Universities ‘face cutbacks’ if USS not reformed, say employers

University staff would face a bleak future involving potential job cuts, pay freezes and a halt in recruitment if the sector’s largest pension scheme is not reformed, employers have warned.

In a briefing document published on 21 October, universities explain for the first time how staff would be affected if they have to preserve the final salary scheme run by the Universities Superannuation Scheme.

According to the Employers Pensions Forum for Higher Education, which represents Universities UK and the Universities and Colleges Employers’ Association on pension issues, institutions would need to increase their contributions by 9 percentage points to 25 per cent to maintain the current USS set-up, at a cost of about £600 million a year.

“[It] would mean that USS member institutions would need to reduce their long-term expenditure by actions such as a recruitment freeze, redundancies, salary restraint, deferring capital investment or by selling assets,” says the document.

Raising contributions by 9 percentage points – which would also see employee contributions rise to 12 per cent - is far in excess of the 2 percentage point rise in contributions (taking the level to 18 per cent) proposed by UUK earlier this month.

That would cost £135 million a year, but would also include the closure of the final salary scheme and a £50,000 limit on the salary up to which staff can received defined benefits in the career average scheme. Beyond £50,000 staff would receive 12 per cent of salary towards a defined contribution scheme.

The EPF also warns that paying 25 per cent in contributions may threaten the financial viability of some institutions, making it “virtually certain that the Pensions Regulator would step in and take strong action to force scheme changes”.

Universities are due to meet representatives from the University and College Union on 22 October to discuss UUK’s proposals, with the union calling for “real improvements” to the offer.

Some 78 per cent of members at pre-1992 universities who voted in a recent ballot said they supported strike action over pension changes, with 87 per cent backing a marking boycott, it was announced on 20 October. The turnout was 45 per cent – a record-high for a UCU national ballot.

The EPF has also published financial modelling on how the UUK’s proposed deal might alter retirement incomes, with adjustments made to reflect five different career paths.

It follows criticisms from the University of Oxford that previous modelling did not allow for any promotions or incremental pay rises, downplaying the potential cuts to retirement incomes.

Under the new modelling, a mid-career researcher/academic on a professorial “fast track” with 20 years’ past service and 10 years’ future service, who retires on a final salary of £66,172, would receive £19,600 a year in retirement under the proposed scheme, compared with £24,800 a year if the final salary scheme had continued – a 21 per cent cut.

A “fast progression” academic who joins USS on the day of the changes and works for 20 years’ would only see their retirement income cut by £500 a year (down from £9,700 a year to £9,200 under the existing career average scheme introduced in 2011) – a 5 per cent cut.

A late starter professional with 10 years in the final salary scheme, who works for another 10 years, ending their career as a faculty manager on £50,200 a year, would see retirement income cut by £2,400 a year (down from £12,600 to £10,200) – a 19 per cent cut.

However, staff will be able to top up their pension by contributing an extra 1 per cent of salary into a defined contribution scheme that would be matched by 1 per cent employer contributions.

jack.grove@tesglobal.com