Final salary pensions look set to be axed by the Universities Superannuation Scheme as part of radical plans to fill an estimated £13 billion deficit.
Under draft proposals drawn up by the fund’s trustees and circulated to employers, academics and other university staff will no longer be able to contribute towards pensions where retirement income is based on a worker’s last wage.
Instead, all active members of the USS – about 150,000 in total – would start to pay into schemes where benefits are calculated on a career average basis from 2015-16.
In addition, the final pension received under the career average system would be cut by 6 per cent under the proposals, Times Higher Education understands.
Promised benefits accrued up to 2015-16 would not be affected by the changes, which will end the two-tier system introduced in 2011 when final salary pensions closed to new joiners, but were preserved for existing members.
Those more modest proposals sparked walkouts at universities in 2011, with the latest plans likely to provoke calls for similar industrial action.
“Although disappointing, it is also no surprise that closing the final salary scheme is an option being posed by the USS,” said Michael MacNeil, head of bargaining at the University and College Union.
The union would be speaking to the employers over the coming weeks to “ensure the scheme remains sustainable and attractive”, he added.
A USS spokeswoman said it was “premature to discuss any specific proposals”, but it was likely that “higher contributions and/or other responses will be required” to address the deficit.
The plan to end so-called “gold-plated” pension deals has been circulating within universities for several weeks, with employers set to unveil their own suggestions at the end of June or in July.
The proposals – believed to be the favoured set of options under consideration – were seen by THE at a briefing for employers at the Universities Human Resources annual conference held near Warwick last week.
It follows the latest triennial valuation of the USS pension fund, which is said to have had an £8 billion deficit at the end of March, up from almost £3 billion in 2011, according to indicative results mentioned at the briefing.
However, it is believed that trustees want to go further than simply plugging the deficit and “de-risk” the fund by buying more lower-risk, lower-yield investments and selling some of its higher-risk stocks and shares, which make up about half of its assets.
That would depress asset income and increase the deficit, but put the scheme on a surer financial footing.
Once longer lifespan assumptions are also included, it would push the deficit to about £13 billion and require employers to increase their contributions from 16 per cent to 25.1 per cent (with employee contributions rising from 7.5 per cent to 12.3 per cent) in order to preserve the final salary scheme for existing members and clear the deficit within 15 years, trustees say.
Employers are said to have dismissed those contribution levels as “unsustainable”, saying they could pay about 16-18 per cent. But to keep employer and employee contributions roughly the same as the present level, the USS has advised that the link to final salary is broken, with everyone moving to the less generous career average scheme.
Independent pensions adviser John Ralfe – who last year warned that the USS’ deficit needed urgent attention – said the changes were required because the USS backed down from moving to career average for all members after the last triennial valuation.
“This is what was proposed in 2011. Even if it happens now it may be too little, too late [to clear the deficit],” he said.
However, any changes to the USS scheme, which is due to officially announce its deficit in September, will need to be agreed by employers and the UCU via the Joint Negotiating Committee for Higher Education Staff.
A spokesman for the Employers Pensions Forum, which represents Universities UK, GuildHE and the Universities and Colleges Employers Association, said employers “are still at the stage of considering options, not making proposals”.
If the plans go ahead, however, university staff will face a double blow on pensions, with employee contributions set to rise by 1.6 per cent in April 2016 owing to government pension changes, which will affect all UK workers.