Unspinning the 6 Myths
It is important that we understand the employers response, particularly in the context of industrial action,
and the consensus across UCU branches in the UK that they left us with no choice.
1.
UUK have stated that their position is due to "challenging economic circumstances":
Higher Education Statistics Agency (HESA) reports sectoral surpluses have grown from £158m in 2005/6 to in excess of £1.85bn in 2014/15 -
see Chart 1 here. For the last year available,
2016/17 data reports a surplus over £1.5bn (around 5%). If there is a "crisis of affordability", it appears to be self-inflicted. The obvious question when looking at Chart 1 is how was a reasonably generous Defined Benefit scheme (indeed, Final Salary scheme) affordable in 2005/6 on a surplus of £158m, when it is not affordable on a surplus of ten times the amount? The
Government Green Paper on pensions makes clear that there is no general ‘affordability’ problem for the majority of employers running a Defined Benefit (DB) scheme; and does not agree that across the board action is needed to transfer more risk to members, or indeed to reduce members’ benefits in order to relieve financial pressure on employers. UUK continues to point to the negative impact on teaching and research made by any future additional pension contributions. This is at odds with the fact that it is staff who conduct the teaching and research.
2. The “deficit” has increased:
The projected deficit has increased because the valuation is flawed. UCU has modelled a wide range of scenarios, the employers' organisation UUK has simply insisted, without any modelling of their proposals, on moving to a 100% 'Defined Contribution' stocks-and-shares scheme for all staff (with 6% of salary put into a pension protection pot to shield the employers from risk). They have said they will not shoulder some of the risk, which is why the deficit projection shot up from £5.1bn to £7.6bn in November. Not all employers agree with the official UUK hard-line position (it is apparently held by a minority 42% of institutions). Several institutions,
including Warwick, Glasgow and Loughborough, have argued for a more flexible approach.
3. The “risk” has increased:
‘De-risking’ by selling off growth assets (equities, property etc) and replace them with low return investments such as government bonds, in order to ‘match liabilities’ is
responsible for almost all of the deficit. The
most shocking thing about the plans to de-risk investments is that 10 years into the future the de-risking offers almost no protection against adverse events (slide 7-8). Here, the figures for the worst 1% of possibilities (next to the ‘99%’ arrow) are extremely similar whether de-risking or not. According to a report commissioned by USS themselves, USS pension scheme is "strong and stable". We agree. USS’s cash flow is positive. Former Minister of State for Pensions
Ros Altman tweeted yesterday, "The trend to 'de-risking' by switching to bonds has left many pension schemes with bigger deficits than using equities". .
A letter dated 12th January from Sam Gyimah, Office for Students, to Ellie Rees MP confirms this as well.
So low risk is intolerable when shared by 350 institutions but high risk is fine when borne by workers individually?
4. We (UUK) are paying “too much” into USS:
UUK would like people to believe that 18% contributions is too high as compared to the private sector.
A letter, published in the Times Higher Education from nearly 1,000 professors, notes:
“In a sector where many would earn more working in the private sector, the USS pension has provided compensation for relatively modest salaries and has acted as a magnet for talented overseas staff.” We wonder why are institutions continuing to spend billions on new buildings if they cannot afford to meet their current contractual obligations to staff rewards? According to
UUK data, the average institution spends 11% of its budget on maintaining its estate. (In 2016 Lancaster spent over £37m (or 14.5%) of its £255m total expenditure on ‘facilities’. It spent the same amount in 2015.)
5.
The Pensions Regulator intervened at a crucial point:
We know that the Pension Regulator (the government regulator) is agreeable to flexibility around the valuation method and negotiation time-scale. According to a
USS document dated 17 November and signed by USS CEO Bill Galvin: “tPR (the Pensions Regulator) has … confirmed the proposed assumptions [of the September valuation] are at the very limit of what it would find acceptable.” By reverting to the September valuation UUK can meet the UCU proposal making it feasible by retaining defined benefits by more modest and affordable increases in contributions of 2.4% employer (from 18% to 20.4%) and 1.3% member (from 8% to 9.3%).
6. Finally, unspinning of the impact of UUK’s proposal:
UUK released its modelling in December that, they claimed, showed that people would receive 80-90% of what they would under the previous arrangements. Unfortunately, this modelling was a masterpiece in spin, with investment forecasts used which were significantly higher than those in the USS valuation (and which would show a surplus if applied there!) along with including state pension in the estimates!
Un-spinning the proposals shows that 50-75% would have been a more accurate claim. The decision made at last week’s JNC meeting by a single individual removed a staggering £38 billion from our future pensions.
Crunch Time for USS
Given the distance between the two sides, with the employers seeking to change pensions into stocks and shares, a casino pension; and UCU insisting on pension that guarantees income in retirement, we do not know what the outcome of this will be. But there are options.
In the short term, UUK needs to abandon its
bellicose position and revert to September valuation, that will make UCU proposal feasible to retain defined benefits. Of course we are not underestimating the magnitude of this challenge, which would also require influencing the Pensions Regulator to accept the previous valuation, but this is possible if both sides decide to work together to find a solution that meets employers fiduciary responsibilities towards their staff.
We think that there is a lot more that Government could do to shoulder some, if not all, of the risk. It is surely anomalous that UK pre-92 universities have a pension scheme with no government guarantee, whereas our colleagues in many other European countries, post-92 universities, schools and FE colleges, the NHS and government, all have pensions underwritten by the state.
Honestly not sure what the situation is like at my place, but our branch has a committee meeting coming up so going to raise it there.
