In an ominous sign of more industrial strife ahead, the University and College Union has today accused university leaders of “trying to hoodwink staff” by “failing to come clean” over the true impact of proposed pension reforms.
In a blistering attack, the union accused the beleaguered Universities Superannuation Scheme (USS) and Universities UK (UUK) of “colluding to slash pensions”.
Previous disagreements over the future of the ever more contentious pension scheme have resulted in significant industrial unrest, including 14 days of stoppages at 52 universities in February and March 2020 and eight days of strikes at 46 universities in November and December 2019.
The sector now faces plunging once more into a protracted battle over pensions.
Staff need to decide if they want to pay much more – tens of thousands of pounds over a lifetime – to maintain benefits or continue to pay the same rate and accept moderate benefit change, which UUK has proposed
– Universities UK spokesperson
UCU says the proposed changes would mean a typical lecturer could suffer a 35% cut to their guaranteed retirement benefits. It has published a modeller, which, it says, allows staff to see the impact of UUK proposals on their personal finances. UUK said the modeller “only tells part of the story” and warned that doing nothing to reform USS would hit the sector and employees with crippling annual contributions, which would lead to job losses and the destabilisation of universities.
2020 USS valuation threw sector into crisis
The 2020 USS valuation resulted in a shock announcement that pension contributions from employers and staff would need to rocket to plug an estimated £15 billion shortfall and cover pension payouts for hundreds of thousands of researchers and lecturers.
The USS Trustee said at the time that its covenant is plagued by “persistent low-interest rates and reduced expectations of future investment returns”.
Universities UK – which represents the 340 HE employers that are members of the USS in negotiations with UCU – said the proposed increases were “unprecedented” and “unaffordable”. UCU accused the USS of trying to “spin the fundamentally flawed assumptions which its valuation of the pension scheme relies on as objective matters of fact”.
It is incredible that USS and UUK are trumpeting these proposals without providing any meaningful information about the impact on staff. The plans would further cement a two-tier workforce
– Jo Grady, University and College Union
Concluding its 2020 valuation in March this year, the USS Trustee announced that contributions from employers and staff would need to rise from 34.7% to between 42.1% and 56.2% of salaries to meet current liabilities. The largest private UK pension scheme has 460,000 members – of which 220,000 are in work – and assets worth £68 billion.
UUK this week concluded a seven-week consultation on a range of ‘fixes’ that would maintain contributions at present levels and preserve what it describes as a “valuable pension scheme for staff”.
Calculations published by USS suggest that the UUK proposals – which include changes to the defined benefit (DB) element of the scheme – would enable contributions to be held at 34.7%. Currently, members accrue contributions in the DB side of USS up to an annual salary threshold just shy of £60,000, with 20% of earnings above invested into the DC scheme. UUK suggested lowering the threshold to £40,000 so that people on the highest salaries would pay more into the DC section of the scheme.
UUK also floated a plan for short-term, flexible USS membership that offers cheaper rates for early-career staff who find themselves “priced out” of the scheme. UUK chiefs also mooted reducing annual accrual from 1/75 to 1/85 and imposing a consumer price indexation cap at 2.5%. The employers’ association also proposed a rolling 20-year moratorium on USS employers exiting the scheme and signalled it could levy “significant” additional covenant support from employers.
UCU prepared to pursue industrial action
A way forward for the scheme will prove fraught without the support of UCU, which sits on the crucial deliberation body, the Joint Negotiating Committee, and boasts 140,000 members – many of whom have USS pensions.
The union described the UUK proposals as “almost identical” to ones that “members rejected midway through UCU’s 2018 industrial action”. The proposals are subtly different, however. In 2018, UUK proposed closing – potentially only temporarily – the DB element of the scheme, which UCU labelled a red line. These latest proposals retain DB, albeit in a much-reduced form. In 2019, UCU argued the reforms would leave the average lecturer £10,000 less well-off in retirement. Today, UCU predicts the more recent UUK proposals would make an average lecturer £5,000 less well-off per annum in retirement.
According to UCU, a typical USS member aged 37 earning the sector-average starting salary of £41,526 will accrue an annual guaranteed pension of £12,170 if they work full time until 66 – this is £6,500 less than under the current rules. Cash lump sums on retirement would also be 35% smaller.
In a statement not short in opprobrium, UCU general secretary Jo Grady today said: “Universities UK is trying to hoodwink staff into signing up to pension proposals which fall apart at the first sign of scrutiny. Reducing the level and the security of benefits will pull the rug from under people’s retirement and threaten the viability of the entire scheme as people question why they should remain a part of it.”
The union has launched a modeller that gives lecturers the chance to calculate what impact the UUK proposals would have on their personal finances.
Grady said its modeller demonstrates that the changes “fall particularly hard on those at the start of their careers” because they will accrue less over their working lives than their predecessors.
Accusing employers of creating generational inequality, Grady said: “It is incredible that USS and UUK are trumpeting these proposals without providing any meaningful information about the impact on staff. The plans would further cement a two-tier workforce.”
Grady maintains that the scheme’s finances are healthier than the Trustee projects. In evidence, the union points to the size of USS investments, the long-term sustainability of universities, and to supporting testimony from the former governor of the Bank of England, Mervyn King. UUK also queried whether the USS valuation was an “overly pessimistic” assessment of the scheme.
“Increased guarantees from employers on staying within the scheme must be matched with a concerted effort to push back on bogus claims that defined benefits are unaffordable,” continued Grady. “University staff have had their pay held down by employers for years, they will not stand for USS and UUK colluding to slash their pensions.”
Grady warned employers that the union would soon announce its next steps, including potential strike ballots, which could lead to the third major fight over pensions in as many years.
After 15 months of disruption to students through the pandemic, the spectre of industrial action in the 2021/22 academic year comes at the worst possible time for vice-chancellors, who are eager to reassure students that in-person teaching will resume this autumn.
UUK warns ‘no change is not a viable option’
UUK concedes that its changes would mean – for a university staff member earning £40,000 per annum – a reduction of about 12% in future pension benefits accrued over the same period. UUK argued, however, that the cut to the accrual rate – from 1/75 to 1/85 – reflected that life expectancy had improved and retirement came later: staff would, on average, receive the same pension if they retired four years later, it said.
It warned the union that the impact of the unamended USS Trustee proposal would be worse: it would amount to a reduction of 25% to pensions and mean an average annual hike in contributions of £1,660 for staff.
A spokesperson said the organisation “would be very willing to consider alternative, feasible and affordable proposals from the UCU to tackle the scheme’s financial challenges”. It warned that the union had not proposed any such solutions, adding: “Unfortunately, no change is not a viable option.”
A spokesperson for UUK, on behalf of USS employers, said: “The UCU should be open with USS members about the scheme’s financial challenges and the choices facing them rather than promoting a modeller like this, which only tells part of the story.
“The modeller does not allow scheme members to compare possible benefit changes against the cost of maintaining current benefits through higher salary contributions.
“Staff need to decide if they want to pay much more – tens of thousands of pounds over a lifetime – to maintain benefits or continue to pay the same rate and accept moderate benefit change, which UUK has proposed. UCU should also be honest with USS members about the severe implications – including job losses – of employers paying much higher contributions.”
Following the contentious 2020 valuation, UUK has announced it will seek an independent governance review of USS. The Russell Group supports this call, arguing the Trustee must become “more accountable, transparent and collaborative with the sector”.