Ministers claim measures affecting lecturers' and teachers' pensions will leave colleges in pocket because a demand that they pay more towards early retirements will be offset by reduced pensions contributions.
They propose to take the saving into account when setting grants to the Further Education Funding Council, and to reduce the figure accordingly.
News of the claw-back plan, revealed in a correction to the Department for Education and Employment's original letter outlining proposed changes to the Teachers' Superannuation Scheme, has further angered principals already alarmed by the new rules.
John Mowbray, general secretary of the Association for College Management, said the pensions changes had caused outrage throughout the sector. He suggested the move was motivated by "a political agenda based on compulsory redundancy throughout the service". It would close down a major option for management in financial planning, he said.
A group of four Birmingham principals has written to FEFC chief executive David Melville outlining concerns and denying that the changes will produce any saving to colleges.
They insist that moves to make colleges pay a substantial portion of the basic pension of staff going early will outweigh a proposed 0.85 per cent cut in employers' contributions rates. At present, the teachers' pension fund - underwritten by the Treasury - picks up the early retirement bill, though colleges bear the cost of any enhancement.
The principals underline warnings that the effect of the pensions shake up, being introduced by the Government to stem a flood of early departures and save cash, will be an end to early retirement in colleges. They say: "We will inevitably see burnt-out lecturers in their 50s ineffectually going through the motions for years until they are 60." Students and the health of the sector will suffer as a result, they claim.
The DFEE says it does not expect colleges to be able to reduce levels of early retirement - which has proved a key means of restructuring to meet Government-imposed efficiency savings - for the next few years. It will estimate the cost of those departures, and ensure it is allowed for in the sector's grant when calculating the clawback, said a spokesman.
The Association of Colleges has written to education and employment minister James Paice to express concern over the pensions proposals, claiming they would effectively rule out early retirement, hampering colleges' ability to become more efficient.
The letter, from chief executive Roger Ward, also says that reducing employers' contributions until 2001 as planned would mean cash levels for already stretched teachers' pensions reduce further, forcing a substantial rise afterwards to replenish the fund.