USS strike: why I won’t join the pensions strike

Qualified actuary and academic Nick Foster says the case for university pension reform cannot be ignored despite a brilliant anti-cuts PR campaign

三月 28, 2018
UCU pension strike
Source: PA

I fervently want to keep my defined benefit pension plan for purely selfish reasons.

However, it’s hard to justify why I should have a defined benefit pension – which is a superior option to the defined contribution alternative being offered to Universities Superannuation Scheme members – when the vast majority of DB schemes are already closed.

For instance, the DB pension scheme with my employer, the University of Leicester, was closed to new entrants since 2003 and to future accrual since March 2016. Is it realistic or reasonable to assume that grades 6 and above will continue to enjoy DB accrual indefinitely while grades 5 and below don’t?

We have also heard how something that is personally disadvantageous to one lecturer after another is therefore suddenly going to damage higher education irrevocably. This view depicts academic life as so uniquely risky that only the safety blanket of a DB pension will persuade people to do it. However, they are not seen necessary in many other top global universities. For example, all of the top universities in the US mainly have DC pension schemes.

The rationale for the change is not dubious. The vast majority of DB pension schemes follow the same funding approach as the one used by the USS that has revealed such large deficits, as was recently confirmed by research carried out by Punter Southall.

Neither do I agree that the funding approach proposed is unduly prudent, as many academics have claimed. A recent Green Paper, the consultation for which ended in May 2017, considered six questions, with the first focusing on whether current valuation measures were the right ones. It suggested that stricter interim funding targets be set for schemes that were severely underfunded and gave an example of what they meant by this as being less than 100 per cent funded on the Pension Protection Fund basis – USS was 82 per cent funded on the PPF basis at the last valuation.

As such, I have resigned my membership of the UCU as a result of this ill-conceived strike action. I urge other members who feel a similar discomfort about what they are being asked to do to consider whether they need to do the same.

I will admit – as the head of public sector pensions at KPMG also did recently – that the UCU has won the communications battle. Victory appears to be total.

However, there remains a problem, which we seem to be facing increasingly in recent years, from Trump to Brexit, and that is this: what to do when the victory you have won is based on campaign arguments that are fundamentally untrue, not backed by evidence or existing pensions legislation and, ultimately, undeliverable? Just keep saying no to any workable option that is put to you?

On the deficit, for instance, we know that the initial valuation proposed by the USS trustee to the pensions regulator, and the covenant assessment on which it was based (ie, the willingness and ability of the employers in UUK to continue paying contributions), were both rejected.

As this initial valuation disclosed a deficit of just over £5 billion, the proposal resulting in a £7.5 billion deficit finally presented to the Joint Negotiating Committee would appear to be as low as the trustee could reasonably go and still get the valuation past the regulator.

So, if the deficit is what it is and there is no scope for weakening the funding assumptions further, and maintaining current benefits on these funding assumptions involves contribution increases that are unacceptable to scheme members and the employers, what is this dispute about now?

The time has come for lecturers to decide what they want. If a £42,000 cap for three years while negotiations continue on a long-term structure of the scheme that doesn’t leave all risk with scheme members is not acceptable, we need to decide pretty quickly what is. Because once we move to a DC arrangement, the chances of us moving back to any form of risk sharing subsequently are, in my view, remote.

There are many possible alternative structures and many ways of sharing the risks between employers and scheme members. In particular, let’s not get too obsessed with collective DC schemes, the enabling legislation for which has yet to materialise. Consider all the alternatives and let proper negotiations commence.

Nick Foster is programme director for BSc mathematics and actuarial science at the University of Leicester’s Department of Mathematics, and a qualified actuary. This piece is taken from blogs on his personal website, We Know Zero.



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Reader's comments (9)

You may have a point, but your comparison with top US universities is incomplete. Salaries for academics are higher in the US. When I moved from the US to the UK, I took a substantial reduction in annual salary as a senior lecturer, but the greater security of the USS DB pension scheme made the swap more tolerable.
Thanks for the link to the Green Paper. It clarifies that the main concern of the Pensions Regulator is "The risk of employer insolvency": "The critical risk to members [of a pension scheme] (and the PPF [Pension Protection Fund]) is, therefore, insolvency of the sponsoring employer(s) at any point when the scheme is underfunded." (p 24) It is reasonable to worry about this, and to impose valuation assumptions based on a real risk of employer insolvency, where the employer is a company of the usual sort. It is obviously crazy to worry about this, or impose valuation assumptions based on a real risk of employer insolvency, where 'the employer' is, collectively, all 68 of the UK's pre-1992 universities. On any realistic valuation assumptions, there is either no deficit or a surplus-- so no need to change the scheme. Neither the PR nor the USS trustees should be making decisions on the basis of irrational assumptions.
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I’m so glad to be working at a post-92 institution where we continue to have a much better pension scheme than even the one that UCEA are trying to destroy. And don’t listen to any more nonsense from actuaries. They usually get things wrong.
Thanks for your opinion, and it is simply an opinion. I would rather wait to hear from experts regarding the valuation, which has caused this whole mess. You have neatly sidestepped the fact that post 92 university staff get much more generous pensions and that the whole sector get paid less than in alternative employment due to these benefits. You are clearly happy for our university system to deteriorate and become less competitive in a global world, turning them into retail outlets rather than centres of learning.
I have little personal stake in the pension dispute but will continue to support the strike action for a number of reasons . Firstly, lots of other younger academics have a lot to lose and the case for the proposed cuts has not been made convincingly. Second - I am a member of the UCU and don't pick and choose whether to support the union after an overwhelming majority of members opted for action in a democratic poll. Lastly - it is well past time that academics stopped being so supine in the face of relentless attacks on higher education in the form of "voluntary" redundancies (with a decent amount of bullying first), and bloated managerialism. I am not suggesting the strike will correct these issues of itself but I would rather have been a striking miner than a member of the UDM - though both ended up in the same position in the end.
Quite apart from your highly dubious claims about the deficit, your resignation from UCU, and your suggestion that others do likewise, will help in what way exactly?
UCU has not won the communications battle, empirically absolutely incorrect. UCU have been very poor; and if it is a battle, perhaps you can set out the terrain over which it is fought, and where the winning and losing arguments have been. As it is, academics working outside UCU are putting carefully argued, forensically detailed arguments into the public domain, for example here: If you think these can be rebutted, then they should be. If we are to stand on our academic expertise, then it seems to me, as someone with some expertise in group decision making, that the Pension industry - not least, actuaries - are in the grip of 'groupthink'. In this, the only solution for any pensions problem is to move to Defined Contribution. But what the problem is is then reverse-engineered to fit this 'solution'.
Nick Foster is just following the herd. His arguments are the familiar ones that we have heard so often. He is failing to address the main points. The fact is that the USS has a large surplus every year. It is not currently in deficit. He needs to spell out the argument. How is the scheme going to go from surplus to deficit? When is it going to happen? But all he does is talk about risk as if it is some kind of diabolical threat. He says other DB schemes have closed and been replaced by DC. So should ours. That is not an argument for closure of the USS which has a uniquely strong employer covenant. It is a counsel of despair. Remember a DC scheme does not provide a pension, which is an income for life. A DC scheme provides a pot which you have to turn into an annuity (very poor value) or drawdown (impossible to manage - the idea that you know the date of your own demise is rational choice individualism taken beyond credibility).