Academics face battle over pension scheme deficit

By Kevin Peachey
Personal finance correspondent, BBC News

image copyrightUCU
image captionStaff have been on strike in the past over the pensions dispute

Trustees of a giant pension scheme for academics have said a huge rise in contributions is needed to repair its deficit of at least £15bn.

They said contributions must rise from 31% to between 42% and 56% of salaries - a move likely to be dismissed as impossible by universities and unions.

The Universities Superannuation Scheme (USS) has been at the centre of an acrimonious dispute for years.

Its latest valuation suggests a much worse position than previously claimed.

Bill Galvin, USS's chief executive, told the BBC in July last year that contributions would need to rise to 40%.

The deficit had grown from £3.6bn in an official valuation in 2018, to between £14.9bn and £17.9bn. However, there has been debate between the parties involved over how that figure was calculated.

At present, about two-thirds of the pension contribution comes from employers - the universities - with the rest coming from employees, the academics.

The defined benefit scheme has about 450,000 members, of which 205,000 are still paying in, and more than 340 employers.

Covid effect

Deficits in defined-benefit pension schemes such as USS, one of the UK's largest occupational retirement funds, have been made worse by central bank action to deal with the coronavirus.

By pushing down interest rates in the hope of stimulating an economic recovery, they have made long-term pension promises much more expensive. Retired workers are also living longer, adding to the increase in expected future costs.

Dame Kate Barker, who chairs the board of trustees, said: "We fully recognise the scale of the challenge facing the scheme and sympathise with our employers and members in light of the difficult decisions that lie ahead.

"Trends in financial markets have made the valuable pension promise offered by USS - a set inflation-linked income for life in retirement, regardless of what happens to the economy in future - much more expensive today than in the past."

But a spokesperson for Universities UK, on behalf of the employers in the scheme, said: "The very high prices for current benefits put forward by the USS trustee are unaffordable for employers, risk pricing even more staff out of the scheme, and undervalue the collective and enduring financial strength of the participating employers.

"Employers understand that the USS has a sizeable deficit and that a high number of staff on lower grades opt out because the contributions are too expensive for them. It is important that USS is designed so that people in early career can also access an affordable pension."

In 2019, Cambridge University's Trinity College - one of the wealthiest Oxbridge institutions - decided to pull out of the scheme. Trinity said its withdrawal "removed the remote but existential risk to the College arising from continued participation in USS".

That option will be too expensive for most institutions, which now face renewed questions over how to deal with the deficit.

Teaching staff at 60 universities went on strike twice in 2019 over pay, conditions and pensions.

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