The past six years have been bad ones for members of the UK’s Universities Superannuation Scheme (USS), the largest pension scheme in the higher education sector and one of the biggest private sector schemes in the UK. Twice have members seen the value of their pensions reduced and been asked to pay more for the privilege.
The reason is the valuation of the fund’s deficit by the USS, which uses methodology so prudently that it has become counterproductive and now stands in the way of efforts to retain benefits at a sustainable and attractive level.
Make no mistake, this is storing up fundamental problems in the academic labour market. Ten years ago, a report commissioned for Universities UK examined, among other things, the feasibility of having one pension scheme for academic staff rather than two. It concluded that a major barrier to any move of staff from the predominantly pre-92-based USS into the mainly post-92 Teachers’ Pension Scheme (TPS) was that the USS had superior benefits such as an earlier retirement age.
Now, after two damaging rounds of USS benefit cuts, the world has turned on its head. Research from First Actuarial, recently commissioned by the University and College Union, finds that while TPS members pay a little more in contributions, their cumulative pension benefits are far superior.
To give an example, a lecturer at the pre-92 University of Oxford, who makes normal progression up the national pay spine and retires after 30 years’ service, would receive about £150,000 less over the course of their retirement than a similar lecturer at post-92 Oxford Brookes University.
With pre- and post-92 universities existing cheek by jowl in most major cities, this situation is repeated throughout the UK, so that we now have in effect a two-tier pensions system for academic staff, with those in the TPS doing best.
I commissioned the research because members have been telling me since 2015 that the rival pension packages now on offer are influencing their decisions about where to work and, having seen the figures for myself, I believe them.
I am sure that some of our most famous institutions will be as concerned as I am about the recruitment, retention and reputational issues this creates as the news that Russell Group and other pre-92 institutions pay out the lowest pensions in the sector permeates outwards.
Yet, while urgent action is needed to address the issue, if we are not careful the situation could be about to get even worse. The next estimate of the USS deficit is currently under discussion. The UCU has real concerns about the methodology used but nonetheless I do believe that it is possible to reach an agreement that will at least retain benefits for members without increasing costs for employers.
But to achieve that, employers need to move away a little from their own assessment of risk. The USS is fundamentally a healthy and growing scheme that has enough cash flow to pay benefits at the current level for the next 100 years. Similarly, the higher education sector itself, while buffeted no doubt by Brexit, has seen income continue to rise and staff costs as a proportion of its expenditure continue to fall.
Most importantly, in an extensive independent study of the pre-92 sector commissioned by the USS itself, the conclusion is that the sector is strong and stable for at least the next 30 years. The USS is so assertive about this that they have even put it in the information videos that they make for members.
To make it plain, a small adjustment to the risk that employers are prepared to take would allow the sector some breathing space.
I will now be seeking meetings with vice-chancellors in USS institutions and my message will be clear: if you are prepared to work with us to find a way to retain benefits and keep contributions as they stand then you will find a willing partner in the UCU.
While we will not hesitate to act to defend members’ interests, I will do everything in my power to reach an agreement which, at the very least, does not further worsen the competitive position of USS institutions compared with TPS ones. Given how important pensions are as part of the sector’s overall pay package, I hope that others will work with us to achieve that sensible aim.
Sally Hunt is general secretary of the University and College Union.