USS – Your Questions Answered
The employers’ proposals will put an end to the final salary scheme, shift USS members onto career average pensions (on terms inferior to the post-92 universities’ scheme), and introduce for the first time an element of ‘defined contribution’ pension where the risk is on the individual rather than the institution.
Isn’t there a substantial deficit in the USS scheme? Don’t we need to do something about it?
- Yes, there’s a “deficit”. But the deficit is calculated according to rules designed for single companies not a scheme like USS that includes several dozen institutions.
- Legislation requires pension scheme trustees to make a simple calculation every three years: if all contributions were to halt, is there enough money already in the pot to pay all current and future pensions? If not, a recovery plan must be actioned. This is because if a company goes bust, we of course want to see all pensions paid over time. But our USS scheme is rare and unique. There isn’t one institution that could go to the wall, but 375 (several dozen large universities and many smaller institutes). The very basis for the calculation of a deficit is not fit for purpose in our circumstances: all universities will not collapse simultaneously. We need regulatory change to adjust this, but as it stands, we are expected to pay out of our pensions for that recovery plan for a disaster that we all know will never happen! Do we really want to make decisions based on the bizarre idea that all USS institutions will collapse at once when many have survived for more than a century and some for far longer than that?
- To compound problems, the legislation requires the current assets to be calculated at market rate, but not the future liabilities (pensions etc.). These have to be calculated on a ‘prudent basis’. USS has decided to do this by what is known as the ‘gilts plus’ method. So future values are based on the anticipated value of gilts, which do not return as much as other investment vehicles such as equities. This creates volatility – the means of calculating assets and liabilities are so different that they produce unreliable predictions. And the USS scheme is only 20% exposed to gilts, not 100% so any calculation will by default be wrong.
- Because of this, the USS proposes to buy more gilts, and openly announces that if it does so this will increase the deficit, but at least it will make predictions more reliable. So, a calculation based on a disaster we know won’t happen actually steers investment decisions that deliver poor returns on our money, forcing us to pay more out of our pension.
- If USS’s health was assessed on the same measures as countries’ GDP, USS would be about the 80th wealthiest country in the world, and it would have no national deficit!
- The employers say that the deficit is ‘volatile and persistent’. In fact fund assets have been increasing faster than liabilities and 31,000 new members joined the scheme last year. The situation is improving!
The employers say contribution increases are not affordable.
- Even if they are necessary – which is questionable – we know the sector has ample spare cash to pay higher contributions. Pay rates in pre-92 HE have declined by 18% over the past five years. This money could quite well redress the pensions imbalance.
Finally, the employers are using these reforms to start to shift pensions risk away from universities and on to individuals by introducing a Defined Contribution scheme.
- Pensions would only be guaranteed on the first £40,000 salary (on a career average scheme inferior to the post-92 universities’ version). Pensions on salary above £40k would be subject to stock market fluctuation with all the risk that entails. And if we let them get away with this it will be £30k in a few years time and soon enough no guarantees at all.
- With a strong vote for both strike action and action short of a strike we will be in the best position to head off these proposals now.
This is not a premature ballot but a chance for you to make your voice heard right at the start of the process.
Vote Yes and Yes!