Government reforms planned for the teacher's pension fund are illegal because they interfere with the independence of colleges, the Association of Colleges said this week.
Legal advisers to the AOC said the measures aimed at curtailing early retirement would interfere with further education colleges' rights to determine their own conditions for redundancy, early retirement and staff restructuring.
The association has decided to sit on its advice until the outcome of the Association of Teachers and Lecturers' High Court bid next week to block the Government's proposed reforms. It will claim that it is unlawful for ministers to impose new rules for early retirement.
If ATL fails, the AOC is set to take ministers back to the High Court, arguing that the new criteria stipulated are illegal under powers granted to college governors under the 1992 Further and Higher Education Act.
Roger Ward, the AOC's chief executive, said: "Our prime concern is for the sanctity of the Teachers Superannuation Scheme. That needs protecting.
"The importance of having a properly invested and protected pension scheme is far more important than the short-term problems of the department tinkering with it."
Tactically, the AOC knows it is wise to sit on its detailed evidence until after the ATL action.
Its interpretation under the 1992 Act applies only to colleges, while the ATL's would apply to schools and colleges. AOC intervention, however, would delay attempts to impose new regulations more widely.
Managers are angry at what they see as the "sheer hypocrisy" of a Government that introduced the early retirement mechanism to bail itself out of problems of schools reorganisation in the 1980s. To blame schools and colleges for abusing the scheme is cynical in the extreme, they argue.
The proposed pension reforms will hit many colleges all the harder following the Further Education Funding Council decision not to renew the special fund, set up in 1993, to help colleges to meet the costs of "restructuring".
More than nine out of 10 colleges (92 per cent) drew Pounds 77.2m from the fund over the past three years to help to meet the costs of redundancy and early retirement.
The restructuring fund was used to support staff reductions - 1,500 in the past year - as colleges struggled to meet the Government's "efficiency" demands.
There has recently been controversy over the fund, which was stopped and the money shared out among colleges this year.
While there was a substantial lobby of principals and governors pressing for it to be renewed next year, many others felt it had become a drain on general funds for colleges that had failed to take a tough line soon enough on reorganisation.
The FEFC said it had considered the arguments for renewing the scheme. These include: the high initial costs of restructuring; the possible impact of industrial action following compulsory redundancies; the comfort it gives colleges considering further restructuring.
A key argument for renewal was "the likely impact on the sector of the proposed changes to the Teachers' Superannuation Scheme", said the council.
But arguments against swayed the council members. These included the fear that the fund would distort the decisions of managers, leading to higher pay-offs than necessary.
There was concern that "maximum severance payments" would become the norm, increasing the burden on the rest of the sector. It was also seen as creating too big a drain on funds generally available for the rest of the sector.
A survey by the FEFC suggested that six out of 10 colleges received less through the fund than they would have received had the funds been distributed as part of the mainstream spending.
Colleges with major restructuring plans still pending told The TES they would be warning staff this term to expect very tough bargaining on any redundancies.
Part-time staff with least protection were likely to be hardest hit and the next pay round would be close to zero as a result of the combined impact of the Government's pension reforms and non-renewal of the restructuring fund.