Pension rejig set to inhibit job mobility

September 30, 2005

Moving jobs between old and new universities is about to become more difficult as pension schemes diverge further.

The problem is set to get worse as a result of the Pensions and Finance Acts coming into force on April 6 next year. The date, known in the pensions world as A-day, will mark the most radical reform of pensions for decades.

Some changes, such as raising the minimum retirement age from 50 to 55 from 2010, will be mandatory.

Others allow for flexibility, and it is here that the Universities Superannuation Scheme, which covers staff in pre-1992 universities, and the Teachers' Pension Scheme, which covers school teachers and staff in new universities, are moving in different directions.

Planning at the USS is well advanced. The proposed changes will have a major impact on older and wealthier members.

USS members face key decisions over how much of their pension to take in a lump sum, how much of their salaries to contribute to their pension funds and for how long (see box). The retirement age is set at 65.

For TPS members, the situation is less clear.

The scheme, which has set the pensionable age at 60, is hampered in its planning by a major battle between the unions and the Government over proposals to raise the retirement age from 60 to 65. Some aspects of A-day planning have had to take a back seat.

However, earlier draft proposals show that the TPS is set to embrace an even more flexible approach to retirement than it currently takes - allowing people to continue to work and draw a pension rather than simply leaving work one day and drawing a full pension the next.

The USS is yet to shift in this direction.

Peter Knight, retiring vice-chancellor of the University of Central England and a member of the Universities UK pensions committee, said: "It is the law of unintended consequences that this legislation will see further differences between pension schemes in higher education.

"It is difficult for the USS and TPS to talk to each other. The USS is run by trustees whose principal responsibility is to their existing members.

"The TPS is a government-funded scheme aimed at teachers. Academics account for just 6 per cent of membership."

Christine Cheeseman, assistant general secretary of the Association of the University Teachers, said: "Members have to actively request a pension transfer when they are already busy changing job.

"In some instances, members can lose out when it comes to drawing their benefit.

"This may restrict movement between old and new universities. As schemes diverge further this will get worse."

Different pension arrangements for academics have been one of the most enduring legacies of the binary divide. As higher education has embraced a new unified pay structure and the AUT and lecturers' union Natfhe move towards merger, pensions have remained divisive.

The need to develop a long-term pension solution for the sector has been recognised by the Higher Education Funding Council for England, which has just given nearly £70,000-worth of funding to UUK and the Universities and Colleges Employers' Association to devise a ten-year pensions strategy.

"We are in the process of appointing a committee that will report to the sector early next year," said Tony Bruce, director of policy at UUK.

"This is a wide-ranging review that will consider a single pension scheme for the whole sector - not just one scheme for academics, but also for all support staff."

But such a possibility looks a long way off. The Department for Education and Skills this year rejected proposals from UUK to introduce a voluntary scheme whereby new universities could put new staff into the USS rather than the TPS.

This would have been the first step towards a merged scheme for academics.

"The DfES did not like the voluntary nature of the scheme and was also not persuaded that it was necessary," Mr Bruce said.

Mr Knight described progress on the issue as "glacial".

He said: "Lord Dearing identified the need for a single pension scheme back in his inquiry in 1997. Nothing has happened since."

Declan Leyden, deputy director of Ucea, said: "Decisions about pensions have to be taken with an eye on the long term.

"A single scheme would certainly be neat and tidy and transferring between pension schemes is perceived by staff to be difficult.

"But it is important to remember that academics increasingly move in and out of the university sector. Any decision will have to be made in the light of future work patterns and the future of pensions."

A TPS official said that consultation - on changes the scheme is required to make to comply with the Pensions and Finance Act - would start this autumn.

"Negotiations will resume once agreement has been reached at the Public Services Forum on the framework within which public service pension reform will be taken forward," he said.


Key changes to the Universities Superannuation Scheme that will come into effect on April 6, 2006:

* Academics coming up to retirement age will be able to take 25 per cent of the lifetime allowance value of their benefits as a lump sum

* Members can pay up to 100 per cent of earnings into their pensions and still get tax relief. The previous limit was 15 per cent of earnings

* USS members will be permitted to pay added years additional voluntary contributions, up to a new limit specified by the USS of 15 per cent of salary

* Members will be allowed to continue contributing beyond 40 years of pensionable service, although employer contributions will be optional

* The Government has removed the statutory earnings cap, which currently stands at £105,600. This means that all earnings - no matter how high - can count towards a pension and will benefit from tax relief

* The minimum retirement age will rise from 50 to 55 from 2010.

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