SOAS
UCU would like to stress three points in particular:
1) The
supposed USS funding deficit running into billions of pounds is
meaningless when the methodology for valuing the liabilities of the
USS pension fund is fundamentally flawed.
2) The
application of pension regulations requiring the 'full funding' of
private pension schemes to a scheme like USS that covers an entire
sector of the national economy is absurd and a prime example of
'reckless prudence'.
3) The
introduction of a Defined Contribution portion of the scheme will be
highly detrimental to members' benefits and fundamentally challenges
the risk pooling character of traditional pension schemes, allowing
employers and USS to shift risk to individual members.
How are
the changes detrimental?
First
of all, the proposed changes would finally close the final salary
scheme that was already closed to new entrants in 2011. However, this
is not actually the biggest problem. Under the changes, everyone in
USS would be moved to the Career Revalued Benefits scheme for all
future earnings. The problem with this scheme is its accrual rate of
1/70th (including the lump sum) which compares very unfavourably with
comparable schemes such as the Teachers' Pension Scheme (TPS), which
has a rate of 1/57th. This means a significant drop in pension
benefits for many USS members, not just those who end their careers
on a high final salary. UCU has calculated that members may lose as
much as 27 percent of their benefits under the new scheme. Early
career academics and those currently on casualised contracts will
likely be hit very hard by these changes when it comes time for their
retirement. As the sector becomes more casualised academics will tend
to have less time in a permanent post in which to build up benefits,
thus compounding the effect of these changes on eventual pension
payments.
There is another element to the changes which is potentially even
worse: the introduction of a Defined Contribution (DC) portion of the
pension for earnings above £50,000 (USS originally proposed a cap at
£40,000 but have now backtracked). This is the biggest attack of all
on our pensions since DC is not a pension in the sense that we
usually think of it, which provides a guaranteed income from
retirement until we die. DC is simply a pot of money that employers
and employees pay into and whose value at retirement will be
dependent on market values. This system also shifts risk decisively
to the individual, leaving them to buy an annuity with their pot, or
simply invest the money in anything they see fit in the hope that it
will produce enough earnings for them to live on for the rest of
their lives. Introducing a DC portion as part of a hybrid CRB scheme
is the thin end of the wedge. We can look forward to USS in future
lowering the cap at which DC starts and eventually perhaps doing away
with the Defined Benefits scheme altogether.
Why are
the changes unnecessary?
The
changes proposed by the USS are said to be necessary because the fund
is “unsustainable” and currently has a large deficit, predicted
to be up to £8bn for this year. But the deficit figures quoted by
USS and the employers are actually meaningless and founded on a
seriously flawed methodology. The USS fund currently makes around a
£1bn surplus every year, but it is considered to be in deficit
because pension regulations for private funds (but not public ones
like TPS) require them to be 'fully funded'. This means that they
must be able to pay out all their liabilities (all pensions that
would have to be paid out in the future) if the entire pre-92
university sector was to go bankrupt(!) taking the USS fund with it.
The problem lies in the way in which the value of these liabilities
is calculated. While fund assets are worked out at their current
market value, liabilities are worked out using actuarial methods and
this figure is then revalued to a current estimate of liabilities.
USS is insisting on using the yield on government bonds, which is
currently near an all-time low, to estimate liabilities, but if they
were to use the current rate of return on USS fund investments – a
perfectly reasonable way of calculating the value of liabilities –
then the apparent deficit would be either much reduced or wiped out
altogether. As Professor Dennis Leech pointed out when he spoke at
SOAS last week, the fund deficit has been arrived at using two
figures (assets and liabilities) both of which have been calculated
with high margins of error, thus giving a deficit figure with an even
higher chance of being erroneous.
What
does UCU want?
The
UCU does of course want an affordable and sustainable pension scheme
for its members. The underlying motivation for the proposed changes
to USS is not about sustainability, but rather about shifting risks
from the scheme and employers to individual employees. They are part
of a broader attack on pensions across public and private sectors
that could end in the complete destruction of Defined Benefit
schemes. UCU wants to defend the principle of Defined Benefits and
protect the pension benefits of current and future USS members. What
UCU has been proposing is a shift towards parity with the Teachers'
Pension Scheme, which for most members would offer better benefits
than any of the current or proposed sections of the USS scheme and is
also affordable. We hope that USS and employers will be willing to
negotiate with the UCU on the future of USS and prevent a second year
of industrial action at UK universities.
No comments:
Post a Comment