Cuts to university pensions will leave staff ‘one-third worse off’

Proposed cuts to the pension offered to hundreds of thousands of university staff will leave a typical lecturer more than a third worse off in retirement, according to union analysis.

Universities UK (UUK), which represents 340 higher education employers, outlined proposals last month to cut retirement benefits for more than 200,000 staff saving into the sector’s defined benefit plan, which guarantees a pension for life based on salary and length of service.

The proposals were drawn up after the Universities Superannuation Scheme (USS), the UK’s largest private pension fund by assets, found in March last year that the deficit on its £80bn plan had widened from £3.6bn in 2018 to up to £18bn.

On Friday, the University and College Union (UCU), representing staff, accused the USS of “failing to come clean” over the impact of the proposed cuts, with its analysis finding they would leave a typical lecturer around 35 per cent worse off in retirement.

“Universities UK is trying to hoodwink staff into signing up to pension proposals which fall apart at the first sign of scrutiny,” said Jo Grady, UCU general secretary.

It also published an online “modeller” for members to calculate their individual circumstances.

“Our modeller shows the impact of UUK’s proposals falls particularly hard on those at the start of their careers, who are more likely to be on low pay, and on casualised contracts.”

To avoid rises in the current contribution rates, UUK plans to change the accrual rate, which is the proportion of salary a member receives annually as a pension in retirement, from 1/75 to 1/85. 

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It also proposed capping future annual inflation rises at 2.5 per cent and lowering the salary threshold where defined benefit accrual stops from £59,883.65 to £40,000.

UCU’s modeller, developed by First Actuarial, an actuarial firm, found that a typical USS member aged 37 earning £41,526 — the current starting salary for a lecturer in many institutions — would go on to build up an annual guaranteed pension of £12,170 if they continued to work full time in the sector until age 66. 

This compared with the £18,857 annual income under the current arrangement. 

UUK said UCU’s analysis was only telling “part of the story” and that if pensions were not modified then the same typical staff member could face extra contributions of £1,660 a year to keep the same pension, with employers also facing sharp rises in their contribution rates.

“Staff need to decide if they want to pay much more — tens of thousands of pounds over a lifetime — to maintain benefits or continue to pay the same rate and accept moderate benefit change,” said UUK.

“UCU should also be honest with USS members about the severe implications — including job losses — of employers paying much higher contributions.”

UUK said employers would be very willing to consider “alternative, feasible and affordable proposals” but so far the union had not put forward a “possible solution”. 

USS said the pension offered by the scheme was much more expensive today than in the past. “The funding challenges facing USS will ultimately require a broader, holistic solution and we are committed to supporting UUK and UCU’s discussions to this end,” it said.

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Grady last month wrote to members saying they needed to “prepare themselves mentally for another round of industrial action”. Walkouts by staff between 2018 and 2020 caused widespread disruption to the sector.

The pensions row is one of several financial challenges facing the university sector. On top of being hit by volatile student numbers and increased costs during the pandemic, it faces the possibility of cuts as the government seeks to “rebalance” higher education toward vocational learning.



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