On the go: A group of academics have attempted to refute Universities UK’s claim that staff in the £90bn Universities Superannuation Scheme earning less than £40,000 annually would receive a “headline” cut of 12 per cent to their future pension, pointing out to higher losses.
UUK’s proposal lowered accrual in the defined benefit part of the scheme and reduced the upper salary limit for DB from £60,000 to £40,000. Beyond this threshold, pension contributions go into a defined contribution section.
A cap of 2.5 per cent on the annual indexation of DB pension value was also introduced, replacing a “soft cap” that saw DB pension value matched to consumer price index inflation in the range of 0 to 5 per cent, followed by half-matching from 5 to 10 per cent.
In a recent note to members, USS group chief executive Bill Galvin said that the 2.5 per cent limit, which came into force in April 2022, had prevented the scheme’s technical provisions deficit from coming in at £3.1bn in a recent snapshot overview.
Future service contributions would have needed to otherwise sit above 36 per cent, he said.
A paper authored by academics Jackie Grant, Mark Hindmarsh and Sergey E Koposov argued: “Considering only staff in USS who earn below £40,000… under the UUK proposal 90 per cent (76,800 out of 84,000) lose more than 15 per cent of their future pension, with percentage loss peaking between 20 per cent to 30 per cent and extending to 40 per cent to 45 per cent for realistic values of CPI.
“Our results therefore refute the UUK claim.”
The paper modelled mean values of cuts across all staff at 27 per cent, 31 per cent and 33 per cent, respectively, for CPI of 2.5 per cent, 2.8 per cent and 3 per cent.
The authors said that their estimates found agreement with earlier analysis of cuts to pensions from a sample of 42 staff, “which cast further doubts on UUK claims about total pension cuts”.
“Our results are compatible with [University and College Union’s] claim of 35 per cent loss to future guaranteed pension of staff on a typical lecturer’s salary,” the paper said.
“However, we found the UUK claim of headline 12 per cent cut to future pensions of those earning below £40,000 to be a significant underestimate.
“Our consistency checks also support the view that UUK’s claim on the level of cuts to total pensions of between 10 to 18 per cent is based on three data points… and is also an underestimate.”
A spokesperson for USS Employers said: “The employer proposal secured a viable and implementable solution to the 2020 valuation, which retains a significant element of DB within the future pensions earned by members.
“We have not made misleading claims. It is reasonable for us to conclude in headline terms — using the example personas developed by USS itself to show the impact — that reductions in retirement benefits will be in the range of 10 to 18 per cent.
“We have consistently said that scheme members should use the USS modeller to check the possible impacts in their specific circumstances,” the spokesperson continued.
“It is also important to recognise that employers have responded to the major concern of rising inflation by agreeing to defer the application of the 2.5 per cent inflation cap up to and including the increase due in 2025.”
