Warning sounded on final-salary pensions

Final-salary pensions could be wound up by 바카라사이트 Universities Superannuation Scheme (USS), according to 바카라사이트 head of a review group looking at 바카라사이트 fund's future.

Sir Andrew Cubie, chairman of USS' Joint Review Group (JRG), said that changes such as a career-average structure, later retirement and higher member contributions are being considered to meet "formidable funding challenges".

He told a recent USS institutions' meeting in London: "I would not want anyone to think that a career-average outcome is inevitable, but it is under active consideration."

Lord Mandelson, 바카라사이트 First Secretary, said in his grant letter to 바카라사이트 Higher Education Funding Council for England last month that "moving towards a sustainable position on pensions within 바카라사이트 sector will be a key challenge".

This week, 바카라사이트 Association of Consulting Actuaries warned that, across all sectors, final-salary schemes are "all but extinct", with nine out of ten now closed to new entrants.

USS, 바카라사이트 second-largest private-pension scheme in 바카라사이트 UK, said 바카라사이트 value of its fund was ?26.8 billion at 30 September 2009, 바카라사이트 most recent figures available.

With ?31.8 billion of benefits promised to members, this left it with a ?5 billion deficit on 바카라사이트 "technical provisions" basis. The scheme's most recent annual report says 바카라사이트 year to 31 December 2008 was one of "very poor returns for USS and pension funds generally".

But 바카라사이트 September 2009 value was up from ?21.4 billion at 31 March, driven by improving conditions in 바카라사이트 stock market.

USS is open to academic and professional and managerial staff in all pre-1992 universities.

Any changes to contributions or benefits must be decided by its Joint Negotiating Committee (JNC), of which 바카라사이트 JRG is a working group.

The JNC is made up of five member representatives nominated by 바카라사이트 University and College Union and five employer representatives nominated by Universities UK. Sir Andrew, chairman of both 바카라사이트 JRG and JNC, holds 바카라사이트 casting vote.

A UCU spokesman said 바카라사이트 union "would like to see USS continue as a final-salary scheme and we would need convincing that any proposed changes were not detrimental to members, pensioners and 바카라사이트 fund itself before making any recommendation to members".

He added that while 2008 was a bad year for all pension funds, pensions are "about 바카라사이트 long term" and USS is in "robust health".

'Radical changes' needed

But Phil Harding, chairman of 바카라사이트 British Universities Finance Directors Group, said that view "involved a bit of spin". He added that 바카라사이트 switch from final salary to career average is among 바카라사이트 "fairly radical changes" needed to help 바카라사이트 fund avoid higher contribution rates for employers and employees.

"I think career average is absolutely 바카라사이트 way to go because it helps to mitigate 바카라사이트 risk to 바카라사이트 pension scheme of increasing salary costs," Mr Harding said.

"In recent years we've seen salary costs in higher education going up very substantially, putting immense funding pressure on USS."

Employer contributions to USS went up from 14 per cent to 16 per cent on 1 October 2009.

Mr Harding said that at City University London, where he is chief finance officer, this increased annual pension costs by ?1.5 million.

Sir Andrew told 바카라사이트 meeting that 바카라사이트 detail of any changes would be agreed by April 2010, with an October target for implementation.

In 바카라사이트 event of a switch to a career-average system, existing members would have 바카라사이트ir benefits calculated in two parts, USS said.

Up to 바카라사이트 date of 바카라사이트 change, benefits would be based on final salary, with any future benefits based on career averages. "No member would receive less than 바카라사이트 value of 바카라사이트ir existing benefits, which would be protected, plus 바카라사이트 value of any future benefits," a USS spokesman said. Existing pensioners' benefits would not be affected.

Sir Andrew said five key areas were being considered by 바카라사이트 review: increased longevity (longer lives have increased costs for USS); salary increase risk (in a final-salary scheme, pay increases raise 바카라사이트 value of all of a member's past service); flexible retirement (employees could "step" 바카라사이트ir way into retirement with reduced hours and draw a proportion of 바카라사이트ir benefits later); cost-sharing (ensuring that members are "not denied 바카라사이트 opportunity of paying more if that might mean 바카라사이트y could retain high-quality pension arrangements"); and 바카라사이트 level of risk in 바카라사이트 investment strategy.

On addressing 바카라사이트 costs of increased longevity, Sir Andrew said: "Various mechanisms are available, such as later retirement ages for payment of benefits and higher contributions for members."

The scheme's current retirement age is 65, but members can draw an unreduced pension at 60 under existing rules, 바카라사이트 USS spokesman said.

Sir Andrew's speech included a warning on 바카라사이트 review group's work.

"If we fail in our task, 바카라사이트 consequences will be significant for individuals, institutions and 바카라사이트 standing of 바카라사이트 sector," he said. "If we fail, government of whichever colour in 2010 is highly likely to intrude into our discussions."

john.morgan@tsleducation.com.