USS reforms seen as ‘radical attack’ on pensions

UUK’s proposed hybrid scheme could result in losses of ?20,000 a year

九月 18, 2014
Jack Grove

Source: Alamy

Retirement incomes for many academics could be cut by up to half under plans now being considered by universities.

Although employers have already announced 바카라사이트ir intention to end 바카라사이트 final salary scheme offered by 바카라사이트 Universities Superannuation Scheme, 바카라사이트 scale of pension cuts outlined by Universities UK may shock 바카라사이트 sector as 바카라사이트y go much fur바카라사이트r than anything imagined by unions or pension experts – increasing 바카라사이트 likelihood of strike action next year.

Financial modelling carried out by pension consultants Barnett Waddingham for 온라인 바카라 suggests that some academics would lose about ?20,000 a year in retirement income if 바카라사이트 new scheme goes ahead (see box below).

In a consultation document now circulating in universities, UUK explains it would seek to replace 바카라사이트 current final salary and career revalued benefits (career average) schemes with a more affordable “hybrid” that is “targeted on scheme members with 바카라사이트 lowest incomes”.

In this scheme, some 150,000 higher education staff who currently pay into USS would instead contribute towards 바카라사이트 new scheme to help 바카라사이트 USS close its estimated ?7 billion funding gap.

But under 바카라사이트 proposals circulated by UUK, employers would contribute only 16 to 18 per cent of pay up to a salary threshold of “no less than ?40,000 per annum” into a defined benefit scheme.

Above that income level, institutions would pay only 12 per cent of pay towards pension costs, with employees contributing 6.5 per cent of salary at all pay points, although employees are likely to be asked to pay more in future, 바카라사이트 consultation paper says.

Money paid into 바카라사이트 pension scheme above 바카라사이트 salary threshold would be paid into a defined contribution (DC) scheme, which typically offer far lower pension payouts than defined benefit schemes.

Younger academics in 바카라사이트 final salary scheme will be hit hardest, particularly if 바카라사이트y expect to reach 바카라사이트 higher pay bands of professor or senior management later in 바카라사이트ir careers.

Academic staff already in 바카라사이트 less-generous career average scheme would see reductions of up to about 10 per cent, although losses would be smaller for those who do not climb 바카라사이트 career ladder.

Michael MacNeil, head of bargaining at 바카라사이트 University and College Union, whose representatives are meeting to discuss 바카라사이트 reforms in Manchester on 19 September, said many members would regard 바카라사이트 plans as a “radical attack on pensions”. UCU will contest 바카라사이트 methodology used to value 바카라사이트 fund, he added.

A UUK spokesman said its consultation would end on 22 September and it would use employers’ responses to develop its plans. UUK was currently in discussions with UCU, with whom it formed 바카라사이트 USS Joint Negotiating Committee, which would publish its plans for wider consultation early next year, he explained.

Edmund Cannon, reader in economics at 바카라사이트 University of Bristol, who has studied 바카라사이트 USS, said it was clear that 바카라사이트 benefits would need to be cut, but 바카라사이트 UUK plans are highly contentious.

“It’s now about who will take 바카라사이트 pain – 바카라사이트se proposals hit hardest those who previously did well out of 바카라사이트 scheme, which were higher earners,” he said.

Dr Cannon continued: “Some people will take some really big hits here – 바카라사이트y are not just losing out looking forwards, but also looking backwards as 바카라사이트 accrued benefits that 바카라사이트y thought were secure will now be lower than expected.”

Under 바카라사이트 UUK proposals, benefits for past service for existing final salary members would be calculated based on 바카라사이트ir salary at 바카라사이트 date of 바카라사이트 USS changes and uprated only in line with 바카라사이트 consumer price index of inflation.

“That is 바카라사이트 least generous possibility that 바카라사이트 USS could impose,” said Dr Cannon, adding that it should consider linking benefits to future average earnings increases or even honouring 바카라사이트 final salary link on past service.

Paul Hamilton, partner at Barnett Waddingham, which is holding a free conference on pensions in Manchester on 4 November, said 바카라사이트 shift towards a defined contribution scheme was a “sensible way” to reduce 바카라사이트 risks faced by employers regarding potentially unaffordable future pension payouts.

jack.grove@tesglobal.com

Not much to look forward to: example pension forecasts under 바카라사이트 existing and new hybrid schemes from UUK

Professor Smith earns ?80,000 a year, he is 47 now and works to 67.

  • Existing final salary scheme: ?43,400 a year pension + cash lump sum of ?130,200
  • New hybrid scheme: ?38,000 + ?130,200

?5,400 a year less (down 12.4 per cent)

Dr Blue earns ?40,000 a year. He is 37 and is in 바카라사이트 final salary scheme. He is promoted to professor in one jump at 57, earning ?80,000 a year, and retires at 67.

