Warning of a ‘winter of discontent’ over university pensions

Institutions told that UCU members are prepared to ‘dig in’ on pensions reform ahead of November marking boycott at 69 campuses

October 30, 2014

Source: Alamy

Warning signs: if the marking boycott proceeds and employers start docking pay then strike action may follow, experts say

Universities could face a “winter of discontent” of escalating industrial action if academics are docked pay for participating in a marking boycott over proposed pension reforms, it has been predicted.

While talks between employers and union representatives may be brought forward ahead of a planned assessment boycott, starting on 6 November, the two sides appear unlikely to reach a compromise over plans to alter the benefits paid by the Universities Superannuation Scheme.

Universities UK says that the University and College Union has “offered no proposals for reform of the USS”, but a recovery plan to fill a deficit of at least £8 billion is “unavoidable”.

Sally Hunt, UCU general secretary, claims that UUK’s proposals are “full of holes” and based on “misleading” information, while the union disputed the reasons for reducing the deficit.

Gregor Gall, professor of industrial relations at the University of Bradford, said he believed that the marking boycott called at pre-92 universities would go ahead as planned.

“The signs are that we are in for a ‘winter of discontent’ that will dramatically escalate when employers start docking pay,” said Professor Gall. “This could then lead to strike action as well in order to allow other UCU members to show solidarity to their fellow union members.”

Staff resolve ‘stronger’

Hundreds of thousands of students at 69 universities may be unable to sit exams if the action goes ahead, nor will they receive essay marks or feedback from their tutors.

The huge majority in the recent UCU ballot – 87 per cent of voters backed action short of a strike – suggests that staff resolve would be stronger than that shown earlier this year in the national pay dispute, Professor Gall added.

“UCU members are prepared to dig in on pensions because pensions have a more lasting impact on their standards of living,” he said.

Roger Seifert, professor of human resource management and industrial relations at the University of Wolverhampton, said the swift move to a marking boycott showed that the UCU had learned lessons from the last dispute, which saw support for strike action wane.

“Boycotts quickly reach into the heart of the university’s core business of teaching and marking,” said Professor Seifert.

Despite beginning in November, boycotts are “viable as more and more students need their work [verified] throughout the year”, he said. However, he added that they were also “problematic” because non-academic staff could not take part.

Christopher Mordue, partner at Pinsent Masons solicitors, which advises universities on employment issues, said that in his view a boycott’s impact “may be limited at this time of year”. He did not expect universities to withhold pay immediately, but “there is every sign that universities will be prepared to do this as soon as there is appreciable impact on students”.

“The days of disruptive action being taken without financial consequences for those taking part are long gone,” said Mr Mordue.

However, universities are in a difficult position over pay deductions because “individual institutions have little scope to resolve [the dispute] themselves”. Indeed, many institutions have expressed concerns over the UUK proposals, with some echoing the UCU’s belief that major reforms may be unnecessary because the fund’s deficit will fall over time once gilt yields recover from a historical low point.

In its response to a UUK consultation on USS reform, the University of Essex said that employers should consider a more gradual approach to pension reform.

“To jump, in a single bound, to a long-term solution risks unnecessary reductions in the rate of growth in membership of the USS,” it says.

In its response, the University of Cambridge says that the assumptions made by the USS actuary “may be overly prudent”, while the University of Warwick says it is worried that “unnecessarily pessimistic assumptions…may be forcing much starker reductions”.

The University of Oxford has said it requires more information to address employee concerns that “this valuation and associated benefit changes truly reflect the long-term financial situation of the scheme”.

In a statement, UUK said that the USS falls under the remit of The Pensions Regulator and had to meet certain minimum levels of funding.

“We are keen to hear about the UCU’s alternative proposals for reform to address the very substantial deficit and risks within the scheme,” said a UUK spokesman, who said it is willing to meet “as soon as possible” for further negotiations.

The UCU has said that it is keen to bring forward talks, but has claimed that the UUK has refused to negotiate and presented its plans as a “fait accompli”.


