost cap cost of the scheme sits within the 3 percentage point cost control corridor, no economic check is required and the government does not need to consult on changes to the scheme.
The economic cost cap cost of the scheme was 15.3 per cent of pensionable pay, 4.4 percentage points above the 10.9 per cent employer cost cap.
“This reduction will provide welcome short-term financial relief for our member institutions that have a statutory obligation to offer the TPS,”
commented Universities & Colleges Employers Association CEO, Raj Jethwa.
“However, the magnitude of the reduction simply highlights the inherent volatility in TPS, one of the key challenges institutions face when setting and delivering their business plans. The volatility principally arises from the SCAPE discount rate, derived from long-term GDP forecasts.”
Jethwa noted that, once the reduction comes into effect, the combined employer and employee TPS contribution rate would still be around 25 to 50 per cent higher than alternative defined benefit schemes in the sector.
“Uncertainty remains over the direction and magnitude of TPS employer contribution rate changes in the future,”
Jethwa continued.
“This level of uncertainty makes it extremely difficult for higher education institutions to take long-term financial decisions on, for example, courses and staffing levels when such a significant element of their cost base is so unpredictable.”
Has there been a change of principals at the regulator level?
Surely we should be encouraging a leveling up of contributions not reductions especially when recruitment in the teaching profession is so challenged.
The volatility is, of course, nonsense with the adverse consequences identified in the piece. But it’s not “inherent’ in the system. It’s the result of the government’s decision to switch from a time preference discount rate to one based on anticipated growth in GDP. The former makes more sense theoretically and much more stable results.
Put all the teachers into a DC scheme and the problem is eliminated.
“when recruitment in the teaching profession is so challenged”: surely the whole point is that young workers aren’t much attracted to jobs by being offered DB pensions. More pay and less employer pension contribution would surely improve recruitment.
Even better, offer recruits the choice. On their own heads be it. No need for the dictatorship of the managerialist classes.