What will the end of final-salary pensions mean for academics?

As a consultation launches, employees consider the impact of the USS reforms

March 12, 2015

Source: Getty

We were told in 2011 that changes would ensure the USS’ long-term stability, but by 2015 the deficit was huge and further major benefit changes were introduced

“What frustrates me and people my age is that we want stability in planning for retirement,” reflects Thomas Scotto, professor of government at the University of Essex. “We were told in 2011 that benefit changes would ensure the USS’ long-term stability, but by 2015 the deficit was huge and further major benefit changes were introduced.”

In January, members of the University and College Union voted to accept the changes proposed to tackle a multibillion-pound deficit – key among them an end to final salary pensions (see “How the USS is changing” box), but Scotto is left wondering whether there will be yet more changes to the Universities Superannuation Scheme in 2020.

An American who moved from West Virginia University to Essex in 2007, he also believes that the new pension offer may make some US academics think twice about taking a position in the UK.

Of his own move, he says that pensions formed “part of my calculations”.

American academics have been willing to forgo the typically higher salaries of US institutions in exchange for the higher pension package available here, he believes.

“Shifting that balance will make the UK less competitive for top academics,” Scotto warns.

Pre-1992 universities could also lose some of their staff to newer higher education institutions, thinks Charles Sutcliffe, professor of finance at the ICMA Centre at the University of Reading’s Henley Business School.

“The post-1992 universities who are in the Teachers’ Pension Scheme will effectively be offering higher salaries when pensions are included,” says Sutcliffe, a former UCU-nominated USS director.

The proposed changes are now subject to a statutory 60-day consultation with employees, starting on 16 March 2015. The responses will be reviewed by employers and considered by the USS trustee board and the Joint Negotiating Committee.

The plans will then be finalised and confirmed to the USS trustee board, which will implement the revised benefit structure in time for April 2016.

Sutcliffe considers the current proposals to be an “overreaction” to the estimated £13 billion deficit measured by the triennial valuation in March 2014. He argues that the deficit – which was estimated to have risen to £20 billion by December 2014 – will have largely disappeared within 20 or 30 years as gilt yields rise from their current record low levels.

Simon Wood, professor in the department of mathematical sciences at the University of Bath, also thinks that the looming cuts to his pension are unnecessary given the “unduly pessimistic” assumptions used by the USS in its calculations.

Wood, who expects to retire in the next 15 to 18 years, fears that his pension will be cut by up to a third because of the proposed reforms, and is particularly dissatisfied by the manner in which his final salary contributions for past service will be treated.

“The USS is claiming that the ‘accrued benefits’ are ‘protected’, but it’s just not true,” says Wood. “Even if I never get another promotion-type pay rise, what I’ll get back from the USS for what I’ve paid in so far has been devalued by 15 to 30 per cent.”

That is because his pension on retirement will not relate to his final salary on retirement, as previously expected, but rather to his salary next year.

Uprating past accruals and the £55,000 defined salary threshold in line with the consumer price index, which has historically grown much more slowly than wages, will significantly erode the value of his pension, he says.

Others argue that the changes could reduce academia’s appeal to those working in industry.

Jim Bellingham, secretary of the School of the Physical Sciences at the University of Cambridge, returned to his alma mater in 2010 after 18 years in the Civil Service, including stints at what was then the Department of Trade and Industry, and the National Physical Laboratory.

“I transferred my accumulated [Civil Service pension] rights into the USS, on the clear basis that I was transferring them into a final salary, defined benefit scheme,” Bellingham told a meeting on the USS held at Senate House at Cambridge in October last year.

“It seems to me to be a breach of trust to change the way that past service is treated, whether that service is in the university or elsewhere,” he says, adding that he considers the modifications a “breach of the moral contract” implicit in his return to university life.

Despite the unhappiness they are causing among some older staff, the proposed changes are unlikely to put off PhD students or early career academics from pursuing their ambitions within higher education, believes Benjamin Poore, a teaching associate in Queen Mary University of London’s School of English and Drama.

Poore, an hourly paid lecturer, says the pension changes are “small potatoes” for postgraduates and postdoctoral researchers, who are dealing with far more immediate financial concerns.

“Plenty of hourly paid staff are not employed on contracts that remunerate them properly for their work – marking, attending lectures, holding office hours – let alone include them in the USS,” he points out.

“Short-term posts are now the norm at the beginning of one’s career, and they are unlikely to encourage anything other than short-term thinking,” Poore adds.

