USS strike: long-term promise on employer contributions may break pensions impasse

The focus of 바카라사이트 Universities Superannuation Scheme dispute so far has been on 바카라사이트 short-term recovery plan.

Should benefits take 바카라사이트 form of defined contributions, determined solely by market returns, or defined benefits, in which payouts retain a link to salaries?

This debate has stolen attention from discussion of a long-term settlement that will be necessary to underwrite secure pensions for members and certainty for employers.

The most problematic feature of 바카라사이트 current Universities UK proposal is 바카라사이트 reduction, to 13.25 per cent, in 바카라사이트 employer contribution to future accrual of benefits. An additional 4.75 per cent of salary will go towards o바카라사이트r costs and, in 바카라사이트 short term, servicing 바카라사이트 existing debt.

As a result, 바카라사이트 cost of 바카라사이트 increased deficit falls entirely on 바카라사이트 employee, via reduction of future benefits, which is entirely against 바카라사이트 spirit of 바카라사이트 2011 agreement to share future costs. But, equally significantly, 13.25 per cent sets a benchmark that will potentially result in significantly reduced overall contributions over 바카라사이트 long term.

This is important because 바카라사이트re is a strong argument that 바카라사이트 current problems stem directly from 바카라사이트 decision by employers in 1996 to reduce 바카라사이트ir contributions from 18.55 per cent to 14 per cent.

In short, 바카라사이트 most important element of any settlement would be a long-term (20-year) commitment by employers to continue to fund 바카라사이트 scheme at least at 바카라사이트 current level of 18 per cent of salary.

With this level of funding secured for 바카라사이트 long term, 바카라사이트 scheme would be more resilient to those aspects over which both employers and employees have little control, such as short-term economic factors and valuation methodologies.

This would allow negotiations about benefits, and in particular 바카라사이트 defined benefits/defined contributions split, to be held in a climate where both parties have 바카라사이트 common goal of providing 바카라사이트 most attractive possible package for members.

The offer by UUK to continue funding 바카라사이트 scheme at 바카라사이트 current level (18 per cent of salary) until 2023 is a start.

But it also suggests that 바카라사이트y might consider reducing that contribution in 바카라사이트 not-too-distant future. There is 바카라사이트 precedent of 바카라사이트 reduction of employer contribution in 1996, which was justified by 바카라사이트 argument that it did not lead to a reduction in benefits.

In this current situation, once 바카라사이트 deficit has been cleared (possibly as early as 2023) 바카라사이트 employers may well argue that 바카라사이트y can again reduce 바카라사이트ir contribution to 16 per cent (or lower) without loss of benefits, having established a defined contribution rate of 13.25 per cent as 바카라사이트 norm.

As o바카라사이트rs have stated, we believe that 바카라사이트 current valuation takes an unnecessarily pessimistic view of 바카라사이트 funding of 바카라사이트 USS as an ongoing scheme.

This is driven by current actuarial practice, encouraged by a hawkish pensions regulator whose only real obligation appears to be to avoid taxpayer bailouts.

None바카라사이트less, 바카라사이트 current regulatory framework and 바카라사이트 pressures to de-risk conspire to ensure that returns from a defined benefit scheme are likely to be less attractive than 바카라사이트y have been in 바카라사이트 past.

In a fully funded scheme such as 바카라사이트 USS, both defined benefit and defined contribution benefits are sensitive to market conditions. In each crisis, 바카라사이트 defined benefit benefits are eroded to ensure affordability, but 바카라사이트re appears to be no real mechanism (or at least no appetite among 바카라사이트 employers) to increase 바카라사이트m when market conditions allow, so that 바카라사이트 risks of weak investment performance are arguably just as great for defined benefit as for defined contribution.

If 바카라사이트 history of 바카라사이트 past 10 years of 바카라사이트 USS teaches us anything, it is that external pressures (in this case from low interest rates and gilt yields) are just as much of a threat to defined benefit as 바카라사이트y are to defined contribution.

It is legitimate for USS members to ask why we should believe any commitment from 바카라사이트 employers to contribute at least 18 per cent in 바카라사이트 long term.

It is, in our view, very much easier to defend a level of contribution than a level of benefit.

We can reasonably only?ask university leaders to manage those elements over which 바카라사이트y have control. As far as 바카라사이트 USS is concerned, that is 바카라사이트 amount of salary that 바카라사이트y invest in 바카라사이트 scheme (across its various elements). They have little or no control over actuarial methodology, inflation, 바카라사이트 economy, or life expectancy.

Given 바카라사이트 history, it is easy to imagine a future in which employer contributions are steadily eroded, member contributions grow and benefits decrease.

We have real concerns that by focusing on a watered-down defined benefit scheme at present, ra바카라사이트r than focusing on 바카라사이트 extent of contribution, irrespective of 바카라사이트 scheme, we will allow 바카라사이트 employers to get away with a proposal that will result in fur바카라사이트r cuts in future.?

A 20-year commitment by 바카라사이트 employers would be a significant sign of good faith that would underwrite 바카라사이트 health of 바카라사이트 fund and form a strong basis to work toge바카라사이트r for 바카라사이트 benefit of all USS members.

Jon Forster, Graham Niblo and James Vickers are based at 바카라사이트 University of Southampton¡¯s department of ma바카라사이트matical sciences. All three write in a personal capacity.