The higher education sector is once again facing industrial unrest, with Northumbria University staff concluding in December to take decisive steps towards strike action - due to a pensions-related issue. At the heart of the dispute lies a choice to be made by university staff: either leave the Teachers’ Pension Scheme (“TPS”) in favour of the Universities Superannuation Scheme (“USS”) or accept a salary freeze. This move, aimed at saving an estimated £11 million, has sparked outrage among staff and the University and College Union (“UCU”), which has warned that,, “Telling staff they must choose between their pay or their pension is no choice at all.” However, for a sector under immense financial pressure, it is not necessarily a surprise that pensions have once again become part of the potential solution for universities.
Overview of the TPS and the USS
For decades, the TPS has been regarded as a favourable pension scheme for employees in the higher education sector, offering predictable benefits and strong inflation protection. Under the TPS, a defined benefit scheme, pensions are calculated on a career average basis at an accrual rate of 1/57th per year, with employers contributing a substantial 28.6%. In contrast, the USS operates a hybrid model, combining a defined benefit up to a career average salary threshold of £73,293 at a lower accrual rate of 1/75th, with earnings above that threshold subject to defined contributions. While the USS reduces costs for universities, it exposes staff to investment risks and potentially smaller retirement pots.
However, the financial incentive for universities is clear. Since April 2024, employer contributions to the TPS have soared, creating a 14.18% gap in contributions compared to the USS. According to the Higher Education Policy Institute, employing 1,000 staff on the TPS may cost the same as 503 staff on the USS. For institutions under budgetary pressure, the temptation to switch schemes is strong, but at a marked cost to employees.
Strike Action
Under current proposals staff who refuse to transfer to the USS will face a pay freeze, meaning those who wish to remain in the more favourable TPS will be penalised for their decision. This tactic has been criticised by the UCU, who argue that pensions are a long-term commitment which should not be sacrificed for short-term budget savings. At a recent meeting, over 99% of Northumbria University staff voted to declare a dispute in respect of the proposal, paving the way for a strike ballot.
This dispute is not an isolated incident. Across the UK, universities have been grappling with rising pension costs and seeking ways to reduce liabilities. As noted above, the USS has long been favoured by institutions for its lower employer contributions, but the shift away from the TPS may raise serious questions about the future of academic pensions. The strike ballot at Northumbria University signals a growing tension between cost-cutting measures and staff welfare.
Separately, staff at four Scottish universities – Aberdeen, Heriot-Watt, Stirling and Strathclyde) were balloted in the first week of the new year on striking for other cost-saving reasons, namely job losses and the possible use of compulsory redundancies.
So, it’s clear that the sector is in for another tough year.
If you would like to discuss anything raised in this blog in more detail, please get in touch with a member of the pensions team or your usual Brodies contact.
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