Pensioners must guard fund from employer raids

June 9, 2000

When the Universities Superannuation Scheme replaced the Federated Superannuation Scheme for Universities it was one of the best schemes around. But time moves on. Memory of the difficulties caused by the previous defined-contribution scheme has faded and competition in the pensions industry has made the USS look dowdy.

Meanwhile, academic salaries have fallen behind those in other professions, diminishing the comparative value of the defined-benefit scheme: 50 per cent of too little seems less generous each year. The USS's case is that its surplus is not unduly large; that it could dissolve rapidly; that it must not be used to make commitments that may not be sustainable; and (said more quietly) that the scheme is not obliged to do anything over and above its contractual obligations. Exemplary caution apart, there are strong pressures for the USS to use any surplus for employers' benefit. Vice-chancellors and union representatives have majority control of the USS. Both have a vested interest in keeping as much money as possible in institutions to help balance the books and, for example, to tackle gender discrimination in pay. If the government's spending review produces further cuts, pressures will increase.

Furthermore, cutting employers' contributions would make convergence with pension arrangements in new universities, where employers contribute 7.5 per cent, easier. Old university managers would like to level down, new universities cannot afford to level up.

The employer bias is evident. Nearly three times as much (Pounds 561 million) is being spent on reducing their contributions from 18 per cent to 14 per cent as on improving benefits (Pounds 201 million). Had the employers' contribution remained at 18 per cent for the past three years the surplus would be larger. Given the temptations, individual members need to put countervailing pressure on the USS to make sure surpluses are fairly shared. As Zaki Khorasanee says (page 22), the moral case for greater generosity to existing and future pensioners is strong. So is the pragmatic case. If employers' costs are reduced, the Treasury can claw back the saving. If the USS's surplus is reduced by improving benefits, it cannot.

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