Final-salary pension in peril

October 19, 2007

Universities UK predicts stark choices in future retirement provision for academics. Melanie Newman reports. Academics may have to lose their final-salary pension schemes, according to a Universities UK report on the future of the sector's pension arrangements.

The report says that the sector faces a choice. It could follow the lead of most private-sector employers and abandon pensions based on an employee's salary at retirement age, or it could require academics to make higher monthly payments into their pensions and to work beyond normal retirement age.

The report, produced in association with the Universities and Colleges Employers Association, follows a UUK survey of 87 universities from across the sector, including those offering the Universities Superannuation Scheme (USS) and the Teachers Pension Scheme (TPS). The poll found that most universities want employees to share the burden of future rises in pension costs.

"There is a general feeling that members are getting a very good deal from the pension provided in the higher education sector, and an increase in member contributions would be reasonable," UUK's report says. It notes that increasing longevity means the cost of providing pensions is likely to rise.

The report outlines two possibilities for change. Pensions could be redesigned so that benefits are based on career average earnings rather than on final salaries. Or the final-salary scheme could be retained, with an arrangement for sharing the overall cost.

UUK's report says that retaining a final-salary scheme would be affordable only if benefit costs did not rise too high. It also argues that such a scheme would "not fit well with modern working practices", such as part- time working and short-term contracts.

In contrast, career-average schemes gave a "cheaper starting point" than final salary and were more flexible.

Tony Bruce, UUK's policy chief, said: "Retaining the current final-salary package will require adjustments and changes to be made."

One academic this week warned that an end to final-salary schemes would make a career in higher education less attractive. Robin Clark, senior lecturer at Aston University, said a good pension was a key factor in his decision to join academe from industry.

The University and College Union said it would consider negotiating future changes in pensions if provision remained affordable and secure.

The UUK survey also found widespread support for allocating the cost of early retirement to individual institutions, as is already the case for members of the Universities Superannuation Scheme who retire before the age of 60.

"There could be some appetite for a broader development of this process," UUK concludes.

The Employers Pension Forum, a group created by UUK and Ucea to discuss sector-wide pensions issues, will issue a further consultation on the options identified in the report.


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