Let's put this pension plan out to grass

August 21, 1998

LATER this year the government intends to issue a green paper on stakeholder pensions. Earlier this year the Association of University Teachers drew attention to the level of stress among university staff. Currently the government is seeking feedback on issues associated with fixed-term contracts. These are all parts of a picture relevant to every university in Britain.

The USS pension scheme is based on 80ths, ie the pension is calculated by years of service times final salary/80. There is no law that stipulates that pensions have to be calculated this way, and as this formula means that the maximum pension is achieved only with 40 years' service, there are strong arguments to suggest that it is time to think again.

This is where stress comes in. If academic staff are suffering from excessive workloads, why keep doing so until their mid-60s?

Then the fixed-term issue. The academic career path has changed. How many people today join the USS pension scheme before their 25th birthday? My experience would suggest that most actually join somewhere between 30 and 35. Even if this is atypical and the figure is slightly lower, it is extraordinarily difficult to plan on a 40-year pensionable career starting at age 30.

It seems clear that the pension schemes applied to higher education should be based on 30/60ths. Financial constraints will be used to argue that this is impossible. If so, it may be noteworthy: l that the majority of the premature retirements on grounds of ill-health that are funded by the USS pension scheme are attributable to stress-related causes l the prospect of retirement after 30 years' pensionable service should provide a light in the tunnel effect that should reduce the incidence of such claims l if staff were able to retire normally after 30 years, presumably some would do so in their late 50s and hence avoid falling ill at all l if not 30/60, how about 35/70 or some other fraction?

Then there is the question of "stakeholder" pensions. The idea is that we each take responsibility for funding our own retirement. This calls for a level of creativity beyond the current patterns in university reward systems, and should be linked into "cafeteria" systems of benefits where each person selects combinations of salary, retirement age, holiday entitlement or others within defined parameters, to bring about a package geared to their circumstances.

In short: trade in holidays (who among us uses them all?) for pension/early retirement - or fund the 30/60ths scheme with a reduction to a more normal pattern of annual leave coupled with some variation on the additional voluntary contribution scheme.

And before becoming too convinced by the "funding constraint" argument, remember that in January 1997 the employer contribution to USS was dropped from 21.5 per cent to 14.5 per cent. The savings were retained by the funding councils on the basis that they were better placed than individual universities to deal with such a windfall.

A change to 30/60ths from 40/80ths would generate costs to the pension scheme in three forms: l loss of ten years' contributions l loss of ten years' interest-growth l the pensions would be paid out for longer, not only by the number of years earlier that we all retire, but by the additional years we survive in consequence.

A reduction in stress-related ill-health retirements would probably only make a small impact to offset these, which leads to the strongest argument of all: the creation of dynamic change in the academic workforce. Most universities have at some time in the past decade launched funded early retirement schemes precisely to encourage staff over 55 to move along into retirement. What is the total cost of those ad hoc schemes? Would that money not be better spent on a planned basis so that the normal pattern was that staff would generally retire when they achieve 30 years' service, on a pension of 50 per cent of salary? The university could then re-engage part-time those who were still producing the goods. This must be a better way to organise the circus than the present system of rewarding those who "no longer fit the institutional profile" with extraordinarily expensive personal deals to enhance their pensionable service, and would create a phasing-down into retirement.

Posts would become available more frequently and opportunities would be available to the post-docs, readjusting career paths away from the insecurity of fixed-term contracts. A cohort of older staff working part-time on post-retirement contracts would also provide a "buffer" against financial variables.

The prospect of a mass exodus at the time of introduction of any change is probably too awful to contemplate, so there would have to be phasing over a period of years. The tendency towards stagnation in employment issues in universities, supported by the perilous financial situation of many institutions, will also serve to ensure that any change will happen only slowly. But surely we should at least be thinking about it.

Alastair McDougall is director of personnel at CardiffUniversity.

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