Real pension consequences

November 13, 2014

Perhaps, rather than being so keen to join in radically diminishing staff pensions, Universities UK might like to think more broadly and more long term about the unanticipated consequences of the unsightly rush to reform pensions.

USS reforms: gap widens to £21,000 on post-92 v redbrick pensions” (News, 9 October) cited one possible consequence: staff will ask for pay rises to compensate for sharply diminished pension rights. This will largely be resistible. But there is another consequence to consider, one that will not so easily be avoided: staff forced to carry on working.

Some will doubtless continue to be excellent but think of the stored up ill will. With no set retirement age for staff, universities will doubtless try to performance manage to invent reasons for forcing staff into retirement. More human resources advisers will be called in – as well as lawyers. How much time, effort and money will be spent on each unhappy case? What will it be like to be a student, taught by staff who had planned to draw their careers to a successful close but who are now forced by fear of post-retirement penury to cling on to their jobs?

These may possibly be unintended consequences but they are surely undesirable and they cannot now be called unanticipated. Yet this is the scenario being created by the pension reform proposals, one that will take one or two decades to fully play out.

University leaders: have you fully costed these effects? Younger staff: what effect will this have on your career progression? Future students and/or parents of future students: does this sound like a healthy, supportive and welcoming higher education environment?

The narrowness and short-termism of current thinking is breathtaking. And disgraceful.

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Although there is disagreement on the size of the Universities Superannuation Scheme deficit, there seems to be a consensus that there is a problem and some degree of benefit reduction is needed. The problem is how to make the changes in a way that both employers and employees feel is fair.

I propose that we first seek agreement on the contribution rates, which would be held constant, with the pension benefits to be earned in the next period adjusted at each valuation to fit the cost to the contribution rate. The interests of employers and employees would then be aligned in wanting to deliver the best pension for that contribution rate. They would be allied in resisting USS trustees’ desires for an inappropriate timing and amount of de-risking of the investments and for an overly cautious method of calculating the deficit.

For employers who believe in the current USS valuation method and think it will take 15-20 years to pay off the deficit, there is not much difference in agreeing to the proposed employers’ contribution rate of 18 per cent for that period and agreeing to it permanently.

For employees who think it is a temporary problem, the promise of constant contributions gives the prospect of benefits soon improving back towards current levels.

If employers are not willing to agree to pay a fixed rate, they will have a very hard time convincing anyone that their goal is not to force a reduction in benefits now so that they can decrease contributions in future. An employers’ contribution rate of 18 per cent is not historically unreasonable or even unusual. The employers’ rate was 18.55 per cent for nearly 14 years until it decreased to 14 per cent in January 1997, where it stayed until increasing to the current 16 per cent in October 2009.

Susan Cooper, professor of experimental physics
University of Oxford

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