There are serious questions to ask about whether university senior management has misrepresented the planned cuts to our pensions. This post was an email sent to members on 16 November 2021 on behalf of the committee by the committee’s lead rep on pensions, Mark Taylor-Batty.
Have the University misinformed you about the cuts to your pension represented by the UUK proposals to change benefit structures? Have you been given misrepresentations or simplifications which might nonetheless contribute to decisions you might make about long-standing financial decisions concerning income in retirement? In this email I want to address these questions, and frame them first in terms of the University’s guiding principles for management, the Code of Practice of Corporate Governance. This code puts expectations on governance structures to be ‘open and transparent’ and ‘promote integrity and objectivity’.
Focussing now on communications regarding the current USS pension issue, there have been three seeming misrepresentations that we have seen relayed to us at the University of Leeds.
- That the UCU did not table a proposal at the August JNC. We have since been fully disabused of this misrepresentation. The UCU did table a proposal, one that had been costed by the USS and was on the August JNV agenda, but UUK obliged its removal from the vote by refusing to match the covenant cover they had nonetheless already costed into their own proposal. This issue is now contributing to arguments within a legal challenge.
- That Mercer, who is providing the University’s information sessions is ‘independent’ or ‘impartial’. Even the University of Sussex, at a time when Adam Tickell (chair of the Employers’ Pension Forum) was VC, agreed to remove the word ‘independent’ in relation to Mercer. The close relationship between Mercer and USS is outlined in their 2021 accounts. (‘we have partnered with Mercer’; ‘investment advice from its external advisers, Mercer’; ‘For the year ending 31 March 2021, the scheme’s external investment advisers/consultants were Mercer’). Further, the University of Leeds’s own Pension and Assurance Scheme is advised by Mercer.
- That the pension cuts represented ‘only’ a headline 12% reduction in defined benefits (more recently modified to argue 10% to 18%)
This email seeks to address this last misrepresentation, with the use only of calculations from the USS’s own modeller.
Before I do that, I want to say that in fairness to our senior management inputting into comms to us, what they have been doing is relaying UUK lines of argument fed to them and replicated at other Universities. There is now an opportunity for our University management to acknowledge those UUK misrepresentations, guided by the principles in the above named Code of Practice.
The misrepresentation in 3.) above was communicated to us via an Internal Comms message of 8 September, which linked to a page offering the following:
“For a university staff member earning under the salary threshold of £40,000 per annum, the UUK proposal would lead to a headline reduction of about 12% in future pension benefits […] assuming inflation remains below 2.5%.”
More recently they have published material that states: “the proposals would reduce the amount USS pension members receive in retirement by around 10 to 18% for most members (7 to 15% including state pension) – contrary to a figure of 35% reduction reported elsewhere”
I want to unpack here for you why these figures represent a gross misrepresentation. You might want to note that inflation is already above 2.5%, but we’ll park that for now and return to it further down. You might also want to note that the attempt to reduce figures by incorporating state pension, which is nonetheless totally independent from the USS pension.
To address the seeming misrepresentation, I will make use of the valuable work of Michael Otsuka ,whose meticulous calculations in this area you can follow on Twitter, alongside those of his colleague on JNC Sam Marsh.
I quote from Michael’s feed here:
We now have graphic visualisation of how misleading @USSEmployer’s “headline reduction of about 12%” claim is. The 12% “headline” captures only the smallest initial gap between blue [current pension value] & orange lines [UUK proposed pension value] as indicated by the red circle at far left.
[The 12% headline rate] fails to account for decades of erosion of the value of this member’s pension by inflation as this gap grows larger over time, to a 22% reduction in the first year this member draws a pension at retirement age 66 & a 30% reduction by age 86:
These reductions in the value of this member’s pension are based on the [USS] modeller’s default assumed rate of CPI inflation of 2.5%. But market expectations of the average rate of inflation over the next 10 years have recently been running at about 4%. If one slides the modeller’s inflation assumption up to a realistic 3.5% CPI per annum, the reductions in the value of this member’s pension at ages 66 & 86 grow from 22% & 30% to 40% & 55% respectively:
I leave you to decide if the information detailed in University communications on the impact of the UUK proposals offer a full and fair, ‘open and transparent’, assessment of the measurable loss to your income in retirement that those proposals actually represent.
- Massaging the figures on USS: How it’s done.
- Martin Wolf, Financial Times: UK university pensions suffer from misplaced prudence
- If you want more detail of how severe the cut in the guaranteed pension one can expect at age 86 would be if the UUK cuts are not revoked, go here. The given graphs show the cut for members earning either £30,000 or £60,000 per annum, and ranging from the ages of 20 to 60.
There is currently an ongoing consultation of USS members about these changes. I will communicate about this at a later date.
UCU Leeds Pensions Officer
This page was last updated on 17 November 2021