Unrestricted income and expenditure reserves fell slightly from £24.1 billion at 31 July 2015 to £23.9 billion at 31 July 2016, once pension liabilities recorded on the balance sheet have been deducted. Pension schemes that are not recognised on the balance sheet are not included, such as the Teachers’ Pension Scheme (TPS), and yet these pension costs are still born by the employers.
This means that, at a sector level, unrestricted reserves are equivalent to 82.2 per cent of total income. Unrestricted reserves represent the value of the institution’s accumulated funds through surpluses reported in its income statement, on whose use there are no restrictions. They can be used as a proxy for the overall value of an institution. Institutions may also hold restricted reserves, such as endowments and donations, which can only be used for specific purposes.
The aggregate sector position masks a significant spread of financial strength and a concentration of large unrestricted reserves in a small number of institutions, with 10 institutions reporting half of the sector’s unrestricted reserve balance at 31 July 2016.
Unrestricted reserves as a percentage of total income also varied considerably at an institutional level. As at 31 July 2016, unrestricted reserves ranged between -38 and 411 per cent of total income.
Pension liabilities increased by £2.4 billion in 2015-16, to reach £9.5 billion at 31 July 2016, which was equivalent to a rise of 33 per cent.
These liabilities look set to rise further following outcomes of triennial reviews of two of the sector’s major pension schemes, the Universities Superannuation Scheme and Local Government Pension Schemes.
Increasing deficits are likely to require additional funding in the form of higher contributions, adding to the financial pressures on many institutions that participate in these schemes.