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UCU’s case for the strike ignores the pensions black hole

The current dispute between the University and College Union (UCU) and UUK – the body in charge of the  University Superannuation Scheme (USS)  pension fund, has led to strike action – which, coming in the second half of the Spring Term will badly affect students and particularly impact those in their final year. However, once the detail of the dispute is examined properly, the basis for the strikes seems extremely questionable.

First we should note the reason for this dispute: a massive black hole of unfunded liability in the USS pension fund, that manages academic and some administrative pensions at UK universities. This represents a gap between the fund’s performance and future payments owed to staff under the defined benefit nature of the scheme. The deficit between the fund’s assets and liabilities is estimated at £17.5 billion, the worst deficit of any major pension fund in Britain. By comparison, the British company with the largest pension fund problem is BT, with a net liability of £9 billion. The deficit in the USS has been an issue for at least a decade, but the USS and universities have avoided taking the difficult steps necessary to resolve the problem.

One option is to raise tuition fees for students. In 2013, when the deficit was only £7.9 billion, the rise in fees needed to rescue the fund’s financial situation was estimated at £1000 per year for every student. Given the way that the deficit has ballooned since then, the necessary fee increase would now be at least double that amount. Given student opposition to existing fees, this option has obviously been politically impossible.

No doubt UUK delayed the implementation of this necessary change as they were aware of the inevitable backlash from a confrontational and uncompromising UCU

The other solution, and the one that UUK executives have eventually been forced to pursue, is to close off the current defined benefit scheme to new members (and additional contributions from existing members) in favour of a new, defined contribution scheme. It should be noted that this type of pension has become standard across the private sector, and is increasingly the only realistic option for future public sector pensions, almost all of which are chronically underfunded. No doubt UUK delayed the implementation of this necessary change as they were aware of the inevitable backlash from a confrontational and uncompromising UCU.

Defenders of public sector pension schemes have long argued that these benefits exist to make up for the fact that private sector employees significantly out-earn their public-sector counterparts, but this is patently untrue. Academics are well paid – a mid-level qualified lecturer already earns more than the average wage, and potential salaries for academics run up to £90,000 per year. If their earnings are comparable those in the private sector, why should academics benefit from preferential pension schemes at taxpayer (and student) expense?

After all, academics in modern universities are providing a paid-for service like any private company. Whether one agrees with the trend or not, university education has effectively become marketised since the introduction of tuition fees. Students are no longer gifted their degrees, we are discerning, fee-paying customers who are becoming increasingly assertive about our legal right to a consistent and fulfilling education in return for the money we pay. As most of us take loans out to afford these fees, we would do well to remember that the salaries (and therefore pensions) of university staff are essentially paid out of our future earnings. As students place a heavy financial burden upon ourselves to receive a decent education, the strikes represent a serious dereliction of duty given the implicit contract between students and academics.

The fund has essentially become a giant Ponzi scheme, instead of the self-sustaining system it was designed to be

Finally, and most damningly of all, the changes to pensions proposed by UUK categorically do not affect benefits earned through contributions made to the existing scheme. These will be paid out in full once academics retire. There will be no retrospective attack on the current scheme, the only change being that, from next year onwards, new and existing staff will pay into a defined contribution scheme instead. Moreover, universities agreed last year to contribute an additional 2.1% of their total payroll to plug the deficit in the defined benefit scheme over the next 17 years.

Some of the discourse around the dispute has moved into the realm of the ridiculous. In a blog post on January 25, Dennis Leech, an emeritus professor of economics at Warwick argues that the USS should move its investments from relatively safe assets like government bonds into riskier equities. The irony that this came almost directly before a week of troubling volatility and losses in global stock markets should be lost on nobody. In the same post, Leech makes the point that the stability of the USS fund is reliant on the continuing entry of new members to the defined benefit scheme. This is a tacit acknowledgement that the fund has essentially become a giant Ponzi scheme, instead of the self-sustaining system it was designed to be. Perhaps if academics educated themselves about the fundamental problems at the heart of the USS, they would think twice before striking, with potentially serious consequences for their student’s educational outcomes.


An opposing piece on the strikes can be found here:

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Comments (4)

  • I think you need to do some more research into the ‘deficit’ and also how pension schemes operate. Risk should be higher early in your career, and lower later on an individual basis. Pensions pool that risk and can and should invest in riskier products. Also, arguing that lecturers don’t make less than their private sector counterparts by comparing average lecturer salary to the average salary in the private sector doesn’t hold. You need to compare the average PhD educated biologist (for example) in academia vs private sector for a meaningful comparison.

  • A Warwick graduate here (1982). Sorry your piece is uninformed. Please compare with points made by Prof VJ Wass in article and data from Dr Woon Wong.

  • Pure fiction. The UUK state that the USS has a ~£6 billion deficit (and have rapidly backed away from the £17.5 billion suggested months ago.) based on “Test 1″… What would happen if payments into the scheme stopped tomorrow, all investments moved into Gilds (lowest risk, lowest rate of return), yet pension payments increase to an extraordinary length of time.

    Real figures:
    Payments into the scheme per year = £2.1 billion.
    Payments out (pensions) per year = £1.8 billion.
    Assets = £60 billion, give a rather low rate of return of 3% provides a further income of 180 million.

    In other words, the scheme is generating a surplus of nearly half a billion a year and the black hole simple does not exist except in the most extreme economic crash and unexpected increase in life expectancy.

    Yes, there needs to be a level of risk mitigation and planning, but not the end of days the UUK is using, and refusing to discuss.

    Also to note, the “black hole” was ~£9 billion at the last valuation 2 years ago, so indeed has shrunk even despite using a much harsher test.

  • “charlie calthrop” is a pseudonymous right-wing astroturfer, so it’s no surprise to find him out here union-busting

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