This is a piece largely written as a rebuttal to Waseem Yaqoob’s recent article on the LRB blog, entitled Why We Strike. Let me start by clearly stating that I support the University and College Union’s (UCU’s) right to strike from Thursday, and think it is ludicrous that 7 of the 68 ‘pre-92’ universities’ UCU groups need to reballot their members before they are allowed to carry out what is clearly the majority view of their members. I just think they are wrong this time.

The Joint Negotiating Committee (JNC – apologies there are lots of acronyms in this) of the Universities Superannuation Scheme (USS) is the body tasked with negotiating the pension deal struck every 3 years. It has equal numbers of members from Universities UK (UUK – representing the employers (over 390 of them)) and the UCU, with an independent chair who gets to cast the deciding vote on matters when the other JNC members are in deadlock. Just such a deadlock occurred over the future of the USS. The UCU representatives wanted to continue with some sort of defined benefit (DB) arrangement, where benefits are guaranteed, and the UUK representatives wanted to switch to defined contribution (DC), where contributions are instead paid into an invested fund for the member to secure benefits with as best they can at retirement. The chair went with the UUK position.

As a member of the USS as a result of working as a lecturer at the University of Leicester, I fervently hoped for a different outcome for purely selfish reasons. However I could not justify why I should have a DB pension (which I agree is a vastly superior option to the DC alternative being offered) when the vast majority of DB schemes are already closed, including let’s not forget the University of Leicester Pension and Assurance Scheme, which has been closed to new entrants since 2003 and to future accrual since 31 March 2016. Is it realistic or reasonable to assume that Grades 6 and above will continue to enjoy DB accrual indefinitely while Grades 5 and below don’t?

You will hear a lot about how something which is personally disadvantageous to one lecturer after another is therefore suddenly going to damage higher education irrevocably, depicting academic life as so uniquely risky that only the safety blanket of a DB pension will persuade people to do it. This is despite them not being seen as necessary in many other top global universities. For
example, the top universities in the United States mainly have DC pension schemes.

The rationale for the changes is not dubious. The vast majority of DB pension schemes follow the same funding approach as the one used by the USS which has revealed such large deficits, as was recently confirmed by research carried out by Punter Southall. Most research points to a gilts plus basis being the most appropriate for a scheme still open to future accrual.

Neither do I agree that the funding approach proposed is unduly prudent. The Government has produced a green paper, which was largely based on the report from the Commons Select Committee for Work and Pensions in December 2016, which was itself in response to what happened at Tata Steel and BHS in particular. The Select Committee report suggested legislation was needed to:

  • Agree changes to the indexation of pension benefits in instances where such changes are needed to make a scheme sustainable
  • Allow scheme members greater flexibility to take their pension as lump sums
  • Make recovery plans of more than 10 years exceptional (the USS currently have a recovery plan of 17 years, 14 of which are still outstanding – reducing this to 10 would considerably increase the contributions required into the scheme).

It did not focus on valuation methods particularly.

However the resultant green paper, which launched a consultation which ended in February 2017, considered 6 questions, the first of which was focused on whether current valuation measures were the right ones. Unfortunately the detailed discussion (eg in paragraph 213) was hardly encouraging to the view that the USS funding basis is too prudent and the contribution requirements too high, as it suggested that stricter interim funding targets be set for schemes which were severely underfunded and gave an example of what they meant by this as being less than 100% funded on the Pension Protection Fund (PPF) basis (this is the pensions lifeboat for schemes with insolvent employers – USS was 82% funded on the PPF basis at the last valuation).

One point where I am in agreement with Yaqoob is that the success of the strike will depend to a large extent on how students respond. I was amused by the admission that “Students have expressed solidarity with striking staff while at the same time demanding refunds for their disrupted education”. I believe that the solidarity with striking staff is due to misinformation, whereas the demand from students for refunds for their disrupted education are likely to be more long-lasting.

I have resigned my membership of the UCU as a result of this ill-conceived strike action. I urge other members who feel a similar discomfort about what they are being asked to do to consider whether they need to do the same.

7 Comments

  1. Your argument is a long way to say that you reckon that yourself and other academic staff are currently grossly overpaid and need to take a 10-20% pay cut resulting, other things being equal, in a cut after retirement of 40-65% of the yearly pension.

