Strike looms as universities seek end to USS defined benefit deal

University and College Union will ballot members on a national walkout over plans to move staff to defined contribution pension scheme

November 17, 2017
Pensions protester
Source: Alamy

Staff at UK universities look set to walk out early next year after employers unveiled plans to scrap pensions that guarantee a certain level of income in retirement.

In what the University and College Union described as a “bolt from the blue”, Universities UK announced on 17 November that it would seek to end the current system of defined benefit pensions run by the Universities Superannuation Scheme, which covers about 190,000 higher education staff in mainly pre-1992 institutions.

Instead, USS members would be enrolled in a defined contribution scheme, under which retirement incomes depend solely on returns from money invested in the stock market.

The proposals from UUK follow extensive talks with the UCU about how the USS should deal with a £5 billion deficit, as well as the rising cost of providing pensions.

However, Sally Hunt, general secretary of the UCU, described the new plan as “categorically the worst proposal I have received from universities on any issue in 20 years of representing university staff”.

The union will ballot staff over strike action, which could lead to the cancellation of lectures and classes at about 50 leading universities in February. In a consultative ballot that closed last month, 87 per cent of voters said that they would be willing to take strike action to defend pensions.

“After months of negotiations, these plans are a bolt from the blue and would effectively destroy the USS scheme,” said Ms Hunt, who explained that the plans would “remove members’ guarantees in retirement and leave them facing years of stress about whether their pension investments are returning enough income to live on”.

“If universities continue to pursue this action, they will face disruption on campus of a kind never seen before,” she added.

At present, the USS operates a hybrid scheme in which defined benefit pensions can be accumulated on salaries up to £55,550, with earnings above this threshold directed towards a defined contribution scheme.

Many experts had anticipated some reduction of the £55,550 threshold to fill the financial shortfall, but few had predicted these more radical measures unveiled by universities.

However, UUK said that difficult economic circumstances had led to an increased deficit alongside a significant increase in the cost of future defined benefit pensions, which now required “urgent action” to make the scheme more sustainable.

“The costs of USS need to be controlled to ensure that the scheme remains sustainable and secure for the long term,” said Alistair Jarvis, chief executive of UUK.

“Our proposals for reform will tackle the scheme’s funding challenges so that universities can continue to offer attractive pensions benefits to staff,” he added, stating that institutions intended to continue paying the 18 per cent of salary required by the scheme.

Under plans circulated to USS members in September, its trustees said that the fund’s current finances meant that the contribution rate needed to rise by 6 to 7 percentage points, from the current level of 26 per cent of members’ salaries, to cover the cost of future pension promises, the USS explained.

Employers now pay 18 per cent of an individual’s salary to the USS in pension contributions, while USS members pay 8 per cent under a revised scheme that came into effect in March 2016, which saw the end of accrual towards final-salary pensions. This would mean that universities and staff would have to pay in about £500 million extra each year to maintain current benefits, the USS’ chief executive Bill Galvin told the Financial Times earlier this month.

However, Mr Jarvis said that “most universities can’t afford to pay more into pensions without diverting money from other central areas, such as teaching or research”, and having to do so could “even undermine the sustainability of some institutions”.

“The option of no reform would be a dangerous gamble that employers are unwilling to take,” Mr Jarvis said.

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Reader's comments (4)

There is no 'financial shortfall'. What there is is a ludicrous valuation methodology said to be 'prudent' but in fact highly misleading because based on investments in gilts (government bonds), which represent only a minority percentage of USS investments. Most of its investments are in equities and properties and have performed extremely well, growing at a rate of 12% per annum over the past 5 years. USS’s 2017 Annual Report and Accounts give a Best Estimate fund valuation of £8.3 billion, up from £3.5 billion in 2014. So USS is fundamentally very strong: it makes more money each year than it pays out and is forecast to do so indefinitely far into the future. It is very cash rich and made investment income of about £1.5 billion last year on top of paying its pensions. So UUK needs to get its act together and oppose USS's daft valuation methodology and not just go along in the usual craven fashion with what some 'higher' authoority hands down to it. Otherwise unnecessary chaos looms in HE.
I predicted this outcome and am surprised that UCU see this as a bolt from the blue. It makes perfect sense for employers and all they need to do is trample over any feeble efforts at industrial action by the staff. The last hope is an indefinite strike until these proposals are withdrawn and the assumptions underlying the 'deficit' reviewed.
By the time we retire they will be no pension of any kind left, but hey, strike we will. And as Moss above said, there isn't any financial shortfall, and the THE should do better to highlight this. They are just working on ridiculous projections that have been called into question by several respected economists.
If there is no deficit, why not take money and show us how to invest. You seem experts on risk reward. Be sports and publish it for the rest of us to follow.