UK universities are becoming “very concerned” amid growing speculation that chancellor Rachel Reeves will use next week’s budget to cap tax-free pension contributions – a move that could cost the sector £50 million.

Faced with a “black hole” in public finances, Reeves is expected place a £2,000 limit on the amount employees and employers can pay into a pension scheme without incurring national insurance payments, according to

Raj Jethwa, chief executive of the Universities and Colleges Employers Association (Ucea) has to James Murray, the chief secretary to the Treasury, to highlight the “significant” impact such a move could have on higher education institutions.

An initial “high-level estimate” calculated by Ucea puts the additional cost on individual institutions of between £1 million and £3 million a year in higher national insurance payments, and an overall cost to the sector of more than £50 million.

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These numbers, the employer body said, were likely to be an “underestimate” because they are only based on the Universities Superannuation Scheme (USS) and not the widely-used Teachers’ Pensions Scheme (TPS), which has far higher employer contribution rates.

Jethwa writes that the additional costs would add to the “significant financial strain” the sector already faces due to the declines in value of the undergraduate fee, falls in international student recruitment and the potential £620 million cost of the proposed international student fee levy.

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Such additional costs have already more than wiped out any additional income universities will receive from Labour’s plans to raise the tuition fee cap with inflation, Jethwa highlights.

He urged Murray to “carefully consider the financial impact of these increased costs” on the sector, particularly given that many higher education institutions “are anchor employers in their local communities”.

The cost of staff pensions has already significantly added to the financial woes of universities, particularly post-92 institutions who offer the TPS, which have seen contributions rise from 16.48 per cent to 28.68 per cent over the last decade, adding an extra £125million a year.

Jethwa said universities were “already reeling” from these changes and “the suggestion that there will also be a cut to other salary sacrifice benefits is also worrying”.

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His letter warns that “given the financial strain HEIs are already under, they may well seek to offset these additional costs”.

“These measures could include further redundancies, course closures or reducing spend on student teaching and other services.

“To put the £50 million per annum into perspective, this equates to the salaries for around 800 academic staff.

“We therefore ask government to consider the impact on HEIs if changes to salary sacrifice for pension contributions is being considered, particularly given other policies government is seeking to introduce which will add to the financial strains facing the HE sector.”

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tom.williams@timeshighereducation.com