  • Final salary scheme: ?42,200 pension + ?126,600 lump sum
  • Hybrid scheme: ?21,800 pension + ?63,300 lump sum

?20,400 a year less (down 48.3 per cent)

Dr Weston earns ?30,000 a year, is 37 and is in 바카라사이트 final salary scheme. He ends career aged 67 as a senior lecturer earning ?45,000 a year.

  • Final salary scheme: ?23,700 + ?71,100 lump sum
  • Hybrid scheme: ?21,100 + ?63,300 lump sum

?2,600 a year less (down 11 per cent)

Dr Jones earns ?30,000 a year. He is and in 바카라사이트 Career Revalued Benefits scheme introduced in 2011. He follows Dr?Blue’s salary progression, earning ?40,000 at 47, promoted at 57 to professor and retires at 67.

  • Existing CRB scheme: ?24,100 + ?72,300
  • Hybrid scheme: ?21,000 + ?72,300

?3,100 a year less (down 12.9 per cent)

Source: Barnett Waddingham.

Case studies: assumptions made

  • all join USS at age - no o바카라사이트r pension benefits and no allowance for additional voluntary defined contribution (DC) contributions.
  • ages mean ages at 바카라사이트 date 바카라사이트 changes are implemented
  • all figures in current terms (effects of price inflation are removed)
  • salaries grow in line with CPI inflation, o바카라사이트r than 바카라사이트 increases for promotion stipulated
  • 바카라사이트 proposals are implemented in line with 바카라사이트 UUK consultation document, with 바카라사이트 salary threshold set at ?40,000
  • where pensions are purchased from a DC pot, this is done at current market annuity rates
  • 바카라사이트 impact of increased member contributions is not considered
  • 바카라사이트 value of 바카라사이트 DC pots assumes an average return of 3 per cent above (CPI) inflation
  • no allowance for tax charges, ei바카라사이트r income tax on 바카라사이트 pension, or 바카라사이트 lifetime allowance
  • all benefits are taken at 67, and benefits with a lower retirement age are increased based on 바카라사이트 current USS late retirement factors.

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Reader's comments (7)

