The Association of Colleges (AoC) has cashed in a £9 million windfall after ditching a pension fund that posed a “significant risk” to its financial stability.
The membership body’s newly published 2025 annual accounts reveal it agreed a settlement with the London Pension Fund Authority after taking the “difficult decision” to remove its employees from the defined-benefit scheme.
The scheme was in deficit for many years, reaching a peak of minus-£21 million in 2021 which meant the college body was technically insolvent.
But following improvements in market conditions, including an increase in interest rates, meant the AoC could exit with a £9.44 million surplus.
Chair Shaid Mahmood (pictured, right) said: “The AoC was technically insolvent for a significant number of years due to the LPFA pension liability.
“Once the LPFA moved to a surplus in 2024, the board discussed the option to withdraw in order to remove the risk and secure AoC’s financial security.
“We had long and detailed discussions across a number of board meetings, giving significant consideration to various options and taking into account the impact on those members of staff who were in the pension.”
The move required the agreement of about half the association’s 148 staff body who were signed up to the scheme.
Hughes enters the £200k club
The 2024-25 accounts also revealed that AoC chief executive David Hughes’ (pictured, left) basic salary grew 5 per cent to £205,905.
This places his salary in the same group as 12 college principals whose basic salary was £200,000 or more per year in the 2023-24 financial year.
Mahmood said: “The remuneration of our chief executive is determined by the remuneration committee which considers performance and impact as well as the market rate for senior, national roles like this one in the same way we set pay at all levels.”
‘Principal risk’
Annual accounts for the college body show its board viewed the pension liability as the only “principal risk” to its financial stability.
The AoC’s fund had suffered a high deficit due to financial reporting standard (FRS) rule 102, which governs how pension liabilities and assets must be accounted for by companies.
This included the association’s lack of security that could be “offset” against the pension deficit, said Mahmood.
The board had chosen to over-pay pension contributions for several years to reduce the liability.
According to its accounts for the year to March 2025, the AoC held £5.4 million in its profit and loss account, a 20 per cent increase on the previous year, and £9.4 million in its pension reserve, a 100 per cent increase.
The London Pension Fund Authority was set up in 1989, has about £8 billion in assets, nearly 100,000 members and 115 contributing employers.
Staff agreed voluntarily
Mahmood said AoC staff were offered two options: either a LPFA defined-benefit pension that required employee contributions based on their salary level, or a defined contribution scheme that did not require contributions.
Defined-benefit pensions offer a guaranteed income for life based on an employee’s salary at or near retirement, and how long they have been in a scheme.
They are generally viewed as more lucrative than defined contribution pensions, which provide an income based on how much the employee and employer invest, and how well those investments perform.
Staff in the LPFA scheme are understood to have “voluntarily” agreed to the change after the AoC offered an “alternative defined-contribution rate” as part of their agreement to exit.
About £1.9 million has been ring-fenced from the £9.4 million to fund this.
Mahmood added: “Our new pension offer for all staff was enhanced and is a good benefit which we are proud to offer.”
Following staff approval, it took LPFA 10 months to undertake the “complex process” to calculate the final settlement.
How will AoC spend the cash?
The AoC has set up a reserves and investment sub-committee to manage its “enhanced reserves” and will share further details “in the new year”.
Mahmood said: “As a board, we are clear the reserves should be utilised carefully to both secure the long-term future of the AoC so that it can continue its work to address current member priorities as well as the position of the sector with government and in wider society.”
The AoC currently represents 191 college members.
A spokesperson for LPFA said: “The LPFA reported a 128 per cent funding level at its last Valuation in 2022 and whilst the 2025 valuation is not yet complete, we expect to report a surplus once again.
“Our latest annual report, published last month, reports consistent year-on-year growth.
“It is not for the LPFA to comment on the benefits the Association of Colleges decides to provide for its employees, but we continue to support employers that provide benefits under the Local Government Pension Scheme.”
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