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.”

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