All 2 entries tagged Pensions;Uss

Letter to Times Higher Education on the latest re USS

In last week's THE Anton Muscatelli, the chair of the employers side in the universities pension scheme, the USS, announced radical changes to the scheme that would amount - in effect - to a substantial pay cut for academic and related staff consisting of loss of retirement benefits (a cut in deferred pay) and increased contributions (a pay cut). In my view the changes are not warranted and result more from a change in economic ideology towards neoliberal ideas than any objective necessity.

I have sent this letter to the editor in reply.

Letter to the Editor of Times Higher Education


Dear Sir

The question USS members are asking is exactly why, given that their pension fund is highly solvent by normal standards, they are being told by Anton Muscatelli, on behalf the the employers, that, on the contrary, it is deep in deficit. The figures show the USS is immensely profitable: the latest Annual Report and Accounts show an income of £2,585.4million and expenditure on pensions in payment of £1,462.0million, leaving a massive net surplus to invest for meeting future needs of £1,123.4million. Of course these figures only tell part of the story and one needs to allow for future demands due to demographic changes, growth in membership and so on - the job of actuaries. Nevertheless they surely indicate that there is currently plenty of headroom, which begs the question for Professor Muscatelli to which members deserve an answer: How does an annual surplus of over a billion pounds become a deficit? Can we please be told?

Instead of giving a clear picture of how the accounts are likely to change in the future, he just announces that there will be deficits, measured in astronomical figures of tens of billions of pounds, without explaining the basis of their derivation. He, rather disingenuously, hints at arguments but does not turn them into reasons when he says: "People’s longer life expectancies and the current global economic upheavals make these challenging times for pension funds..." In fact the evidence is that longer life expectancies are a significant - but still relatively small - factor that does not threaten the survival of the scheme: it simply requires minor changes in the rules. "Global economic upheavals" is a term so vague it could mean anything, perhaps intended to make members believe that the investment returns have been unusually poor. But investment returns to the USS compare well with the rest of the industry and the fund's assets have grown - so that cannot be the source of his growing deficit.

Professor Muscatelli's figures are smoke and mirrors - a flawed methodology for a number of reasons. And one of the most important - a point that Professsor Muscatelli does not mention - is the fact that the new methodology does not count income from contributions (£1,539.6million - enough for all the pensions in payment). Up until now the USS (like other pension schemes) has worked perfectly sustainably as a collective fund on a money-in-money-out basis. But this principle is now to be banned for reasons that can only be described as ideological: it is collectivist. The result of that will mean that this hole of £1.5billion per year has now to be filled which will mean members having to pay twice during the transition period for the retired members on the old pay-as-you-go basis and for themselves on the new fully funded basis.

Yours sincerely


Dennis Leech
Professor of Economics
University of Warwick
Coventry CV4 8UW
d.leech@warwick.ac.uk
www2.warwick.ac.uk/fac/soc/economics/staff/faculty/leech
(+44)(0)2476523047

Dennis Leech : 27 Jul 2014 22:11 |  Tags: Pensions;Uss |  Comments (0) |  Close comments |  Report a problem

Society is not a Ponzi scheme

The Times Higher have published my letter commenting on their article last week about the 'black hole' in the USS. When considered as an ongoing SOCIAL institution rather than in purely financial terms the black hole disappears and the picture looks different. My comments are about pension schemes in general not only the USS.

The original title of my letter was 'Society is not a Ponzi scheme' referring to the comments of a so-called pensions expert John Ralfe, who is someone who believes that pensions should be administered according to the purest maxims of neoliberal economics - as if all markets functioned perfectly at all times and all human beings were omniscient. Ralfe is an active campaigner who rejects the actuarial principles on which pension schemes are normally run, whereby it is normal to count contributions coming in from members to help towards paying pensions, as a 'Ponzi scheme'. This is convoluted logic with so many flaws there is not space or time here to cover them all. (The market cannot know how long human beings might live in the future, once they have retired, for example.) Market based solutions like this are so unrealistic they can never replace the role of society.

Ralfe is a self-style expert and an zealous campaigner for this neoliberal world view. See this report in the Financial Times.

There are many people pushing neoliberal politics. It is an ongoing legacy of Thatcherism. What is frightening is that they are not just being debated in the political space but actually being implemented in the field of pensions under our noses. We are sleepwalking into a tragedy where - because an impractical ideology has been allowed to go unchallenged - many millions will end up with an inadequate income in retirement or not be able to retire.

Dennis Leech : 07 Nov 2013 11:53 |  Tags: Pensions;Uss |  Comments (0) |  Close comments |  Report a problem