I love thinking about pensions. For those who do not, here are nine facts that I hope you might find useful in mulling over the future and that of your Universities Superannuation Scheme pension. For the most part, they seem to me to be happy facts.
First, start with ageing. You are likely to be on the planet about 11 years longer than your longest-lived grandparent. No guarantees: please do not come back to haunt my attic if you get what statisticians whimsically call a bad draw from the distribution. But lifespan is still increasing nearly two and a half years every decade. Hence, as was explained to us recently by a lively group of greying Nobel prizewinners at a scientific meeting on ageing held in the city of Stockholm, 68 literally is the new 57. One biologist pointed out that the majority of young females living in Stockholm at the moment will live to be 100. It is a new world.
Second, this is good news. Most of the extra years will be healthy ones – despite what is occasionally claimed by people who have not looked at the health data. In case you do not know, the men and women who currently report the highest levels of happiness in British and American surveys are those in their mid-seventies.
Third, for these reasons, I would urge you, if I may, to get into the habit of subtracting the number 11 from everything you ever hear, and everything you ever think, about age and ageing. In effect, we’re a decade younger. It is really hard to envisage this. We have been so conditioned by our upbringing and by remembering our grandfather sitting in his armchair. Even I still ask myself whether I will retire in my sixties, like my dad did, but logically I know that that is mad and old-fashioned thinking and I have to snap out of it. That would be like retiring in your fifties. So go across to your mirror right now and notice how cute you look in those jeans.
Fourth, it is therefore obvious that the USS needed to be altered. An extra reason, which is perhaps not so widely understood, is the remarkable one that the UK stock market has not risen in value since the year 2000. That was not predicted or predictable. So the returns from our invested USS funds have been awfully small, and we have to adapt to that.
Fifth, this proposed USS settlement is probably a decent compromise. The moral issue is one for those who work on the ethics of intergenerational transfers. But in terms of arithmetic, this settlement will do.
Sixth, there is much to be said for the idea that base salaries up to £55,000 will be treated more generously in the new pension era. The rich are good at surviving anything, and they can choose various strategies if they earn more than that.
Seventh, it is likely that future UK governments will speedily withdraw lots of the current tax breaks on pensions. So you might want to start saving more right away. This may sound less positive, but the new form of ISA is a good deal.
Eighth, one implication of the new scheme is that pay rates in academia will have to rise. In particular, because the giant losers in the rewritten USS pension rules are the really high earners such as business school professors and vice-chancellors, any labour economist will look at these new pension numbers and think: wages will eventually have to go up a lot for those kinds of individuals. In 2015, that probably sounds far-fetched, and it will admittedly take years to grind through. But mark my words: a decade or so from now, it will probably not be possible to get vice-chancellors for much less than half a million a year, and quite a bunch will likely earn a million. The old USS pension scheme made a vice-chancellor’s job tremendously attractive. That is gone. Something will have to offset it unless we are to have second-raters in that incredibly taxing and important job.
Ninth, it is excellent that there remains an element of knowing what your pension amount per year will be (or in the jargon there remains partly a “defined benefit” scheme). Lots of evidence in behavioural science and economics suggests that people do not plan properly for their pensions and know little about how to invest lump sums wisely. A giant advertising industry exists in our country to try to get us to forget that in 2041 we will need money to buy the sauvignon for the back of the two-person sea kayak. I look forward to being in that back seat. But not yet. I am subtracting 11 right now.