IN the long run, we all die. Before this happens, we all fancy a nice retirement. No one takes a job because it offers a good pension but, once there, a pension can persuade you to stay.
Vacancy levels in colleges are growing. They would be higher still without pensions - 51 per cent of further education lecturers in England are aged over 45. Many lecturers have skills they could transfer to the private sector but higher pay might be offset by a lower pension.
Pay levels in colleges are getting a lot of attention but the talk is all about salaries. Pensions rarely get a mention. The college sector will spend about pound;3.5 billion this year on gross pay. Pensions will account for about pound;400 million of this expenditure. The money is handed over by colleges and employees to the Teacher Pension Agency and to local government pension managers in return for promises about the future. It is a system that worked for most of the 20th century. A lot rests on it continuing to work in the future.
Two events this autumn will raise the profile of pensions in post-16 education. The first is the plan for a 13 per cent employer contribution to teacher pensions.
The current contribution rate is 8.3 per cent but the Department for Education and Skills wants a 50 per cent increase to take effect in April 2003. This will add pound;100m to college budgets in a full year. The department has promised to pay these costs but has not released any details.
The purpose of this move is to transfer the full costs of teacher pensions from the Treasury to the education sector. The TPA pays out pound;4bn to current pensioners and collects less than pound;3bn in total contributions. A 13 per cent contribution rate will reduce the gap between cash in and cash out but will not address the longer-term liabilities of the scheme. As teachers live longer, these continue to rise. The Government actuary department will make its report in 2003 and is likely to recommend higher contributions from employers.
Colleges also face increasing costs in support staff pensions. This will be made clear in their accounts this winter. A new accounting standard (FRS17) requires all colleges to value their pension commitments in these accounts. Support staff pensions are managed by local councils and, at the last count, 80 per cent of council pension funds were in deficit.
The financial position of all pension funds keeps deteriorating as a result of falling stock markets. The collective deficit in its support staff pensions is likely to exceed surpluses made anywhere else.
The growing cost of pensions begs the question whether the college sector is getting good value for its money. Pensions are, after all, deferred pay. Do the current pensions arrangements work better than alternatives, such as higher pay ?
The role of final salary pensions in retaining staff is a major argument in their favour. There are 200,000 people working in FE, a number which will grow in the next 10 years if government targets are to be delivered. The DfES’s post-16 skills dialogue report forecasts 18 per cent employment growth in this period.
The report also puts a number on the replacement demand needed to cover growth, retirements and resignations in colleges and universities. By 2010, post-16 education will need to replace 50 per cent of its current employees. The numbers needed in universities and colleges each year will exceed those needed in teaching, policing and other sectors with national advertising campaigns.
The demand will also be for degree-qualified people who can often earn more elsewhere. Universities have several carrots to offer recruits - colleges do not.
Colleges have always recruited widely to meet future staffing demand. A long-standing approach has been to use part-time staff. Official figures say that 60 per cent of college employees are part-time but this excludes agency staff. College vacancies tend to be part-time but flexible hours are attractive to many. The sector will need to use this idea to attract staff.
Part-timers have gained new employment rights but terms and conditions are still set by the needs of full-timers. A good example of this is in pensions, whose terms are dictated by government. Staff need to work 40 years to earn full final salary pensions. This suits full-timers who leave at the top but imposes growing costs on college budgets. An average salary scheme paying full pensions after shorter periods of service might meet the needs of employers and employees more effectively.
As with so many things in post-16 education, pensions are not within college control. But if we do not ask the questions, can we complain about the answers?
Julian Gravatt is finance director at the City Lit, London
