Universities should not agree to abolish final salary pensions

The UUK proposal to end final salary pensions for existing members is a very radical move that will effectively breach the contract that staff entered into when they started their careers: the entitlement to a pension that is a decent and predictable fraction of their earnings when they retire.

Even though the Hutton report into public sector pensions recommended moving defined benefit pension schemes over to the career average principle, it was clear that was a long-term aim and should not be applied retrospectively to exisitng members. It said: "Maintaining the link to final salary for the purposes of calculating the value of a person’s accrued rights under the existing schemes will however ensure fair treatment for those who have built up rights in these schemes..."

What the UUK proposed originally is that members of the final salary (FS) section of the USS should be moved to the CRB section for future accrual after the changeover date (proposed I think April 2016). Their salary at that point - instead of their final salary at reitrement - would be used as the basis of the pension. Their service would be counted against that salary. For example someone with 20 years' service would get a pension of 20/80 times their salary in 2016. This would then be uprated for inflation based on the consumer price index during the years until retirement. This is unfair as Hutton says. This has not happened with the changes in the Teachers Pension Scheme which is continuing to honour the final salary principle for existing members although new members are in the CRB section.

It is also unfair in another sense: that it is making members pay with their pensions for one of the consequences of university privatisation, a coalition government policy motivated solely by ideological dogma that they do not benefit from, and for which there was no democratic mandate.

This is clear from the UUK document "UUK's proposals for modifications to the USS benefits" submitted to the USS JNC (circulated as an appendix to UCUHE234.pdf, circulated to UCU branch officers on 27 October 2014) in which the reduction in liability that results from removing the final salary link to past service is to be used to offset the additional deficit from 'de-risking' due to privatisation.

Ending the final salary link to past service for existing members is calculated to save £6 billion. That is almost the same as the increase in the deficit that is due to de-risking.

But the policy of de-risking is a choice that the trustees are making as a result of structural changes in higher education associated with the coalition government's privatisation agenda (a policy that nobody voted for) that does not in any way benefit the members.

The existing policy of the USS is to invest in assets that will produce an income in the long termto match the long-term liabilities of pensions. This is a good principle if the university sector has an indefinite time horizon as a public service.

But that has been changed and now universities are seen as just companies in the market. The regulation of their pensions comes under the same umbrella as for a private company that could go bust or be taken over. Therefore the pension scheme must be accounted for on the balance sheet like any other assets and liabillities. Logically it would then make sense to split up the USS among its member institutions, which is on the cards.

Under this approach the pension scheme must be fully funded at all times to ensure that it will be possible to pay the pensions even when a university goes bust. At present that is not the case so the trustees plan to move to this situation gradually over 20 years by selling assets that bring a high return - mainly equities - but whose market prices are volatile due to the irrational stock market and buying government bonds - gilts. That is a strategy of playing it safe.

Somebody has to pay for de-risking. The trustees want it be members. Arguably since the whole need for de-risking stems from the privatisation and marketisation agenda of David Willetts the government should pay to ensure the pensions guarantee. In other privatisations such as the post office the government have taken on the pension liabilities.

The proposals are grossly unfair and it is hoped that the employers and our negotiators will be able to agree to reject that part of the document.

Dennis Leech : 21 Nov 2014 16:31 |  Comments (0) |  Report a problem