Inflation – UCU Left

1. What is Conditional Indexation (CI)?

Indexation is the amount your pension is increased each year to take account of inflation. In conditional indexation this is not guaranteed, but depends on market forces and possibly other factors, such as governance structures and who makes the decisions.

2. How would this affect our current USS pension scheme?

Currently all elements of our pensions, including indexation (inflation protection), are guaranteed.

Conditional Indexation (CI) removes this guarantee.

3. How are pensions calculated now?

Currently there is an accrual rate of 1/75. This means that for every £1000 of pay you receive each year £1000/75 will be added to the pension you receive each year.

There is also a salary threshold above which members receive defined contribution (DC) pensions where the amount is not guaranteed. This is now over £70,000, so does not affect most members.

The value of accrued pensions are increased with inflation. This is called ‘indexation’. Indexation is guaranteed, but is based on a ‘soft cap’. It is currently equal to CPI (consumer price index, a measure of inflation) up to 5%. It then increases to 10% as CPI increases to 15% (at a rate of half a percentage increase for every inflation percentage increase) and is capped there.

Therefore pensions could be improved.

4. Why is Conditional Indexation being discussed?

The idea of Conditional Indexation was originally proposed when the valuation was showing a large deficit, largely due to the way it was being calculated.

The valuation is a calculation of the difference between the pension scheme’s assets and liabilities (payments that need to be made). Pension regulations require it to be calculated at least once every three years.

We had to take industrial action in 2018 to stop the loss of defined benefits (guaranteed pensions) but we were unable to prevent a massive cut in 2022. This was finally overturned in 2024, which required a lot of industrial action and work by negotiators.

5. Who will decide on the amount of indexation?

This is still being discussed, but it could just be USS with no or insufficient involvement of UCU.

6. Will Conditional Indexation prevent future deficits?

No, Conditional Indexation will not resolve problems associated with the valuation. This will require a different valuation approach and also a better investment strategy. UCU has been working on the valuation approach and also for a better investment strategy.

7. Will CI reduce the likelihood of industrial action?

Probably not, and it could increase it. It is likely that indexation will be calculated every year in addition to the valuation every three years. This gives more opportunities for disputes which could lead to industrial action.

8. What is UCU’s position on Conditional Indexation?

UCU is sceptical, but continuing to explore CI in the interests of members and to ensure no decisions are made that we are not involved in.

9. What do the employers and USS think of CI?

They support it. The employers would like to reduce their contributions and reduce the amount of USS liabilities that appear on their balance sheets to enable them to borrow more.

They are not using recent savings from reduced employer contributions to increase pay, or take measures to increase job security. Despite the recent significant reduction to employer (and member) contributions, employers are still threatening massive redundancies. The percentage of university income spent on staff (including pensions) has reduced to an all time low.

10. What are the benefits of Conditional Indexation to members?

USS has suggested that it could increase benefits paid to members. It has done some modelling which seems to shows this.

However, this modelling does not set these projected improvements against the risk to members from the loss of guaranteed indexation (see point 11 below). USS have not provided the details needed to check the model. It also does not consider the improvements in benefits that could be achieved in the current scheme.

11. What are the disadvantages of CI to members?

We will lose guaranteed indexation, which is of great value to members. Investment risk will be transferred from employers to members, and members will see a significant increase in risk. It is unclear what the benefits, if any, will be to set against this. No wonder UCU is sceptical!

12. Will Conditional Indexation provide a minimal level of indexation?

No. It could provide zero indexation, as USS thinks this will give greater flexibility. However, pensioners will receive the legally required minimum of 2.5%.

13. What would happen if there are several years with no or low indexation?

There is supposed to be some sort of ‘catch up’ mechanism to increase indexation subsequently when market conditions improve and allow this. However, the details have not yet been worked out.

14. Will this catch-up mechanism prevent problems due to years of low indexation?

No. Some pensioner members could die before indexation increases (if it does). Other members may put off retiring until indexation improves, or find it difficult to decide when to retire.

We are fighting casualisation and job losses, but have large numbers of casualised members who may leave the sector and could lose out on any catch-up.

It is difficult to provide more details of exactly what will happen as we do not know yet know what the governance mechanism will be.

15. If Conditional Indexation is introduced and it does not work out, can we go back to our existing pensions?

Unfortunately not, or at least not without extended industrial action. The employers are strongly pushing CI and would have liked to introduce it for the next valuation. USS also seems very strongly in favour.

So employers and USS are very very unlikely to agree to a return. If we move to CI we will lose guaranteed indexation and will not be able to get it back.

As the new year begins the UK becomes the first country in Europe to record 150,000 deaths due to Covid 19 and one of only five countries globally to have hit this catastrophic milestone. Johnson and his cronies are determined to make working people pay for this pandemic, not only with their lives but with their living standards too.

We are facing, what the CEO of the Resolution Foundation think-tank calls, ‘an overnight cost of living catastrophe’ – the ‘Big Squeeze’ on working peoples living conditions. This is made up of three elements. First a massive 50% increase in energy bills which, according to the Financial Times, averages out per household at an increase in bills from £1,277 to £2,000 per year.

This of course will hit the poorest families hardest as a greater proportion of their income is spent on essentials like heating. This energy price increase will lead many into fuel poverty.

The second attack on the cost of living comes in the guise of a rise in national insurance. The government is expected to claw back £12.7 billion through this rise, leaving an individual worker over £400 on average worse off per year.

