1. Assistant Chief Executive
Colleges and pensions
3 November 2016
Julian Gravatt
Assistant Chief Executive
@JulianGravatt

2. AoC and pensions Our representative role
Representing colleges on DFE (TPS) and LGA (LGPS) groups
Explaining college pension issues to government and others
Pressing HM Treasury to revisit public sector pension reforms
Our advisory role
No-one at AoC qualified to give regulated personal financial advice
Others better placed to help on individual issues (eg PPC)
Evidence some consultants do not understand pensions issues as they affect colleges

3. This webinar Topics Pension regulations and colleges (4 slides)
LGPS pension costs (5 slides)
The college insolvency reform (2 slide)
TPS pension costs (2 slides)
Final thoughts (1 slide)

4. Pension regulations

5. Teachers’ pension scheme (TPS)
Pensionable employment within Teachers’ Pension Scheme (TPS)
covers:
“A teacher employed by a governing body of an institution that is
within the further education sector” (as defined by section 90 of
Further and Higher Education Act 1992)
TPS Regs 2010, no 990, Schedule 2, Part 1, section 6 (page 95)

6. Local government pension scheme (LGPS)
Employment in Local Government Pension Scheme (LGPS)
“A person is eligible to be an active member of the scheme if
employed by a body listed in Schedule 2, Part 1”
..unless they are eligible to be a member of another public sector
pension scheme”
LGPS Regs 2013, no 2356, sections 3 and 4 plus Schedule 2, Part 1,

7. Pension regulations and colleges
Eligibility Teachers employed in a college eligible for TPS All other college staff eligible for LGPS Subsidiary companies Staff not eligible for TPS (unless seconded in) Staff eligible for LGPS if company is admitted
Support staff
Teachers

8. Pension – do colleges have an alternative?
TPS
Teachers in schools, colleges, post-1992 unis get TPS
High on-costs (16.48%) but no liability on institution
Subsidiary company staff cannot access TPS
Officials reviewing whether to designate subsidiaries under s.28 of the Act to secure TPS access (no guarantee this will happen)
LGPS
High and rising costs and liabilities. Exit very expensive
Subsidiary companies can be inside or outside of LGPS
Colleges able to offer an alternative scheme – but must not give advice
LGPS contributions may rise if there are fewer active members

9. LGPS Pension costs

10. LGPS 2014 Support staff Colleges 91 LGPS funds LGPS 2014
Income-related
Contributions %
Contributions
Range 10-25%
Average 15.8%
LGPS 2014
Career average pension
1/49th pensionable earnings accrued (fast)
Benefits revalued at CPI (slow)
Options for cheaper pension (50%)
10 year protection and Final salary link
91 LGPS funds
Plan for 8 investment funds

11. The 2016 LGPS valuation Key features
Decentralised system (91 funds, 91 valuations)
Common approaches (Scheme board, LGA, 4 actuaries)
Takes place every 3 years.
Values assets/liabilities as at 31 March 2016
Set contribution rates for 3 years from April 2017
Most colleges have an individual report and contribution rate
Room for negotiation on:
the assumptions about pay rises
the assessment of the employer’s financial standing
how to deal with any deficit

12. Pension valuations are college specific

13. The issues in 2016 LGPS wide issues
Low interest rates (impact on NPV, future returns)
Longevity slightly reduced (offsets other issues)
Widespread desire to tackle deficits
Growing concern on non-tax raising members
More funds plan to grade employer financial strength
Option to pledge assets or make cash payments
College specific issues
Recent funding cutbacks = fewer active members colleges
College insolvency consultation makes sector look riskier
Colleges may face pressure to pay back deficits faster

14. Tips for the valuation negotiation
Some lessons from recent past (tried in different places in 2013)
Find common ground with other colleges (and universities)
Don’t just accept the assumptions in the valuation
Don’t just accept the employer categorisation (esp not a grade C)
Explain the college’s financial plans and strengths
Discuss options (cash payment, negative pledge on buildings etc)
Focus on what you can control
Contributions will rise in April Affects c15% of college costs
Pension regulations prevent colleges making bigger changes

15. The college insolvency regime

16. The college insolvency plan
Background
Treasury insisted on this in return for restructuring funding
Government now reluctant to bail out colleges
Risk of disorderly insolvency because law is unclear
Special administration regimes exist in post, housing, energy etc
The plan (Technical and Further Education Bill)
Power for DfE to appoint a special administrator
Duty to protect students as well as creditors
Puts unsecured creditors (staff, LGPS) at greater risk

17. Insolvency issues Some issues and questions about the DfE plan
Unfortunate timing given LGPS valuation
Upsets a balance struck over 22 years
Risky to introduce special admin regime without pension reform
Overlap between statutory FE regime and HE student protection
Due to take effect in Enough time to review respective role of Ofsted, FE commissioner, SFA/EFA, Transaction Unit etc
Colleges are being pushed to become financially cautious

18. TPS Pension costs

19. Teachers’ Pension Scheme
TPS 2015
TPS 2015
Career average pension
Accrual at 1/57th (slower)
Option to buy faster 1/45th
Revalued CPI+1.6%
“10 year protection”
Pre-2015 benefits fixed
More expensive than LGPS
Reward long serving teachers
Union influence on DFE
Govt picks up costs
Colleges
Teachers
Fixed contribution 16.48%
Income related
Contribution
7.4% to 11.7%
Teachers’ Pension Scheme

20. Future TPS costs What we know
Current employer contribution (16.48%) is 4 points above the plan
Current valuation reported a 92% funding level as at 2012
Next valuation will assess scheme as at March 2016
Colleges employ 8% of TPS members so are a minority
Treasury anticipates higher employer contributions in
… this implies a TPS rate of 18% or more but who knows?
A cost control mechanism provides some weak control

21. Final thoughts

22. Future TPS costs What we know
Colleges have been tied into TPS and LGPS for decades
Pensions can & have derailed mergers & complex structures
College (ER) contributions average 16% and will rise
There are ways in which colleges can manage costs at the margin. Decisions on pay & staff have longer term pension implications
It will require changes to the law – and political will to do this – for matters to change in a substantial way
Any questions?
Now or see you at the AoC Conference (15 to 17 November 2016)
PPC pension conference 15 Nov 2016, 5pm