Colleges could face having to stump up an extra £100 million to cover a shortfall in public sector pensions.

The Teacher Pension Scheme (TPS), which covers college staff, will be caught by government plans to raise employer contributions.

Currently, colleges contribute £350 million annually towards the TPS, but a technical notice issued by the Treasury last week indicates this figure could increase significantly.

'Financial crisis' for colleges

The Treasury has issued draft instructions to the government actuary about its plans to reduce the discount rate available for public sector pensions.

At the last valuation, this rate was set at the consumer prices index level of inflation plus 3 per cent (CPI + 3) but this could fall to CPI + 2.4 from 2019 onwards.

The Association of Colleges (AoC) has warned that this level of increase would “play havoc” with college budgets, without full compensation for the higher costs.

'Government needs to invest properly'

Sally Hunt, University and College Union general secretary said: “Colleges provide a vital public service but years of cuts have already led to a decline in the number of learning opportunities they can offer.

"The government needs to invest properly in the sector and ensure that any pension changes do not leave colleges with less money to spend on frontline education, now or in the future.”

On Monday, Bill Watkin, chief executive of the Sixth Form Colleges Association, said the FE sector could hit a “financial crisis” if colleges' contribution to teacher pensions is increased.