By Bethan Staton and Josephine Cumbo
Source: Financial Times
Hundreds of thousands of university sector staff in the UK would see their retirement benefits cut under employer proposals to avert “unaffordable” rises in contributions as the sector struggles with a years-long pensions crisis.
Plans outlined on Wednesday by Universities UK, which represents more than 340 higher education sector employers, would see guaranteed pensions for about 200,000 of the 460,000 members become less generous, with higher-earning academics taking the biggest cuts.
The measures, presented to members as part of a seven-week consultation, are the response to a recent financial health check that estimated the funding shortfall for the £80bn Universities Superannuation Scheme had risen from £3.6bn to up to £18bn in two years.
To plug the hole, USS had said contributions from employers and members would need to increase from the combined current 30.7 per cent of salary to as much as 56 per cent to keep current pensions intact.
But both employers and employees branded the increases “unaffordable”, and UUK hopes its alternative proposals can protect benefits as much as possible while keeping contributions at the same rate.
The USS is a hybrid scheme with defined benefits accrued up to earnings of £60,000. Contributions on salary above this threshold are paid into a riskier defined contribution plan, where retirement income is not guaranteed.
The UUK has proposed introducing a “flexible” option for lower-paid staff. Instead of paying into the guaranteed, defined benefit scheme, they can opt to save into a riskier defined contribution scheme at a lower contribution rate than they do currently into the defined benefit scheme.
It has also suggested that the salary threshold for defined contributions would drop to £40,000 so higher earners would see much less of their pensions guaranteed. At present, about 45 per cent of members in the scheme earn £45,000 or less.
Julia Buckingham, president of UUK, said the employer proposals sought to retain a valuable pension scheme, while keeping contributions affordable and reducing the number priced out of pensions.
The employers body said it would also continue pushing USS to reconsider its valuation of the pension scheme, which both employees and employers have argued is overly pessimistic.
Buckingham said UUK had “expressed disappointment” at the valuation, which “undervalued the collective strength of participating employers”.
“It would be a dreadful outcome if an overly cautious approach by the USS trustees would lead to unnecessary and unjustified cuts to the scheme,” she said.
However, the University College Union, which represents staff, said UUK’s attempts to confront the pension scheme trustees over the valuation looked “weak” and accused the group of “proposing unnecessary and damaging cuts” when they could “afford to take a more progressive approach”.
“University staff deserve much better than the weak commitments and half-baked proposals which employers are putting forward,” said Jo Grady, UCU general secretary. “As it stands, employers have offered very little to dissuade members from voting for another round of industrial action.”
Employers are also being asked if they can provide additional financial backing to reduce the rise in contributions, and if the period for which they are obliged to remain in the scheme could be increased. This would address USS concerns that large employers could weaken the scheme by leaving, and would mean the deficit could be repaid over a longer period, reducing annual costs to individual staff members.
Separately on Wednesday, UUK urged the government to allow students to return to university for face-to-face education, after universities were not included in its updated road map for release from lockdown.
Buckingham said it was “illogical” that students doing non-essential practical courses were not allowed to return when gyms, parks, theme parks, public libraries and community centres were allowed to open.
In response, the Department for Education said it would be “reviewing options for the timing of the return of all remaining students by the end of the Easter holidays”.