Do the maths to solve pensions time-bomb 1

January 14, 2010

Your article on final-salary pensions does not inspire confidence in those undertaking the Universities Superannuation Scheme review.

First, an 8 per cent technical deficit is trivial; stock market gains will shortly wipe it out. Second, if the problem is greater human longevity, a career-average pension deal is of no use: it will not reduce lifespans. Ditto if the problem is high wages in the sector: it will not cut pay. Because of greater longevity, the solution plainly is to raise members' contributions by 1 or 2 per cent.

It is important to resist illogical, visceral mutterings in the Government about final-salary pension schemes. Above all, it would be an error to try to cut university staff's pension yields, not merely because of the possibility of ex-post unfairness. Aggrieved human beings have endless, subtle and destructive ways of getting back at bad behaviour by employers. This would be damaging for students and the UK sector's global position.

Andrew J. Oswald, Professor of economics, University of Warwick.

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