This is nonsense. If universities can’t pay the required #USS DB contribution, then simply move to DC, which was of course the original plan. Universities backed down in the face of strikes https://t.co/rYtU1azGjM via @timeshighered
— John Ralfe (@JohnRalfe1) November 14, 2020
The image of two grizzly bears fighting each other is both eye-catching and appalling, we know this will not end well but we are drawn to the spectacle. As an image of the ongoing struggle between university teachers and their employers over pension rights, it is spot on or “apposite” to use the language of academia.
The problem for the public is that we are tired of the argument and want some resolution. We do not want the teachers to compound the damage of current distance learning with another wave of strikes, but that is where this dispute is heading.
Nor is the problem as easily solvable as John Ralfe would suppose. Though university teachers may not think of themselves as like postal workers, in terms of retirement planning, they are not that different. The average don has neither the inclination or the financial capability of managing a DC pot to pension and would certainly be shocked by the meagre fayre offered by an equivalent annuity from a DC scheme, relative to the benefits available from USS.
A wholesale shift to DC would cause the kind of industrial unrest that would have crippled Royal Mail. What is needed is the kind of leadership displayed by the UCU an UUK as occurred at the crisis point of Royal Mail’s negotiations at ACAS with the Communication Workers Union.
What happened there was that the heads of the two sides, Jon Millidge and Terry Pullinger, agreed that for the greater good , a compromise solution could be put together. Royal Mail gave up its insistence on a DC solution while the CWU gave up their demand for guaranteed pensions.
The key is guarantees.
As we move towards the next round of negotiations over the future of the University Superannuation Scheme it seems inevitable that guarantees will have to be discussed and negotiated. The perilous position facing many individual universities with falling revenues from the loss of overseas students does not suggest they will return to the table better able to afford massive hikes in pension funding costs.
The University and College Union, under the capable leadership of Dr Jo O’Grady now find themselves much as the CWU did, with a new way of teaching threatening the livelihoods of its 120,000 staff. If things have got to the point where students have to distance learn, why should they support the infrastructure of universities and colleges and the massive pay and pensions bill of lecturers when the teaching and information they need is readily available on line.
Universities are going to have to radically reinvent themselves post pandemic as the current tuition costs to students and tax-payer do not give value for money. In the wake of the pandemic , it is inevitable that the cost of guaranteeing funded pensions to academic staff will have to be revisited.
Mike Otsuka – speaking sense
I very much hope that the three lectures being given by Mike Otsuka have been well watched. I could not make the first two and can’t make the third either (clashing work commitments).
As these lectures were delivered on Zoom I hope that there will be recordings which can be distributed to the wider public. For those who can attend, the third lecture (on the role of unfunded Pay as you Go pensions, goes ahead on Tuesday 17th.
Index👇of my Twitter threads on USS, UCU, pensions, inflation, and higher education, with recent focus on re-opening university campuses during the pandemic. I’ll retweet whenever I update the index. 5/5https://t.co/7ExXInNJhG
— Michael Otsuka (@MikeOtsuka) October 2, 2020
;Mike’s work on the subject is very important but it is too inaccessible for the ordinary person to properly understand. Here is the advertisement for the CDC lecture which was given last week
On any sensible approach to the valuation of a DB scheme, ineliminable risk will remain that returns on a portfolio weighted towards return-seeking equities and property will fall significantly short of fully funding the DB pension promise.
On the actuarial approach, this risk is deemed sufficiently low that it is reasonable and prudent to take in the case of an open scheme that will be cashflow positive for many decades.
But if they deem the risk so low, shouldn’t scheme members who advocate such an approach be willing to put their money where their mouth is, by agreeing to bear at least some of this downside risk through a reduction in their pensions if returns are not good enough to achieve full funding?
Some such conditionality would simply involve a return to the practices of DB pension schemes during their heyday three and more decades ago. The subsequent hardening of the pension promise has hastened the demise of DB.
The target pensions of collective defined contribution (CDC) might provide a means of preserving the benefits of collective pensions, in a manner that is more cost effective for all than any form of defined benefit promise. In one form of CDC, the risks are collectively pooled across generations. In another form, they are collectively pooled only among the members of each age cohorts.
Mike is putting forwards the solution that Royal Mail and its union found. If the UCU and UUK could come to a similar compromise on guarantees and future benefit structures then many students would not lose more face to face or remote teaching times in the months and years to come.
But there are headwinds, and they come from entrenched positions both within and without academic circles. Take this tweet from Norma Cohen, representing a “no retreat – no surrender” position on DB pension guarantees.
If employers make pension promises that they won’t stand behind, they no longer deserve the tax breaks on contributions and investment returns.
— Norma Cohen (@NormaCohen3) November 9, 2020
The reality is that most employer with DB schemes are no longer honoring the offer of future accrual and are piling in money to meet deficits (which is getting tax-relief). The DB system is soaking up resources otherwise needed for Britain to bounce back. Both these deficits and contributions into DC schemes are tax-deductible for employers. Why do some people prize guarantees so highly?
I suspect for universities to bounce back, they too will need to dishonor their offer of future DB accrual. Now is the time for UCU and Government to think seriously about CDC as an alternative.
Let’s hope that Mike’s second lecture can be watched by all those with an interest in resolving the long-running dispute over the USS and lecturer’s pensions. Otherwise we will continue the argument from entrenched positions and miss the big picture.
I would refer those debating university pensions to look again at the work done by Royal Mail and CWU and learn from it.
Like Henry, I missed Mike Otsuka’s first two lectures and will miss the third on Tuesday – bad day that – no less than three virtual conferences. Mike has however sent me the slides for the first two lectures, and they are excellent, covering funded DB and CDC. I understand that videos of the whole series will become available but have no idea when.
I do not see any resolution to USS’s problems in the near future. As I see it, the main issue is one of disgraceful governance by its executive managers.
I think the USS could remain a DB scheme with clear promises. The problems lie elsewhere, getting the sponsoring employers to agree a way forward and negotiate a “contract” with their employees. Return seeking allocation could be increased a bit further, but most likely future accrual should be reduced too. A small cut in accrual to 3/80th lump sum plus 1/80th would go a great deal.
USS should remain a DB scheme, if it is closed and replaced with a separate DC and CDC scheme, the temptation to reduce equity allocation and request deficit funding from sponsoring employers will be too high and it will lead to reductions in contributions paid to the (C)DC scheme toward the minimum allowed by law i.e. 8%, just to be able to fund the DB scheme deficit.