As you know, in the face of all protest and intelligent argument, next year we will all be converted to a career average salary scheme. You’ll recall also that there will be a ‘defined contribution’ scheme running in tandem, that will begin with contributions from salaries over a certain threshold. The USS still are nowhere near having that element in place, and so the pension scheme next spring will in effect convert to one that nobody has proposed or agreed (albeit moderately better than the one imposed), and this will last for a few months until they can get their ‘defined contribution’ section up and running. For details of how poor a defined contribution scheme is compared to the defined benefits of a career average or final salary scheme, see the second half of this page:
You’ll recall that when all this came to light a year ago, it was proposed (as we warned back in 2011) that the final salary pension scheme would be closed and that a career-averaging scheme would be applied for all current and new members to the USS pension scheme. The argument for the necessity of this centred around a calculation, a valuation, misleadingly called ‘the deficit’ (there is no deficit), that basically asked if the value of the scheme at the 31 March 2014, ignoring all contributions after that date, could pay for all future benefits payable. The UCU argued, and continues to argue against this model of calculating the scheme’s vitality, but the changes remained on the table. Remember, the scheme in reality brings in millions more each year than it costs and what it pays out each year is a very small fraction (less than a third of one percent) of the £49 billion that it is actually valued at (up from £42 billion last year)(Yes, that’s a 17% increase in one year, compared to the two or so percent they insist on predicting with).
All members were consulted, earlier this year, on whether they accepted the details of the scheme as proposed, though only a small proportion responded. Institutions too were consulted and Universities UK (UUK), representing the employers, made recommendations. Early last month, the USS finally submitted the valuation. In this, not only did they ignore the UCU argument composed by First Actuarial, but they broadly ignored the UUK recommendations, and the final version was pretty much unchanged from the October 2014 version. Those who would like to see a comparison chart for details, can check this page.
One of our key complaints, and central the argument by internationally leading financial mathematicians, was the inappropriate nature of the ‘gilts+’ method used for calculating future investment growth. In brief, this assumes future investment growth by pegging growth predictions to the value of government bonds, which are at a historic low. It does not employ the predicated yield on the actual contents of the USS investments (which contains few gilts). The 2015 USS report (page 30) demonstrates quite openly how poor the gilts+ method is as a predictor of future growth, and indeed the investments have grown so well that USS have handed out increased millions in bonuses to themselves for an actual, proven investment achievement which they, on the other hand, denied could happen, and continue to insist on devaluing our pensions on that basis. This, coupled with the continued plan to ‘de-risk’ the scheme (which actually materially and knowingly increases the risk of failure to afford all future benefits), leads us to conclude that we will all face this all over again in 2017. We’re giving you a heads up of that now!