Pensions ‘guarantee’ to save colleges £30m

Additional funding will also be handed to colleges to cover employer national insurance rises, estimated to be worth £100m

Additional funding will also be handed to colleges to cover employer national insurance rises, estimated to be worth £100m

12 Nov 2024, 11:13

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Colleges have been given a “crown guarantee” for the local government pension scheme (LGPS) that is expected to lower contribution rates and save them around £30 million, the skills minister has announced.

Jacqui Smith also confirmed that colleges will be included in a public sector subsidy to cover employer national insurance hikes from April – but it’s not yet clear whether this will be fully or partially funded.

The minister made the announcements during her speech at the Association of Colleges conference where she asserted that FE and colleges have too often been “sidelined” by governments, adding that Labour’s ministers will treat colleges “with respect”.

Pensions ‘guarantee’ 

Since 2013, academies have benefitted from a “guarantee” which ensures that all outstanding LGPS costs are paid to the pension funds in the event of an academy trust closure.

Government guidance states that the guarantee provides an “assurance to LGPS pension fund managers that academies are not ‘high-risk’ employers”.

The Association of Colleges and Sixth Form Colleges Association both called for this policy to be extended to colleges in their respective autumn budget submission.

The AoC outlined how the three college insolvencies declared between 2019 and 2022 – Hadlow College, West Kent and Ashford Colleges and St Mary’s College – have “hit confidence” among scheme administrators and prompted many to increase employer contribution rates by up to five percentage points in the period starting in April 2023. 

Every extra percentage point on contribution rates costs £12 million a year across the college sector, the AoC claimed.

The association made the case for an LGPS extension by stating that reclassification of colleges to the public sector in 2022 makes it very unlikely that the government would want to instigate insolvency proceedings in case of college financial failure. 

A government guarantee letter like the one DfE issued to academies – which in essence lowers the risk to the pension schemes – would “result in lower contribution rates for colleges, saving them many tens of millions”.

Skills minister Jacqui Smith announced today that the academy guarantee will now be extended to colleges.

She told AoC conference that the Department for Education estimates the “overall value” of that guarantee to the sector is “up to £30 million, freeing up much needed funding to support your work”.

The guarantee will apply to FE colleges, sixth-form colleges and designated institutions set up under the Further and Higher Education Act 1992 which are legally obliged to offer their non-teaching employees membership of the LGPS.

James Kewin, deputy chief executive of the Sixth Form Colleges Association, said: “The information and case studies that colleges provided was vital in getting this over the line, and DfE officials have worked hard to make this a reality. Extending the LGPS guarantee is a step towards addressing the range of funding inequalities faced by colleges.”

Employer NICs cover worth £100m

Chancellor Rachel Reeves announced at last month’s budget that employer national insurance contributions will rise by 1.2 percentage points from April.

The government previously said that public sector bodies will be provided with funding to cover the costs. Smith confirmed today this will include colleges. 

AoC chief executive David Hughes said: “I welcome her [Smith’s] announcement on both the LGPS guarantee and national insurance contributions, both of which show that this government wants to support colleges more. 

“This will make a huge financial difference to colleges; we estimate that the LGPS guarantee alone will save colleges around £30 million a year, with a lifetime saving of more than half a billion and the NIC funding will be over £100 million per year.”

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