The ongoing dispute between the University and College Union (UCU) and Universities UK (UUK) over the UUK’s proposal to end defined benefits in the Universities Superannuation Scheme (USS), this week saw members reject a possible deal and continue with strike action.
The UUK’s rebuffed offering would have protected members’ defined benefits under the USS for three years, albeit at a lower rate and higher contributions.
With 65 UK universities involved in the strikes during the current exam season, Stuart Price, Partner and Actuary at pension experts Quantum Advisory, says: “This unfortunate situation is the result of an estimated £6 billion deficit in the USS which needs to be eliminated.
“USS currently provides a predominately defined benefit scheme, in that it offers defined benefit up to a certain level of income, and then defined contribution for any income above this level.
“However, defined benefit schemes in the UK are struggling due to low gilt yields which are at historic low levels, and extra guarantees that have been added by governments, which both increase the cost to the sponsoring employer. Higher life expectancies also mean pensions are paid for a longer period of time which, again, increases the cost of running these arrangements.
“To help manage the costs and risks to the sponsoring employers, many defined benefit schemes have closed to new members and current members are being offered defined contribution going forward. In this respect, people might wonder why the university sector, and therefore the USS, should be any different? In short, universities in the UK are perceived as having strong covenants so should be around for many years to come and hence be able to eliminate the deficit over the long term while still providing a defined benefit pension for their employees. However, these covenants may not be as strong as they were in the past with concerns over Brexit and a consequential reduction in overseas students possibly accounting for the UUK’s actions.
“Many think the magnitude of the deficit – circa £6 billion – is the main concern. There is also a supplementary question as to how the deficit has been calculated and if it’s realistic? There has been suggestion that the deficit is much lower or does not even exist.
“If the USS does move fully to a defined contribution scheme, there will be a disparity in the sector as post 1992 universities – polytechnics and colleges – will still be offering defined benefit pensions as many of them participate in the Local Government Pension Scheme. This could cause further unrest for UCU members and will need to be addressed if it comes to it.
“I think the UCU members’ willingness to take strike action shows how important private retirement provision is to them. This disposition could be seen as a good thing as the government and pension industry in the UK are actively encouraging individuals to become more accountable for their income in retirement with less reliance on the state. However, it’s obviously not good news for the hundreds of students sitting exams over the next few weeks, and you must ask yourselves ‘have all other avenues been explored and is this really the last resort?’
Established in 2000, Quantum Advisory provides pension and employee benefits services to employers, scheme trustees and members from offices in Cardiff, Bristol, Amersham, Birmingham and London.
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