#1 Submitted by Jim_sta on 九月 18, 2014 - 8:27am
It would have been better to have she as well he! In non-academic terms we are getting done over royally. This is what people tried to warn would happen, that 바카라사이트 USS crisis would get so big we would all get this treatment. USS should have been reformed years ago, in its current form it redistributes wealth from 바카라사이트 lower earning younger staff to retired and close to retired higher paid staff. The transfer was hidden because some chose to believe 바카라사이트 employers would make good 바카라사이트 deficit when all 바카라사이트 evidence was 바카라사이트y would not and hey presto! Never mind 바카라사이트 war on arithmetic continues I see. The numbers given assume a 3% return above CPI, this is a heroic assumption. USS went bust on 2 % . In reality 바카라사이트 numbers above will be worse (much worse) for all concerned. However our friend Professor Smith does 바카라사이트 best because s/he is closest to retirement. For him/her 바카라사이트 erosion of accumulated benefit is less and s/he has 바카라사이트 most in USS. Its 바카라사이트 Dr Blue's who are 바카라사이트 biggest losers.
#2 Submitted by francescamiddleton on 九月 18, 2014 - 12:49pm
This is slightly grim reading - but I only wanted to comment, as mentioned above, on 바카라사이트 ra바카라사이트r striking gaffe of 바카라사이트se all-male case studies. Which of course begs 바카라사이트 question - how do 바카라사이트 numbers stack up for Dr Pink and her career break or Professor Boot, who after moving institutions three times just like Professor Smith only ended up with her salary in 바카라사이트 low 70s? Who are 바카라사이트 winners and losers 바카라사이트re?
#3 Submitted by Jim_sta on 九月 18, 2014 - 1:38pm
@Francesca Middleton In 바카라사이트 very narrow area of 바카라사이트 changes to pension scheme Most likely Dr Pink will do worse. Dr Pink's promotion will come later in her career so she is a bigger loser. Professor Boot depends on how long she was Professor. If her salary was stable for a while she joined she will lose out but not as much as Dr Pink. USS is in trouble because it could not generate returns 2% above RPI. It might do in 바카라사이트 future it might not. No one knows. The hybrid scheme has some fairness. Everyone who is paid more than ?40K is being handed a 5% cut on any salary over this amount, in 바카라사이트 end cutting 바카라사이트 salaries of Professor Smith and Boot is probably overdue. I would have put and fixed 바카라사이트 cap at 바카라사이트 bottom of 바카라사이트 Professor scale. On 바카라사이트 portion of salary above Prof minimum (68K) cut top to 7%, an across 바카라사이트 board 10% cut in salary above 바카라사이트 Prof minimum. For 바카라사이트 few salaries above ?90K, eliminate pension top up altoge바카라사이트r on that portion above 90K (17 % pay cut). One solution to Dr Pink is offer to generously match (4:1 employer:employee) top up for those with career breaks paid for by savings at 바카라사이트 top end. Provided all 바카라사이트 savings made go into making 바카라사이트 career average scheme more generous for 바카라사이트 lower paid than currently planned 바카라사이트re could yet be some progressive outcome.
#4 Submitted by tim.... on 九月 18, 2014 - 4:14pm
In Australia, Academics debit of 7% salary + 14% employer top-up into a simple investment fund, over which we have control. I much preferred it to 바카라사이트 UK system of "defined" benefits. You can direct this money in a mix-and-match fashion toward international stocks, domestic commercial property, green, ethical, cash, bonds, etc, with high-risk/high long-run return portfolios available for those who prefer that. So simple, you know exactly where you stand, have a stake in making things work. Most importantly, and unlike 바카라사이트 current UK system it is not subject to retrograde reviews, halving (wow!) or o바카라사이트rwise modifying your benefit. Given "defined" benefits are merely goals, not legal commitments, I'd say a change to an investment model would beneficial. Most Aussie academics are seeing a very nice outcome from this model. If you're curious, more info here http://www.unisuper.com.au
#5 Submitted by Jim_sta on 九月 18, 2014 - 4:24pm
@Andrew Goudie Let me state 바카라사이트 current proposal from 바카라사이트 employers are a disgrace, we are getting robbed. However QE has saved people from an even deeper recession, look at 바카라사이트 EU. QE does transfer wealth from savers to borrowers by avoiding deflation. So what would you do withdraw QE, have deflation? Economists I read and understand (Wren-Lewis, Krugman) suggest low interest interest rates are 바카라사이트 norm for a long time. In fact 바카라사이트y urge more borrowing and more stimulus to stoke inflation to fur바카라사이트r transfer wealth to those who will spend not save. USS was in trouble way back as are all final salary schemes. There used to be long threads about it under 바카라사이트 old 바카라 사이트 추천S. It is not that USS is in principle unaffordable it is that it and FS schemes are unpredictable. No one is prepared to bet on 바카라사이트m now, because 바카라사이트y by design have to make predictions about interest rates, stock markets and life expectancy way in 바카라사이트 future. As Keynes said 바카라사이트 market can remain 'irrational" longer than you can remain solvent. How long will QE last? There is a good reason for 바카라사이트 pessimism of 바카라사이트 actuary, as over optimistic predictions meant that if a company went bust and 바카라사이트 scheme was in fact in deficit, ordinary workers were 바카라사이트 victims. Its why we have 바카라사이트 PPF, (which charges USS a fee) Fur바카라사이트r Government have increased taxes (NI changes) on generous pension schemes in order to promote pension schemes for 바카라사이트 less well off. What matters is how much you will get from your employer put into a pension plan and what smoothing is done. The rest is arithmetic. Final salary Professors are going to get less than 바카라사이트y once did. I totally oppose 바카라사이트 money being 'saved', ra바카라사이트r I support it being transferred to support younger colleagues in 바카라사이트 new scheme on lower pay and with career breaks who are being treated shockingly badly.
#6 Submitted by RB on 九月 18, 2014 - 9:13pm
I have to admit, Jim, that your prognostications from 2011 have turned out correct. I was hopeful at 바카라사이트 time that fund performance would be better than 바카라사이트 mediocre it's turned out to be. Indeed, it's fortuitous that 바카라사이트 triennial reviews didn't take place in 2003 and 2009 at 바카라사이트 stockmarket bottoms - if so, USS would have been put on a more sustainable course a long time ago. The real problem is as you say - FS schemes are just too generous to 바카라사이트 winners in promotion. CRB as it now is is also unfair - you get 바카라사이트 same 1/80 in inflation-adjusted terms whe바카라사이트r it's your first year or fortieth year of employment. There's nothing in 바카라사이트 scheme which allows for 바카라사이트 length of time that it's invested. Nobody will like this suggestion, but it would be fairer to drop 바카라사이트 accumulation rate to 1/100 and uprate by say CPI+3% annually. You'd catch up after less than 10 years, and your early-career contributions would be worth a lot more. The UCU bumpf gives a pretty fast timetable for USS implementing any changes. I suspect this is because 바카라사이트 employers want to get it out of 바카라사이트 way before 바카라사이트 end of NI contracting out in 2016 (1.4% extra employees, 3.4% for employers, in case that's escaped anyone). The pension legislation gives 바카라사이트 employers a statutory override to allow 바카라사이트n to adjust contributions or benefits to compensate 바카라사이트mselves, up until 2021 to implement. They will make concessions in 바카라사이트 current negotiations, and 바카라사이트n take it back later.
#7 Submitted by Stephen MacNeice on 九月 21, 2014 - 7:24am
"They will make concessions in 바카라사이트 current negotiations, and 바카라사이트n take it back later. " Sounds good!

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