Indeed, nearly 50,000 university staff are already enrolled in the career average scheme introduced for new USS entrants in 2011, and thus will not be hit by the much-criticised end of final salary pensions.

Moreover, contends Sutcliffe, the career average scheme is “inherently fairer than final salary schemes”, as it removes the massive premium attached to late-career pay rises not enjoyed by all staff.

Lower paid staff on the current career average scheme and new entrants may in fact benefit from the new pension package, which will offer payments of 1/75th of salary compared with the current 1/80th, UCU negotiators have said.

However, Sutcliffe calls the introduction of a defined contribution scheme for the portion of salaries earned above £55,000 “very regrettable”, and argues that such schemes produce lower pensions than defined benefit ones.

But Jim Naismith, Bishop Wardlaw professor of chemical biology at the University of St Andrews, who has studied the USS, says defined benefit schemes are not inherently better than defined contribution schemes, despite appearing to guarantee a fixed income for pensioners.

He says that all schemes – both defined benefits and defined contribution – must strive to balance their books, and pension schemes cannot simply ignore this requirement in the hope that the economic conditions improve. Indeed, many of the 11 million people with supposedly guaranteed salary-linked pensions may face cuts to retirement incomes if the schemes are unable to cover promised payouts, Alan Rubenstein, chief executive of the Pension Protection Fund, warned in February.

“Those who shout the loudest about ‘overly cautious’ accounting should remember the pensioners in the pre-pension protection fund era who lost everything because companies had been ‘optimistic’ about pension returns,” says Naismith.

Old man wearing baseball cap and gold chains

How the USS is changing

Under the proposed plans for the Universities Superannuation Scheme, pension payments towards a final salary pension will cease on 31 March 2016.

Benefits accumulated under the scheme up to this point will be protected, but will relate to an employee’s salary in March 2016 (uprated annually by the consumer price index) rather than their final salary on retirement.

All active members of the USS will start to pay into a scheme where benefits are calculated on the basis of career average earnings, otherwise known as career revalued benefits (CRB).

In the new scheme, defined benefits will be based on an accrual rate of 1/75th of pensionable salary, rather than the previously mooted rate of 1/80th, which is the current accrual rate.

Employee contributions will also rise to 8 per cent of salary, up from the 6.5 per cent outlined in the October plans.

Employer contributions will rise from 16 per cent to 18 per cent of salary until at least 2020 – a period in which two valuations of the USS will take place.

In addition, members will be able to earn CRB on the first £55,000 of their pensionable salary, compared with the £50,000 proposed in October. Above £55,000, employers will pay 12 per cent of salary into a defined contribution scheme and staff can top it up by paying in an extra 1 per cent, which employers would match. The salary threshold will be uprated each year in line with inflation.

Jack Grove

An academic’s view: The 2008 crash provided the opportunity for an attack on pensions

Like most members of the Universities Superannuation Scheme, I was made both angry and anxious by the announcement last year that the USS was proposing to close its final salary scheme (along with other benefits) not only for new entrants but now for existing members, too.

In my case, as a latecomer to a university career I stood to benefit, fairly or unfairly, from the final salary scheme when I obtained a full-time professorial position. Anxiety was not helped by somewhat alarmist reports that people might lose up to 50 per cent of their pension, according to an analysis by pension consultants (“USS reforms seen as ‘radical attack’ on pensions”, Times Higher Education, 18 September 2014), and by the refusal of the USS to divulge what my revised pension might be so that I could start to plan alternative provision in the years left before my retirement.

Like many of my colleagues, I voted for industrial action to oppose the “reforms”. I did so not just for personal reasons, but also because of the broader politics of the issue. Pension contributions make up a very substantial chunk of any employer’s outgoings. When profits are squeezed, employers look around for means of reducing costs. Jobs are the easiest targets, followed by wages and pension contributions and liabilities. The 2008 crash provided the opportunity for a widespread attack on pensions – particularly final salary pensions, which were declared to be, like the welfare state, unaffordable.

The evil genius of the neoliberal revolution of the 1980s was to transfer pensions into capitalist investment portfolios so that all of us, whether we like it or not, are dependent on the profits of capitalist business and finance for our old age, at the same time locking us into a system that is inherently unstable and prone to periodic crises.

The ubiquitous rhetoric about the “pension time bomb” cunningly dumps responsibility for the failings of capitalist-financed pension funds on individual savers. When the bad times come, the institutions of capitalism seek to reduce their obligations; by rights, when (if) George Osborne’s interminably heralded economic recovery happens, the pension benefits that we signed up for in good faith should be restored. Don’t hold your breath on either count.