The third way we are being made to pay for the pandemic is through the rise of inflation. The Consumer Price Index (CPI) now stands at 5.2% and looks set to continue to rise. The Retail Price Index (RPI), a more accurate figure because it includes mortgage rates, has risen to 7.1% in January. Clothes and food costs are rising and are set to soar. Prices are rising much quicker than wages. More and more people will be forced to use food banks to survive.

That is how the ‘Big Squeeze’ is going to affect working people. But what about the captains of industry, how do their living standards fair as the ‘Big squeeze’ begins? As it happens, you will be surprised to know, not too badly. Some employers grabbed more pay in the first four days of this week than an average worker in Britain earns in a year. A new report from the High Pay Centre shows that this is 86 times the pay of an average full-time worker in Britain. Pascal Soriot of AstraZeneca was the highest earning CEO, grabbing £15.45 million, ahead of Brian Cassin of Experian who was paid £10.3 million.

The arrogance and conceit the wealthiest in society have for the rest of us is echoed in the way Johnson and his cronies govern Britain. The latest scandal to envelop Johnson over the £100,000 given to him by a Tory donor to refurbish the Downing St flat in return for favours is just another example of how he holds his office and the electorate in contempt. Texts revealing that he offered Lord Brownlow the go ahead for his Great Exhibition project at the same time as he was providing Johnson with the money for the flat decoration demonstrates just how corrupt Johnson and this government is.

In total, according to the Institute for Fiscal Studies, a person earning £30,000 will see their take-home pay plunge by £1,660 the biggest cut in household earnings for a half a century.

The ‘Big Squeeze’ – make the employers pay

The ‘Big squeeze’ is portrayed by the media and politicians as if it is inevitable like a natural disaster, unable to be resolved and out of the control of human intervention.

It’s the pandemic, the rise in oil prices or the cyclical rise and fall of the markets that is to blame. We will be told by government and employers that any collective action to defend living standards will only make a bad situation worse. Demanding wage increases to match the rise in the cost of living will only increase inflation.

But this is not the case. The ‘Big Squeeze’ is a political choice and continues government policies designed to maintain a system that has corruption, inequality and poverty baked into the pillars and foundations that up hold it. A reliance on fossil fuels and a refusal to take control of the energy industry through public ownership, will mean that a basic human need such as energy is at the mercy of fossil fuel corporations and energy companies, tearing up the fabric of our climate and planet for profit, whilst pensioners die from the cold out of fear of putting on their heating.

Rather than taxing the profits the wealthiest make out of our labour, they take more out of our wage packets instead. A policy of taxing the richest 1% would raise £262 billion which would cover the cost of the pandemic (The Guardian).

The old and false orthodox trope of mainstream economics which says that demands for higher wages leads to the rise in the cost of living will be familiar to all of us who have been on strike over pay.

The employers and government argue workers receiving higher wages for their labour inevitably means that the employer will have to put up prices of their commodities to pay for the wage increase. This is only true if you accept the parameters of the argument that has been set by the employer. When striking for a pay rise workers are fighting for a fairer redistribution of wealth in society. As we have seen profit margins have increased throughout the pandemic and with it the gap between the wealthiest and the poorest has increased.

The employer’s attempt to blame those fighting for an increase in earnings for the rise in the cost of living are merely seeking to protect their wealth and privileges. Our wage rises can come out of a redistribution of wealth. Leaving the rich with only one luxury yacht to maintain rather than two!

Fear of a backlash

Divisions are opening up within the government about how to respond to the cost-of-living crisis. Jacob Rees-Mogg, the public’s favourite Tory MP, is campaigning for Johnson to drop the £12.7 billion national insurance clawback out of fear of a backlash by working class voters. He is right to fear a backlash. The rise in fuel prices that ignited the up-rising in Kazakhstan will not have gone unnoticed in government and ruling class circles.

The levels of poverty in Britain are already high. The threat of further attacks on our earnings, pensions and welfare state to pay for the crisis will mean that many will not be able to survive the coming months. The trade union movement has over 6.6 million members. Although this is half of what it was at its height in 1979 it is still around a quarter of those in work. If organised properly this is a significant critical mass that could turn the government fears of a backlash by against them and their policies into a reality.

UCU’s HE sector’s action over pay, conditions, equality and pensions in this context provides an important example of the kind of national action that is needed across the movement. UCU’s Further Education Committee will, hopefully, be agreeing a timetable for a campaign over pay and workload, including industrial action to start in February.

There is a real appetite to resist the employer’s offensive on wages and conditions Strikes and solidarity show that we can win as recent local disputes have demonstrated. These localised strikes are different to the ones in the past. They level of engagement and the generalisation of the workers immediate concerns to locating the causes in a wider context of an unjust and an unequal society has become the norm.
But we need to spread these fights wider across the trade union movement. Members will respond to the calls for action if they feel that their leaderships are serious about mobilising to strike rather than simply using ballots as a lobbying exercise.

The possibility of coordinated action amongst teachers, local government workers , rail workers and UCU members is a real possibility as ballots are launched in these sectors.

The government and the employers have signalled what they intend to do in 2022. We know the devastating impact their attacks will have on millions of working people. We have no option but to respond to the ‘Big Squeeze’ with monumental resistance.

Sean Vernell UCU NEC

Tag: Inflation

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