TL;DR: The (Good, for Once) TPS News
Note: While I (Bijan Parsia) have served on UCU's Superannuation Working Group and am now (2026-2027) an elected USS alternative negotiator, I am not a pensions expert per se, e.g., I'm neither a professional pensions advisor nor a pensions academic. Nothing here should be taken as a formal statement from UCU or as financial advice in any way. UCU offers a free financial consultation with a financial advisory firm which you should take advantage of! Also, I'm writing this in a bit of rush during my annual leave, so there may be errors of all sorts, but I think the basic thrust should help your intuitions about TPS and contribution rates.
Good news? Good financial news? In UK HE?
It's hard to imagine, but yes, there is actually some good news. The Government has announced that the Teachers Pension Scheme (TPS) employer contribution rate will drop from 28.68% (of salaries) to 17.68%. That is, the cost for most post-92 institutions to employ a UCU member dropped about 10%.
Better yet, as Jo Grady put it in her message to members:
The fall in rates, which will have no impact on the pension staff receive, will save institutions millions, meaning there is no financial need for them to deny staff their rights to a decent pension.
This puts branches fighting compulsory redundancies at post-92s in a much better position in their negotiations. (Institution specific financial details and analysis coming to your branch from the Head Office soon!)
Less money in...same money out?!?!?!
I've seen several people on various social media sites being flummoxed by the claim that a cut to contributions does not result in a cut to benefits. If we were talking about "stuffed in a mattress" saving scheme, a cut to contributions would indeed be a cut to "benefits".
But consider an interest bearing savings account. If you have a target number (say £100k in 20 years) and a fixed interest rate (say 2% annual, compounded monthly), then you'd have to put in £272.05 each month to reach your target. If after 5 years, your interest rate shifted to 5%, then, to reach your target, you'd only need to contribute £238.84/monthfor the remaining 15 years to get to £100k. Thus, a cut in contribution rate (by 12%!) with no change to your "benefit".
Now, defined benefit pensions are a lot more dynamic than a savings account with a fixed (nominal!) target, but the principle is similar. The benefits are defined, though because of all sorts of factors (lifespan, inflation, etc.) they are not a fixed number for any individual person. However, the principle is similar in that there is a target. The scheme's liabilities are defined in such a way that we can produce an estimate of the future costs (and obviously, we know what we pay out year to year). That estimate (called a valuation) is formally done every 3 years and it used to set the contribution rate. Thus, the contribution rate can be thought of as the estimated cost of the accrued benefits. (Technically, it's a function of that estimate and other sources of funding from the general budget.) As the cost estimate of those benefits changes, so does the contribution rate. (We can also reduce future benefits...but with TPS that's a statutory change.)
Thus, overall, this is why the contribution rate can fall with benefits remaining the same. The estimate of the future costs went down. It's symmetric with what happened with the last valuation where the estimated cost went up. That saw a 5% increase in employer contributions to "maintain" the benefits. Through these fluctuations in the contribution rate, the existing benefits (and even the accrual patterns) remained the same. This increase was covered for colleges and schools by the Government, but Universities were left holding the bag.
That policy precipitated the redundancy crisis in UK higher education.
Some Weeds
There are so many weeds. Unlike USS, TPS is technically funded out of the general budget with employer and employee contributions partially covering the cost. It is a "pay as you go" or "unfunded" scheme, like the state pension or Social Security in the US: Current contributions (partially) cover current benefit payments, with general taxes covering any shortfall. Morbidly, if everyone currently getting a TPS pension all died, the contribution rate could go to 0% until the next member retires.
Contrariwise, USS works with an accumulated investment pot. Contributions go into the pot which is invested and current benefits paid out of returns (primarily). Thus, if all current USS beneficiaries all died at once, we might still have to contribute (though probably at a lower rate) if our future benefits needed it. Of course, if USS blows its investment pot at a casino (or on Thames Water), then the employers and VERY RELUCTANTLY the government would have to do something to cover accrued benefits. (They would likely close the scheme to new accrual.)
Thus, for TPS, contributions function more like a tax: What comes in goes out to cover benefit expenditure. In USS, they function more like paying into a (pooled) investment account. In both cases, accrued benefits have priority. They are a contractual, even statutory, obligation. This is unlike a defined contribution plan, where once you've paid in the contribution, the commitment to covering future shortfalls ends.
Be Happy, but Wary
As you can see, the valuation methodology plays a HUGE role in contribution rates as can the "backstop". In USS, UCU has been perusing a more rational valuation methodology that prioritizes "stability" (in general, the valuation shouldn't swing from billions in deficit to billions in surplus over three years when the economy was basically stable). Predictable contributions help with planning and weird swings causes loads of trouble.
For TPS, improving the methodology requires lobbying. UCU has been working on that, but university based TPS members form roughly 8% of the total membership in TPS, so our sway is lower.
Of course, while this relieves most post-92s of a pretty big financial burden, we know this won't immediately turn into pulling back from brutal cuts to their workforces. We already see the CEO of UCEA saying:
“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.”
This very much has the flavour of "the beatings will continue until morale improves." Thanks, Raj! Maybe you could be a little more constructive?
However, even with the possible future volatility (and Raj, maybe work with us on that valuation issue?!) the actual current relief is coming soon. This allows many branches to shift the argument away from dire, immediate financial need to Universities cutting for funsies and grandiose "planning". In many cases, it should be possible to prevent the cuts altogether. In others, where there was worse financial mismanagement, it still opens up gentler paths. (E.g., "natural" attrition rather than voluntary or compulsory redundancies. Still not great from a workload perspective!)
Alas, for those who were brutally shoved out of the sector over the past three years, this is unlikely to help. This highlights the optionality of successive Governments attacks on the UK higher education sector: relatively small funding and policy decisions have massive negative effects.