But there is a university-specific agenda here too. As income from student loans dwindles year on year, and as the lifting of the cap on student numbers introduces yet more market-led competition into the system, the current government’s long-term plan is to flog off uncompetitive universities to corporate for-profit bidders, giving them access to the rich pickings of publicly funded student loans.

The salaries, pensions and employment rights of university workers represent one of the greatest obstacles to this plan. Hence the real-term decline in salaries, the increasing casualisation of university employees, and now the assault on pensions, which is designed to limit the liability of employers and to transfer the burden, and risk, to employees.

The new USS threshold cap on defined payments will, as the agents of neoliberalism wish, force many into the exploitative private pension market to make up the shortfall.

After the suspension of industrial action in November of last year, a second University and College Union ballot on whether to accept a revised USS offer took place. Endorsing the UCU higher education committee’s recommendation that members accept the revised proposals negotiated by the UCU, the Independent Broad Left group on the UCU national executive put out a statement in support of the proposals.

Although the UCU, along with many eminent economists, has questioned the methodology used by the USS to measure the deficit, the tortuously phrased statement declared that “unfortunately, the reality of us changing what is regarded as economic orthodoxy is that this is an immense task”.

If a trade union representing academics is unwilling or unable to challenge economic orthodoxy (the same economic orthodoxy that got us into this mess in the first place), what hope is there for any challenge to the prevailing economic order? And having seen how easily union members capitulated in this skirmish, UUK plc can now turn its attention to the last barrier that remains to the dismantling of the British university system in preparation for its knock-down sell-off – the national pay framework – reassured that they will face little significant opposition.

Nicholas Till is professor of opera and music theatre and Leverhulme research fellow at the University of Sussex.

An Economist’s view: nine reasons to be cheerful

I love thinking about pensions. For those who do not, here are nine facts that I hope you might find useful in mulling over the future and that of your Universities Superannuation Scheme pension. For the most part, they seem to me to be happy facts.

First, start with ageing. You are likely to be on the planet about 11 years longer than your longest-lived grandparent. No guarantees: please do not come back to haunt my attic if you get what statisticians whimsically call a bad draw from the distribution. But lifespan is still increasing nearly two and a half years every decade. Hence, as was explained to us recently by a lively group of greying Nobel prizewinners at a scientific meeting on ageing held in the city of Stockholm, 68 literally is the new 57. One biologist pointed out that the majority of young females living in Stockholm at the moment will live to be 100. It is a new world.

Second, this is good news. Most of the extra years will be healthy ones – despite what is occasionally claimed by people who have not looked at the health data. In case you do not know, the men and women who currently report the highest levels of happiness in British and American surveys are those in their mid-seventies.

Third, for these reasons, I would urge you, if I may, to get into the habit of subtracting the number 11 from everything you ever hear, and everything you ever think, about age and ageing. In effect, we’re a decade younger. It is really hard to envisage this. We have been so conditioned by our upbringing and by remembering our grandfather sitting in his armchair. Even I still ask myself whether I will retire in my sixties, like my dad did, but logically I know that that is mad and old-fashioned thinking and I have to snap out of it. That would be like retiring in your fifties.

So go across to your mirror right now and notice how cute you look in those jeans.

Fourth, it is therefore obvious that the USS needed to be altered. An extra reason, which is perhaps not so widely understood, is the remarkable one that the UK stock market has not risen in value since the year 2000. That was not predicted or predictable. So the returns from our invested USS funds have been awfully small, and we have to adapt to that.

Fifth, this proposed USS settlement is probably a decent compromise. The moral issue is one for those who work on the ethics of intergenerational transfers. But in terms of arithmetic, this settlement will do.

Sixth, there is much to be said for the idea that base salaries up to £55,000 will be treated more generously in the new pension era. The rich are good at surviving anything, and they can choose various strategies if they earn more than that.

Seventh, it is likely that future UK governments will speedily withdraw lots of the current tax breaks on pensions. So you might want to start saving more right away. This may sound less positive, but the new form of ISA is a good deal.

Eighth, one implication of the new scheme is that pay rates in academia will have to rise. In particular, because the giant losers in the rewritten USS pension rules are the really high earners such as business school professors and vice-chancellors, any labour economist will look at these new pension numbers and think: wages will eventually have to go up a lot for those kinds of individuals. In 2015, that probably sounds far-fetched, and it will admittedly take years to grind through. But mark my words: a decade or so from now, it will probably not be possible to get vice-chancellors for much less than half a million a year, and quite a bunch will likely earn a million. The old USS pension scheme made a vice-chancellor’s job tremendously attractive. That is gone. Something will have to offset it unless we are to have second-raters in that incredibly taxing and important job.

