USS is in a mess but not a mess like Biden’s.


Take a look at these two pictures, they both show strike action over pensions. The picture on the left is of a university lecturer protesting over cuts and contribution hikes to the USS, the picture on the right is of freight drivers protesting over cuts and contribution hikes to the Teamsters Pension Fund in the USA.

Both schemes are requiring members to contribute more and promising lower benefits for future contributions. The percieved underfunding of defined benefit promises is a problem of all countries rich enough to fund pension promises to the generous levels envisaged in the twentieth century.

We are on the cusp of massive financial changes as ageing really kicks in and we need to think creatively to get good and fair outcomes. We cannot be  constrained by vested interests and unwillingness to change. This blog looks at these two schemes and sees some hope for USS, but none at present for American multi-employer schemes.

When US plans are bust…

There is a point when a pension plan becomes unaffordable. In the USA, Teamsters is only one of a number of pension funds that will run out of money to pay benefits in the next 20 years. Jo Biden is risking his political reputation on creating a bale-out plan for these schemes but , according to what I read in the FT, the plan is not working.

The 1400 blue collar funds that Biden is attending to have some 10.8m members, Teamsters is the largest with 400,000. USS is smaller  and white collar but it also has strong union connections – hence the similar headlines and images.

Teamsters has been the subject of investment scandals over the years as have many of its peers. The US Government is offering a bail-out but the bail-out itself has to be invested in super-safe funds – primarily investing in Government debt. There is a similarity with USS which is moving away from growth assets. In both cases, the perceived need to de-risk is limiting the ambition of the funds to invest their  way out of trouble.

With the risks of money running out to pay benefits, both USS and Teamsters see themselfes as having no alternative than to increase contibutions and/or cut future benefits. The Biden interventions are not solving the problem, they are not seen as credible. He must be careful his pension proposals don’t drag him down with them.

Is the USS showing signs of healing itself?

We may be beginning to see some co-operation in the UK between the participating employers in the USS scheme and its principal member organisation – the UCU. On December 17th, Imperial College London and the UCU issued a joint statement

It has had the support of some of the recognised commentators within the wider UCU

The statement recognises that the USS will only have a sustainable future if “all parties works together” so Imperial and its local UCU

  • Call on UUK and UCU to return to negotiations.

  • Call upon UUK to confirm that the same covenant support will be sought for all proposals, whether originating from UCU or UUK.

  • Call upon the national UCU to submit an updated proposal on the basis of this support to be costed as a matter of urgency.

  • Call for UUK and UCU to join forces and create a well-resourced working party to explore the feasibility and promise of alternative approaches that will give long-term stability and viability to the USS pension scheme. There is urgency to this matter and we strongly suggest that such a working party should be set up and start work within a two-month timeframe.  We agree that conditional indexation, or alternative scheme designs, could make it possible for USS to continue as a collective, mutual, multi-employer scheme with an ability to invest for the long term in growth-seeking assets.

This final bullet will be very contraversial as it implies that a solution may require risk to be shared not just by those still to receive their pensions, but by those who are pensioners.

Making all pension increasess conditional on the ability of the scheme to fund them, strips the gold plating from USS’ current pensioner’s rights and requires them to accept that the financial issues are shared equally by all generations within the scheme. This goes against the “priority orders” established by the Pensions Regulator which historically place pensioners as preferenced in the case of the scheme running out of money. Even the PPF acknowledges these priority orders.

This proposal for all USS members to share in the risk has never been made public  by USS Stakeholders before. But I have lost count of the number of times it has been mentioned in private conversation and on this blog.

As I see it, the working party that this Imprerial and its section of the Union want to set up would have a number of alternatives to consider. None of them will be palatable to all, but if the aim is to have a sustainable scheme , compromises will need be made.

The solution that best suits all members is a tax-payer bail out which kept contributions down and secured no further cuts in pensions. But this would come at a cost to other areas of university funding which will be hard to justify to the tax-payer (as represented by the Treasury). The Biden bail-out does not make this look “risk-free” to anyone

All other options require a radical changes in the pensions payable to some USS members

USS could insure the scheme by moving to buy-out –  the scheme is underfunded on a buy out basis, so gold-plated benefits for all would mean substantial cuts in future promises.

USS could ringence pensioner rights by getting an insurer to partially buy them out. USS  might offer  those yet to draw their pensions a right to a transfer or get reduced benefits (this has disturbing echoes of  BSPS’ Time to Choose)

Or the USS could move to CDC. If  pensioners accepted conditional indexation and the possibility of nominal pensions falling, this could mean a more aggressive investment strategy with a probability of better benefits over time. This looks like the solution Imperial is working towards

The CDC might work without the inclusion of pensioners but it would probably still require those at work to  lower their future pension expectations.

The final option would be to slash future accruals and continue to gold-plate the pensioners, without recourse to insurance. This appears to be the current plan purused by the employers and the USS. It is not acceptable to the union – hence ongoing strkes.

So what lessons are there for the USA and Jo Biden?

The FT’s assessment of the mess that Jo Biden’s reforms are in , is down to the solution of the multi-employer plan funding problem being put in the hands of the Pension Benefit Guaranty Corporation, a US government agency. The PBGC’s immediately decided that the  cost of the bailout should be increased from $86bn to $97n but by requiring the State Funded Assistance to be invested in Treasury debt , currently paying 2%, the Fund looks to be heading back into insolvency by 2037.

The Treasury and the DWP are wisely not getting involved in bailing out USS or any other Scheme in trouble. The Pension Protection Fund was set up by the DWP but is funded by a levy and the USS can only enter the PPF if the universities that fund it , declare they can fund it no longer.

Instead of looking at bail-outs, the DWP has created vehicles for risk transfer (superfunds), a de-risking code designed to make scheems self-suffeient of their sponsors (to a point that they can be bought out through insurance) and a means of risk-sharing which defines contributions rather than benefits.

By creating a pension framework capable of finding alternative solutions to the traditional sponsor’s guarantee, the UK has given schemes like USS a way-out that can be engineered within the scheme.  This looks a better way and one that the US authorities may wish to consider.





About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to USS is in a mess but not a mess like Biden’s.

  1. Dennis Leech says:

    Would it not make sense for a pension to be both linked to the (variable) performance of the fund, therefore sometimes falling, but also with a guaranteed floor below which it could never fall? A member could choose the level of the guarantee. The fund could be invested in real growth assets and so pensioners could share in economic and be protected against inflation. The Prudential Income Choice annuity linked to their With Profits fund does this.

  2. henry tapper says:

    That’s certainly one way of doing it

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