Teachers’ Pension Scheme: Automatic Enrolment

Question

Asked by

To ask His Majesty’s Government what assessment they have made of the value for money of automatic enrolment in the Teachers’ Pension Scheme for (1) higher education providers, (2) academics, (3) students, and (4) taxpayers.

My Lords, I declare my interests as a recipient of the Teachers’ Pension Scheme and as the parent of a teacher, both of which are in my public declaration of ministerial interests. The Teachers’ Pension Scheme is subject to automatic enrolment legislation. However, scheme regulations have long required eligible staff to participate unless they choose to opt out. As a result, participation rates have remained high and continue to exceed 90%. Given this strong and sustained level of participation, the Department for Education has not undertaken a separate value-for-money assessment of the impact of automatic enrolment on the TPS.

I thank the Minister for that reply. She will, of course, be aware of the disparity between the main pension schemes in the university sector, with both employer and employee contributions significantly higher in the TPS than in the USS. The Government have emphasised the need for the sector to be financially independent, yet the requirement to commit to the TPS undermines the flexibility and competitiveness of many of the post-1992 institutions. The higher output rate for academics undermines the benefits of the scheme for staff, and it absorbs a high proportion of student fee income. I hope that the recent valuation, which we do not know the outcome of yet, will provide some short-term relief but, unfortunately, I do not think that will deal with the structural problem. I urge the Minister to consider a value-for-money assessment in this sector and give it the longer-term flexibility that it clearly needs.

My noble friend is right. I am aware of the financial challenges that universities, particularly post-1992 universities, face, exacerbated by the large increases in the employer contribution rates in the TPS. These have gone from 16.48% in 2019 to the current 28.6%. However, the Government Actuary’s Department has now written to His Majesty’s Treasury stating that the average employer contribution rate across the unfunded public service pension schemes, of which the TPS is one, is expected to fall significantly as a result of the increase in the SCAPE discount rate. Across all those schemes, contributions are expected to be over £12 billion lower in 2027-28 than in 2026-27. That will provide some relief to the post-1992 universities for a pension scheme that I know, from talking to some of its members and their representatives, is widely welcomed and supported in the system.

My Lords, will the Minister alleviate some of the financial pressure on the post-1992 higher education institutions by allowing them flexibility to make their own arrangements while preserving the accrued rights of their existing staff?

As we said in the Post-16 Education and Skills White Paper, we will continue to look in particular at the impact of TPS membership by talking, as we have done, to employers and the staff who value the scheme very highly.

My Lords, we are talking about professions that are essential for the functioning of the education system. Will the Government undertake to look into the effect that doubt about the pension scheme is having on the supply of people to fulfil these vital roles in the education system?

There is no doubt about the overall position of the Teachers’ Pension Scheme. That is why it has 2.2 million members and is seen as a very high-quality defined benefit pension and as part of an important element not only of recruitment into the teaching profession more widely but of retention of staff within that profession.

My Lords, I thank my noble friend for her important Question and my noble friend the Minister for her reply. However, as the Minister mentioned, we are awaiting the results of the 2024 valuations using the revised discount rate. The results of the valuations are still confidential, but my own back of the envelope calculation suggests that the contribution rate will be materially lower—almost as low as the 16% that it was in the past. Surely this is a ludicrous way to run the country’s finances. It has been 16%, then 28%, then 16%. Is it not about time that we went back to using the social time discount rate so that we can give the participating institutions some stability and knowledge about where they are going?

My noble friend is clearly more expert on elements of the public sector pension system than I am, but the reason why the revaluation has happened in the way that it has is to maintain the sustainability of the very important public sector pension schemes. I am sure that there are discussions to be had about different approaches to the valuation but, for now, my noble friend is right that it is highly likely, as suggested in the letter sent by the Government Actuary’s Department to the Treasury, that there will be a considerable reduction in the average employer contribution rate as a result of that revaluation.

My Lords, I heard what my noble friend the Minister said, but given reports of some universities seeking to move staff out of the TPS to reduce employer costs against the background of a likely drop in that figure, will the Government take action to stop employers circumventing the scheme and to protect staff’s statutory pension rights?

I have emphasised that I know that, for many members of staff, membership of the TPS is an important part of their terms and conditions. Although universities are autonomous and independent in the decisions that they make about the elements of their pension arrangements, and certainly their remuneration policies, I nevertheless urge those universities to bear in mind that decisions that they make for the future should safeguard their staffing, the morale of their staff, and should be made in the interests of students, taxpayers and staff.

My Lords, there is a financial crisis in higher education. The Government have acknowledged it; I do not think it is contentious. The House of Commons Education Committee recently published its report on higher education funding and how these pension contributions are contributing to the risk of insolvency for a very serious number of institutions. Will the Minister confirm that she will act on that committee’s urging to establish a bespoke higher education insolvency regime, with an early warning protocol to identify and address financial issues and distress before they hit a critical stage that hurts students?

The noble Baroness is right: the higher education sector has faced considerable financial challenge, largely due to the decision of the previous Government to freeze the maximum cap for tuition fees, which this Government have chosen to lift in order to safeguard a significant part of the income of higher education institutions. That is why we have seen a small improvement in the financial position of the higher education sector in the most recent report published by the OfS. I gave evidence to the Select Committee inquiry that the noble Baroness referenced, and I explained at considerable length why we did not feel it necessary to develop a specific insolvency regime for higher education but why we would continue to take action to maintain and improve the financial sustainability of the higher education sector, and why, in the face of particular difficulties for individual organisations, we would prioritise not only the needs of the organisation but, most importantly, the needs of the students within that organisation for continuity of their studies.

My Lords, is not one of the reasons why these pension schemes impose such financial burden on universities that they are extremely generous? If effort were to be put into reforming this area, would it not be better put into reforming the generosity of these schemes so that they compare more favourably to what is available in the private sector and the market economy?

It might not surprise the noble Lord that top of my list of priorities is not undermining the terms and conditions of people working hard in our public services.