USS pension changes ‘leave typical academics £240K worse off’

Average members set to get £18,200 a year in retirement under latest changes, compared with £23,800 under pre-2011 scheme

September 4, 2019
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Typical members of the UK’s Universities Superannuation Scheme will find themselves nearly £240,000 worse off in retirement as a result of changes made to pension contributions and benefits since 2011, according to a new analysis.

The study, commissioned by the University and College Union, says that high earners such as senior professors could end up more than £700,000 out of pocket. It was released ahead of the opening on 9 September of a ballot for industrial action over the latest changes to the scheme, which will increase members’ contributions to 9.6 per cent of their salary – up from 8.8 per cent currently, and 8 per cent before April.

The UCU modelling, conducted by First Actuarial and published on 4 September, calculates the cost of changes to contributions and benefits since the closure of the USS’ final salary scheme to new entrants in 2011, including the increase to 9.6 per cent.

It says that a typical academic with 30 years’ service who joined the scheme on point 37 of the national pay scale (currently £40,792) and retires on point 50 (£59,828) will be £239,200 worse off in retirement on the current terms, compared to the pre-2011 scheme.

This is the sum of a £40,900 increase in contributions and a £198,300 reduction in benefits, assuming annual salary growth of inflation plus 2 per cent.


Impact of USS changes at each pay scale

Impact of changes to Universities Superannuation Scheme since 2011


For a professor who moves up to the top of the professorial pay scale, the total loss comes to £734,400.

Presuming scheme members take a lump sum on retirement, this leaves the typical academic with a net annual pension of £18,200, rather than £23,800 under the pre-2011 scheme, and senior professors with £21,100 a year, instead of £40,600.

Even if salary growth proves slower – inflation plus 1 per cent – the total losses would still be substantial, estimated at £138,000 for typical academics, leaving them with £16,700 a year, instead of £23,500. Senior professors would lose £576,200, leaving them with £19,700 annually, down from £34,700.

The USS scheme has about 200,000 active members, mainly in pre-92 institutions. Members at 65 institutions walked out for 14 days over proposed changes to pensions last year.

Jo Grady, UCU’s general secretary, said that members had “had enough”.

“Universities have to recognise the anger and frustration that members feel about the recent changes, how the scheme has been valued and how it has been run,” she said. “It is not good enough to come back time and again with proposals that force members to pay more for reduced benefits.”

The analysis was released amid growing rancour between UCU and Universities UK, which represents vice-chancellors. Employer contributions are due to increase from 19.5 per cent to 21.1 per cent and UUK offered an additional 0.5 per cent for two years in return for a two-year moratorium on strikes. This would have limited employee contributions to 9.1 per cent – the level proposed by a joint expert panel set up by UUK and UCU after last year’s strike.

The UCU said that a strike moratorium was a “ludicrous” condition and UUK has since said it would offer the extra money if the upcoming strike ballot was called off. Fresh talks were due this week and Dr Grady said that any “serious” offer would be considered by the union’s higher education committee on 6 September.

However, there are fears that further increases will be necessary, with volatile financial markets being blamed for an increase in the scheme’s estimated deficit to £6.6 billion – far higher than the £3.6 billion figure used to draw up the latest proposals.

A UUK spokesman said: “Since 2011, the cost of providing defined benefit pensions has risen because people are living longer, and the economic environment has fundamentally changed. Scheme members will realise that winding the clock back to 2011 and freezing the scheme in time is just not credible.

“Compared with 2011, employers are now paying more than £400 million extra per annum into USS – having increased their contributions from 16 per cent to 21.1 per cent of salary from October 2019. This is far more than most other private pension schemes. This seems to be completely absent from the analysis.

“Crucially, members will keep their current benefits, which in monetary terms are more valuable than ever given the increased cost of providing pension promises.”

The strike ballot, covering 69 institutions, is due to run until 30 October. It will run alongside a separate ballot across 147 campuses calling for industrial action over the 2019-20 pay offer. The Universities and Colleges Employers Association offered a 1.8 per cent minimum rise, but unions wanted inflation as measured by the retail price index – currently 2.8 per cent – plus 3 per cent, or £3,349, whichever is greater.

POSTSCRIPT:

Print headline: USS changes ‘leave UK staff £240K worse off’

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Reader's comments (5)

"Assumes 30 years' service, 27 years' retirement" tells the whole story: it is clearly ludicrous to expect that you can be paid as many years for not working as for working. There is no "saving up" for retirement. All you can do is accumulate promises that someone else (younger) will keep working and pay for your living expenses - at the same time as they pay for their own and bring up the next generation of children to pay for their retirement. Those of us who were sold this promise of a comfortable life after paid work have to realise that it was based on an assumption that it wouldn't last more than a few years. If we're going to live forever we have to devise a new method of sharing out the world's economic output.
Any academic under 45 who is a member of USS is wasting their time with what has become simply a gratuitously unfair intergenerational asset transfer scheme. Transfer out anyone?
I totally agree! I am under 45 and would transfer out if I could. But the University is not willing to pay its contribution to any other scheme other than the USS scheme. I would gladly contribute to a DC scheme given my age but this is simply not being made available as an option - I would have to do this on my own and forgo any employer's contributions which would make this route untenable. Further, I feel that the unions are blinded by this pension issue. What they should be battling for is real wage increases as that has a greater impact on my ability to save for retirement. It seems that we are getting hurt both in our below-inflation pay rises and to the cuts in our pension benefits for which we are paying more and more.
It would be great if we could get all the employers to pay into a different, cheaper scheme like a lot of the post-92 unis. I'm amazed at how singular the debate on pensions has been, younger academics have been completely ignored. We need more diversity in the options available I totally agree.
I'm amazed that Professional Services staff are completely ignored in all reporting of the pensions issue. Many of these staff are fighting to preserve a pension which will allow them a modest retirement and not the one of luxury that the scheme guarantees to senior academics. It is also quite obscene that the most well paid staff are given an equivalent to the employers pension contribution as part of their remuneration package when their pension pot is full.

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