Ninth, it is excellent that there remains an element of knowing what your pension amount per year will be (or in the jargon there remains partly a “defined benefit” scheme). Lots of evidence in behavioural science and economics suggests that people do not plan properly for their pensions and know little about how to invest lump sums wisely. A giant advertising industry exists in our country to try to get us to forget that in 2041 we will need money to buy the sauvignon for the back of the two-person sea kayak. I look forward to being in that back seat. But not yet. I am subtracting 11 right now.

Andrew Oswald is professor of economics at the University of Warwick.

Wellington boot crushing garden gnome

An independent expert’s view: the changes are justifiable

The Universities Superannuation Scheme is a huge pension scheme with tens of thousands of members. It is also one of the few remaining open defined benefit schemes, with the employer currently guaranteeing pensions for all new and existing staff. This means that there are continuing incoming contributions, in contrast to most other private sector pensions, which are now closed. An open pension scheme should be able to afford to take a longer-term view of its liabilities and investments.

Plans to repair pension deficits must also consider the risk of the sponsoring employers becoming bankrupt. For the USS, this risk should be lower than for conventional private sector firms. Of course, it is a possibility – but it is hard to imagine the government allowing universities to become insolvent because of their pension liabilities.

The USS is a large scheme with a large deficit, although as a percentage of its liabilities, its deficit is not wildly out of proportion to those of many other pension funds, which have all suffered as a result of the Bank of England’s policy of forcing down long-term bond yields. The Pension Protection Fund recently reported that pension deficits have reached record highs. The Bank of England has been artificially distorting long-term interest rates, which increases UK pension liabilities by far more than the increase in their assets, thereby worsening scheme deficits.

Pension deficits will fluctuate, depending on what happens to investment markets. A pension deficit is merely a snapshot in time, depending on market prices as at today – it is only an estimate of the adequacy of the funding. Whether or not it will be the “right” figure will be clear only over the very long term. As markets have been so volatile in recent years, pension valuations have been volatile too, with the volatility of each scheme depending on its particular investment approach. The volatility itself may not matter, though, as these are very long-term liabilities; the majority of a scheme’s pensions do not require immediate payment.

Along with most other UK pension schemes, the USS relied too heavily in the past on returns from equities in the hope that this would deliver enough to meet its pension liabilities. However, movements in stock markets have not kept up with increases in the estimated pension liabilities.

Pension liabilities change in line with salary inflation, price inflation, interest rates and longevity – and no single asset can match all of these. To help overcome a deficit as well as keeping up with liabilities, pension schemes need additional diversification, beyond just equities and bonds. The USS has been adjusting its strategy over the past few years to achieve this, and I think its asset allocation decisions have been sensible.

Although I believe that pension valuation methodology is distorted by the Bank of England’s policies and does not necessarily represent the “correct” view of long-term liabilities, I think the proposed USS scheme benefit changes are justifiable. They will bring it more into line with other pension schemes in the public sector and are still much more generous than most in the private sector. A career average scheme is generally fairer to the majority of members because final salary rewards the high-paid high-flyers most. Member contributions are still far lower than the true value of benefits.

Any pension valuation is only a rough estimate – a “best guess” of how much money will be needed to pay the pensions over a long period of time. Valuations are based on assumptions. Inevitably, these could turn out to be wrong. Actuaries try to make reasonable assumptions about variables such as: how long members are likely to live; what will happen to investment returns; what will happen to interest rates; what inflation will be; what salary inflation will be. But of course nobody can predict these variables over the next 60 years with reliable accuracy.

The UK pension system has a “scheme-specific” funding methodology. This means that schemes can use different assumptions for each of the variables that need to be predicted for the valuation. The USS uses its own estimates (based on advice from its investment consultants and in-house team), which will not necessarily be in line with those used by other schemes.

Many of the assumptions can be criticised, and mathematicians, statisticians and actuaries will each have their own views on what is “reasonable”. We simply don’t know who is right.

What is certain, however, is that the lower the interest rate, the more money a pension fund will apparently need to have in it today to be able to provide future pensions – as the assumed return on investments will be lower. However, I don’t think it is reasonable to assume interest rates on long bonds will remain at their current exceptionally low levels for decades. Many actuaries believe that you should use the current yield because this is the “market view” of where interest rates are heading. My view is that this isn’t a true “market view” because the market itself has been distorted by the purchase of long-maturity gilts by the Bank of England. The Bank of England now owns more than half of many long-dated gilt issues – this cannot be a free market.