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Reader's comments (4)

For those who feel USS is 'unduly prudent', you should be fighting hardest for a DC scheme at current contribution levels, unleash your inner investment wizard show the faint hearts how its done, outperform USS. Plenty of blame to go round UCU knew this was coming years ago (over 90 % of employees have had their scheme ended in the UK, they are closing from the US to Nigeria for the same actuarial reasons). Its all very well to say fait accompli, but it is actuarial arithmetic that drives this, what is UCU's alternative? What logical disconnect allows one to say 'pensions slashed by 45 %' under new rules (which actually increase contributions!) but claims the 'current scheme is affordable'? Its a war against arithmetic. The employers waited until they got a crisis so big they can force through long term changes which could indeed harm younger staff. This is a deliberate strategy that as a side effect damages staff morale and students education, its disgusting. If they really cared, they would consulted years ago when there was time for a genuine discussion. Their current consultation is a sham, the boss class deserve the opprobrium heaped on them. Successive Government changed rules on pension investment tax relief, NI contributions, caps etc have made schemes more expensive. They have not been clear about why policy has to change and there are more changes to come (I happen to agree, pensions for higher rate tax payers are a scandalous transfer of money to the well off from the least well off). USS was run incompetently for years, at best it tracks the market, for fees it cannot justify. It was misused to pay full pensions to early retirees to avoid redundancy or sacking throughout the 90's and early 00's.
The previous poster claims the changes are driven by 'actuarial arithmetic' then cites none of his own. Instead he repeats the standard argument of inevitability. This is despite the 'actuarial arithmetic' behind the USS case having been scrutinized and found wanting by people who know their stuff. It can be read in the THE, here http://www.timeshighereducation.co.uk/comment/letters/false-assumptions-of-the-uss/2016525.article However, don't let a few facts, sorry, 'actuarial arithmetic' get in the way.
I am not an actuary. The difference between the letter writers and the actuaries is the assumptions. The arithmetic they use is the same. The actuaries are pessimistic, the authors challenge their pessimism. The errors are asymmetric, if the actuaries are wrong and the writers correct, everyone could win. If the authors are wrong and the actuaries right, three goes my pension. Today if we wound USS and bought market rate annuities, the fund has enough money to cover around 55% of this cost (the gils basis, the most pessimistic). The current deficit already assumes investment growth. There are no facts, merely guesses over a 40 year horizon. It is not that FS schemes are bust or too expensive per se, it is that the market conditions can predict them to be in deficit longer than anyone can stay solvent. Final salary schemes have been closed by charities, NGO's as well as companies for this reason. Its not even always about reducing contributions, the employers are raising their contribution (Why you might ask if it was a cost cutting exercise?). The point about continually estimating solvency and deficits is not some trivial matter, the rules were set up to prevent schemes running out of money and stiffing retirees. (The pension protection fund is currently looking after many bust schemes). If you think the USS actuaries are unrealistically pessimistic, why not campaign to get a defined contribution scheme with 16% contribution, you can invest the money yourself and sit back and retire on a better deal.
On arithmetic USS pays a CPI linked pension at 65 with 50% partner benefit if you die ( a perk for marrieds). You also get 1.5 x pension as lump sum. For a 50% joint life you need 33 times your desired income in savings, 34.5 to get your lump sum. (pension choices or annuity online website). If you take a 3% increase per year (but risk losing out if RPI increases) the cost is less about 27 times annual pension. If you come in at the same salary level, stay at it for 40 yrs how much would you need to save to get half pay? In a world where your salary increases at RPI as do your investments (note this is NOT investing in a cash ISA, they do earn less than RPI, you are taking some risk and investing in debt). You need to on average to save a sum equivalent to 42 % (0.5 x 34/40) of your salary each year. For 3% a year increase you get down about 33%. You of course get tax relief and employers contributions. How do actuarial assumptions affect this? (1) What is the rate of your salary growth, promoted early or late. Are pay rises above RPI or not? > If you get promoted early and stay there, it is relatively cheap to the scheme as your contributions are higher for longer. Late promotions are very expensive to the scheme since you saved much less than you get paid, jackpot winner. This is a complex modelling of salary drift and pay rises. In short you need to save more if your salary grows faster than RPI. (2) How quickly do your investments grow relative to RPI, what level of risk can you afford and for how long? In summary you need to save less, if your investments grow faster than RPI. > The RPI rate on investment has to be net of tax, as government taxes dividends to pension funds and net of management charges. Long term economic growth rates are low across the West, there are reasons to think secular stagnation and ageing population will depress investment returns. A pension contribution of 11% gives half salary after 40 years when growth is 7% per annum over RPI. (3) What is the annuity rate at retirement? > that itself is a complex mix of interest rates & life expectancy. If the rate rises you need to save less. Most of us would struggle to be sure about these things for five never mind forty years.

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