USS Pensions:  Lies, damned lies and valuations

The employers and USS are planning to destroy our pensions in the pre-92 university sector. Recent reports from the Financial Times (subscription only but see below*) and THES, based upon the USS Annual Reports and Accounts, rehash the same old story of rising liabilities and insufficient funds in the pension scheme to pay for pensions. As ever the same solution is identified; members pay more, work longer and get less.

The simple thing that is wrong with these statements is that they compare a value today with an expected value for the future. No one would say that if you owned a £250,000 house, because it might be worth £1m in 40 years’ time you have a £750,000 deficit! Yet that is precisely the nature of claims about our pension scheme that are being made by those who want to destroy it.

Valuation and the “deficit”

The valuation of the USS pension scheme is currently under discussion between UCU, USS and the employers, and a figure has to be agreed for its future value. The valuation of its current assets is relatively easy to undertake – around £60bn depending upon share prices on any particular day. But the cost of providing our pensions decades into the future is wide open to interpretation. We don’t know what our salary increases will be in the future, or what mortality rates will be for members in decades to come, nor how high inflation or interest rates will be, or what rates of return on our assets will be in future decades. It is this last figure, the calculation of the future rate of return on assets (known as “the discount rate”) where there is the greatest variation in valuation estimates.
The Tories, aided by the private sector pensions industry, have been seeking to undermine collective pensions for decades. The choice of valuation method is intrinsically a political not economic one.
In recent years, USS settled upon one figure which demonstrated a so called ‘deficit’. Their methodology for choosing this figure was severely criticised and as a result they are working on a spread of values, some more conservative (generating a deficit) than others (generating a surplus).
They are also moving away from their previous much-criticised Gilts+ method of calculating the returns on our investments using a measure of inflation (CPI). But these valuations are so sensitive that a tiny change in the CPI measure (0.5% for example) can create or wipe out any deficit. At present, many estimates from USS show the scheme to be in surplus while others show a deficit.
There are two fundamental reasons why we should not trust these deficit estimates. First, they all assume that rates of return on assets will be much lower than has been the case historically, and potentially, even negative in real terms. There is ample historical data to suggest such a scenario cannot be found in the past and is not a likely outcome. Second, they assume that Higher Education is more vulnerable to going bankrupt than is plausible.
Education is not a sector which is likely to disappear. We are not comparable to a technology such as black and white television in which a new technology will wipe away an old technology. Does anyone really believe that there will not be a higher education sector in forty years time? Does anyone seriously believe that the 40 largest universities in the UK (responsible for over 70% of USS contributions) or the 70 largest universities in the UK (responsible for over 90% of USS contributions) are all likely to go bust together?

Pay more and get less

The likelihood is that USS will choose a deficit figure deliberately to create an outcome where members are told to accept cuts in benefits or increases in contributions. Given the unreliability and arbitrary nature of the valuation method, and the fact that university staff are locked into USS, this looks like a conscious con trick.
Worse, either outcome will undermine the scheme in terms of members’ confidence. Already, in comparison with other pension schemes – such as the Teachers’ Pension Scheme operating in the post-92 Universities – USS looks like poor value. The result will be increasing numbers of people stopping paying into USS, further undermining it in the future.

What we need to do

If we are to maintain members’ rights to a pension we need to start campaigning now to defend our rights to a retirement free from poverty.
UCU activists in pre-92 universities need to start a campaign to defend pensions by explaining some of the basic points to members in emails, organising pension ‘surgeries’ and general meetings at the start of term.
At the moment we are getting pre-publicity to soften up members for the expectation that our pension will be cut yet again. In September the formal valuation consultation with employers begins. We need to lobby our employers to get them to defend USS. Future recruitment and retention in the sector requires a valued pension staff members can have confidence in.
We will also prepare members for the need to ballot for industrial action if USS seek to cut our pensions or end the defined benefit scheme.

Defend a Defined Benefit pension

Pensions are our wages

No to increased contributions from members

No cuts in pension benefits


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