Uncertainty about the true cost of providing pensions is one of the reasons why employers are pulling out of defined benefit provision. It is also a reason to consider moving from final salary to career average pensions, since this takes away the need to predict the salaries people will have at the end of their career.

Is the USS right to react to its deficit by trying to reduce future liabilities? Everyone is entitled to their view. Although I believe that the deficits currently being reported by pension schemes are artificially high as a result of exceptional monetary policy measures, and a longer term view might well support using a higher interest rate for the long bond yield discount rate, I still think it is sensible to make some changes to improve the affordability of the pension scheme.

Ros Altmann is an independent UK pensions expert and campaigner.

The trajectory of change: a timeline of the reforms

November 2008
Commentators claim that the USS pursues a ‘risk-accepting’ investment policy and warn that it may have been hit hard by the credit crunch

December 2008
The USS’ chief investment officer says that the scheme has seen a ‘significant fall’ in value and admits that ‘things could get worse’

July 2010
Sir Andrew Cubie, independent chair of the Joint Negotiating Committee for the USS, uses his casting vote to back employers’ proposals to create a two-tier system. From October 2011, new entrants will join a career-average scheme; existing staff will stay on final salary deals. Final salary contributions rise to 7.5 per cent of salary. The normal pension age climbs from 60 to 65, and further rises will reflect state pension age

June 2011
USS trustees approve new pension terms despite widespread opposition from University and College Union members

October 2011
The two-tier system is implemented. The 2011 triennial valuation shows that the funding position has deteriorated since 2010. The USS is judged to be 92 per cent funded, down from 98 per cent in 2010, and leaving a £2.9 billion deficit

November 2011
Staff hold a one-day strike over pensions. An Employers Pensions Forum spokesman says there is ‘no suggestion’ that the employers would seek further changes to benefits despite the larger deficit

September 2012
Results of an interim valuation show that the USS deficit is now £9.8 billion and that the scheme is 77 per cent funded

August 2013
Bill Galvin, former chief executive of the Pensions Regulator, takes over as USS chief executive

October 2013
The deficit hits £11.5 billion and makes headlines on BBC Two’s Newsnight and BBC Radio 4’s Today programme

May 2014
Times Higher Education reveals that employers are considering plans to axe the final salary scheme for members, with the aim of tackling an estimated £13 billion deficit

July 2014
Writing in THE, Anton Muscatelli, chair of the Employers Pensions Forum, says that employers want ‘an extension of the [career revalued benefits] section to all active members and the closure of the final salary section’

September 2014
It emerges that the USS’ top paid employee, believed to be chief investment officer Roger Gray, received £900,000 in 2013-14. The scheme is 85 per cent funded, finds the 2014 triennial valuation, with the deficit about £7 billion. THE reveals details of the plans to cut pensions circulating among employers, including a £40,000 salary cap on defined benefit pensions

October 2014
Universities unveil their plans, adjusted since consultation with employers. Staff back a marking boycott – voting 87 per cent in favour – in a ballot over the draft plans. Universities threaten to withhold 100 per cent of wages from staff taking part

November 2014
A marking boycott is held but then suspended after two weeks to allow negotiations to take place

January 2015
A new pension offer is put to a ballot of UCU members and is accepted by two to one. The JNC signs off the deal

Times Higher Education free 30-day trial

Register to continue

Why register?

  • Registration is free and only takes a moment
  • Once registered, you can read 3 articles a month
  • Sign up for our newsletter
Please Login or Register to read this article.

Reader's comments (5)