    For you it is easy to get extramural replacement incomes by consulting or other means means, as an Actuary, but perhaps for people teaching english or history it is rather less easy.

    Perhaps there are good arguments for the thesis that academic compensation should be cut across the board by 10-20%, just like most private sector jobs had their compensation cut by 20% by reducing pensions contributions from a typical 30% to a typical 10%.

    But this blog post gives no such arguments…

    • I don’t think academics are overpaid but we are talking about pensions. UUK are offering to pay the same amount into the DC arrangement as they currently do into DB. They are however moving the considerable risk that this won’t be enough onto us. As you rightly point out, this is in line with most other sectors, many of whom have significantly more experience of managing such risks than the university sector. This is a worse deal for us, but would represent the best funded DC arrangement I have come across.

      This is a direction of travel which has been going on for many years but is now accelerating. I have less than a quarter of the nearly 30 years since my first job in a DB scheme. 97% if new starters in FTSE350 companies have DC pensions. You therefore have to ask yourself why you and I are special and uniquely entitled to a DB scheme.

      Argue about pay if you want to, but do it directly rather than via a pension for which neither you nor anyone else can be sure of the final price tag.

      • It’s very odd to argue that we ought to accept DC because ‘this is the direction of travel’ or ‘this is the way that things have been going in other sectors’. These premises may be true, but your conclusion is a non-sequitur.

        Note that real GDP for the country as a whole – as well as, for instance, the revenue generated by British universities from overseas students – increases year on year bar a few hiccups. Why should our real wages and the real value of our pensions continue on a course of monotonic decline? You seem to have swallowed the neo-liberal ‘race to the bottom’ line on this hook, line, and sinker.

        • I am not advocating DC because it is the direction of travel. I am just pointing out that it has become the direction of travel by a range of different employers, the vast majority in the private sector, when confronted with the costs of doing otherwise. As you will see from my latest post, I want proper negotiations on an alternative to DC, but that can only happen once we accept the reality of the costs of DB.

  2. Dear Nick – I’ve read two of your blog posts with great interest. However, I disagree rather strongly with several of your statements. You write:

    “Is it realistic or reasonable to assume that Grades 6 and above will continue to enjoy DB accrual indefinitely while Grades 5 and below don’t?”

    My answer, agrees with yours; “definitely not!” But I draw a very different conclusion. Everybody deserves to be cared for before, during, and after their productive years. Since DB is a more cost effective way (as compared to DC) instead of ending it for “rich people” we should extend it to “poor people”.

    What is society good for, if we cannot not use it to look after each other?

    [Please see the following Canadian study of public-sector schemes shifting from DB to DC and the problems that follow: https://www.optrust.com/documents/DB-vs-DC-plans-research-paper.pdf — I feel that USS best fits the public sector model.]

    You also state:

    “Most research points to a gilts plus basis being the most appropriate for a scheme still open to future accrual.”

    Why? USS is not a single-employer scheme. It is almost unthinkable for any significant percentage of the 68 universities to close without society changing in such a way to make discussion of pensions moot.

    [Please see the discussion here: https://heconvention2.wordpress.com/2018/02/08/made-in-westminster/%5D

    You also say

    “..funding approach as the one used by the USS which has revealed such large deficits…”

    The USS valuation has a _negative_ discount rate (CPI – 0.53%) for the first decade. After that it jumps discontinuously to CPI + 2.4%. Perhaps I am confusing different things here (please, please do correct me!) but this estimate of future returns seems frankly insane. How does any valuation philosophy lead to such an assumption? It is also rumoured that the valuation assumptions include wage growth of CPI + 2% (or nearby). Several valuation assumptions have not been published… thus it is all too easy to conclude that USS is playing games under the covers. And so loose faith.

    yours,

    saul schleimer
    Maths, Warwick

    • None of the valuation assumptions have been published. What you are criticising are the assumptions used in the scheme’s audited accounts. I have discussed some of these in my latest post, as well as what we do know about the valuation and what it indicates in terms of its overall prudence. The gilts plus model has nothing to do with an assumption of scheme closure which is not being made in the valuation (as confirmed by USS Ltd themselves). The only way that the Pensions Regulator will allow continued accrual on the current benefit structure would be if it was accompanied by a massive increase in contributions – is this what you are advocating?

  3. Edit – loose faith -> lose faith.

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