Thank you for a thorough article. I realize that there are always space constraints, but the reason I originally was interested in doing an interview about the pension changes is that I think my age group would be better off moving to a full defined contribution scheme. It's not that University employers in the UK are not generous--there are very few institutions of higher education in the United States where the employers contribute 15%+ to pensions. At WVU, when I was employed, the match was a mere 6.5%. I would rather see a payment of 14% by the employer into a TIAA-CREF type equivalent made binding on employers for the lifetime of my service, match with 8% of my own money and be done with the constant negotiation, things may change in 2020, etc. That would be 4% less than the employers are set to contribute to earners in the under 55K bracket. Take that money and use it to pay off obligations from the Defined Contribution era and call it a day. To reiterate, a 14% contribution by employers would still put UK institutions ahead of most US counterparts. It's the uncertainty that's the problem. Obviously, the market brings uncertainty--but I find that form of uncertainty much less stressful and easier to plan for than the whims of government bureaucrats and pension regulators. -Thomas Scotto
^ Whoops--it's late--I meant "pay off obligations from the Defined Benefit era..." Sorry. TS
Finally it's being pointed out that the accrued benefits that will be honoured will, in fact not be if you consider 'final salarly' to actaully be your final salary and not your salary when it closes. It's more like cancellation than closure of the scheme. I worked out that having joined USS mid career with a promotion in the future that I will now have to live 9 years beyond my life expectancy to get the same future value of my current pension 'terms'.
There are a few points in here that desperately need challenging. Firstly the "deficit" within USS is entirely a paper exercise and it's magnitude is highly dependent on the method used to calculate it. The USS pension scheme is currently cash positive, ie it takes in more money from contributions than it pays out to pensioners. Furthermore it is also still a growing scheme meaning the number of people paying into the scheme in comparison to the number of people drawing their pensions is growing. As such to claim that it is in trouble is a little farcical. In addition the investment portfolio of USS is doing comparatively well. So much so that one of the chief investment officers (I'm not sure of the exact title) received a 50% pay increase in the last few year to recognize the significant nonperformance of the scheme. The deficit only occurs if you assume that all USS institutions, 96 of the wealthiest and oldest (some are over 1000 years old!) universities in the country and the world, all close immediately at once. This is obviously not going to happen in any foreseeable future and if it does so the likelihood is losing our pensions would be the least of our worries. The changes being made to the scheme are being done so on this assumption. As such the changes aren't really justified when looking at what is likely or even unlikely to happen, only when the vanishingly small chance of this happening is taken into account can these changes be justified. The HE sector is not a single employer and is quite frankly one of the most stable of all sectors in the economy. Next the methodology of how the deficit has been calculated has been widely discredited. The pensions regulator has called some of the assumptions "excessively pessimistic" and the pensions regulator is not exactly known for their imprudence. One example is that wage growth is assumed to occur as if there was a booming economy while simultaneously investment growth is consider to be growing as if there was recession. Obviously this does not make sense and has the effect of artificially enlarging the "deficit" which I must reiterate only occurs assuming all USS institutions close simultaneously. There are numerous examples of these dodgy assumptions used to calculate the "deficit" which have been laid out by First Actuarial and a number of leading Academics in economics and actuarial science. The net result of which is to create an excuse to attack the scheme and slowly but surely move it towards a DC scheme which shifts all risk to the employee away from the employer making it easier for the HE sector to be privatized. Another issue which needs raising is the fund valuation methodology. Currently USS uses a system which assumes all its assets are UK government gilts which have a historically low rate of return at the moment. The problem is most of the fund isn't invested in these because of the poor rate of return and the fact that the scheme can afford to take a long term view to investments. This makes the scheme look much weaker than it is. The most ludicrous part of this whole debacle is that because of this supposed deficit UUK is insisting on a de-risking strategy ie buying more gilts and getting rid of other assets which has the effect of making the "deficit" appear larger because they have a worse rate of return which makes them want to de-risk more. The whole things spirals out of control and becomes a self fulfilling prophecy. One final thing I would like to add is in relation to members of the scheme on the career average section. The current proposals are not better than what we currently get. The improved accrual rate in no way compensates for the increased contributions (from 6.5% now to 8% under the proposals). Sure we get marginally more but we also pay a damn sight more over the course of our careers. I worked out on the back of an envelope that I would need to retire at 67 (laughable really given that I'm only 28 now) and live to be 110 before the improved accrual rate left me cash positive from now. These changes are being forced through not because the scheme is in trouble but because the financial crisis of 2008 is being used as a pretense to weaken the scheme to make it easier to privatize the HE sector in the UK. In addition it is being facilitated by city insiders (supposed independent members of the USS board) who are ideologically opposed to the idea of defined benefit pensions.
Does no one see the disconnect? If you really believe USS are such incompetent investors and amateur actuaries, surely in that case the best outcome is money purchase, defined contribution . Since everybody is sure they can invest with better yields with stocks then it's a win win? Bigger pensions at lower cost. Do I believe USS is badly run, yes Do I believe they are unduly pessimistic, yes. Would I bet that had I been given the money I could have invested and got a bigger pension at my own risk, no. Am I so sure USS will right itself I would let the guarantee go? No. As to covenants, if the deficit became huge the lawyers would find a way for the scheme to go bust but the universities to carry on, I would bet on it.