Vince: Government must act to secure university lecturers’ pensions

This smart little piece of digital magic sums up Vince Cable’s position on the university lecturers’ strike. He has called on the Government to underwrite the lecturers’ pension scheme.

The former Business Secretary, who was responsible for universities, called on the Government to intervene to stop lecturers being left up to £10,000 a year worse off in a letter to the current Universities Minister:

Dear Sam,
As you are aware, university lecturers have started 14 days of strikes due to drastic changes to their pensions. A lecturer can expect to be left around £10,000 a year worse off in retirement as a result.  Younger lecturers will be the worst hit; it has been estimated they could lose up to half of their total retirement pot. Lecturers are not well paid; the reward for their hard work has largely been in the form of relatively generous packages, including a defined benefit pension.

There is a large deficit of around £6-7.5bn in the scheme, so some work clearly needs to be done to bring this down urgently.  However, this does not necessitate the drastic action being taken – particularly given there are question marks over how the deficit has been calculated – notably a shift of the risk burden on to employees. Universities UK has shown few signs of being willing to compromise, which has led to an impasse that will harm the academic study of more than one million students.

The concerns around the scheme have largely been about risk. Some institutions have pulled out of the pooled scheme due to fear it could end up badly underfunded should weaker universities go bankrupt.

To alleviate these concerns and de-risk the scheme, the Government must move to underwrite the Universities Superannuation Scheme, providing academic staff with guarantees that their pension will be safe and at the expected level.

Not only would this provide the fund with the certainty the more fiscally conservative institutions are worried about, it would also put scheme in line with universities set up after 1992. One part of the university sector should not be treated differently to another.

For full disclosure, I must also mention that I am a member of the USS as a former academic.

I look forward to hearing from you shortly.

Yours sincerely,

Vince Cable MP

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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15 Comments

  • Andrew McCaig 24th Feb '18 - 7:37pm

    Well said Vince!
    (Speaking as a Lib dem currently on strike!)

    The “deficit” in the USS scheme is largely a product of a Catch-22 valuation methodology
    (you must invest most of your money in gilts that currently attract an interest rate well below CPI, which the rate that liabilities increase by..).
    However when the MPs pension scheme was in real deficit, the taxpayer bailed it out..

  • Andrew,

    I think it is a little more complex than just negative real interest rates on gilts. Projected years in retirement have increased significantly and triennial actuarial valuations have been throwing up large deficits in many defined benefit schemes.
    Ultimately, this is a public sector pension schmes and Vince is right to call for underwriting of the Universities Superannuation Scheme.

  • Pensions as a whole need security. You can pay all your working life into a company pension and the company goes bust before you are due to retire.
    If you don’t trust employers, you can pay all your life into a private pension and a bad day on whatever the pot is invested in can wipe out most of it the day before you retire.

    Shouldn’t ALL pensions be underwritten?

    Meanwhile, the date you can claim the state pension has been pushed back and back (seven years for women, so far)…

    I echo Barnaby’s thoughts. No one wants a race to the bottom. But for the many millions who already ARE on the bottom, and for the millions who can’t afford to start saving for a pension (some juggling two/three jobs just to make ends meet), this strike by ‘poorly-paid’ lecturers just reinforces the ‘out-of-touch metropolitan elite’ stereotype.

  • But the poorly paid is surely relevant to what they do and their qualifications. They are by definition highly qualified, all holding PHDs, and like the public sector their pay compared to what they could get with that level of qualification in the private sector is very low. The pension is generous but has always been the flip side of their pay packet and we can’t expect to keep recruiting people into the job if we reduce the pension but don’t adjust the pay to make up for that.

  • Isn’t this whole dispute partly due to the Coalition university policies? As part of the creation of an university ‘market’ post-2010, the government withdrew its guarantee of USS. (As opposed to the post-92 universities, which participate in the now more-generous Teachers Pension Scheme.)

  • Barnaby,

    there is no doubt that the removal of pensions tax credit in the 1990s has severely impacted pension schemes, but it is not coming back. From 2016/17 the notional 10% tax credit on dividends was abolished. A £5,000 tax free dividend allowance was introduced (this reduces to £2.000 from 2018/19) Dividends above this level are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate) Dividends received by pensions and ISAs are unaffected i.e. continue to be tax free.

    As the divide between private and public sector pensions grows, with almost four times as many private sector jobs likely to have no pension provision, the Labour government’s decision to scrap the tax credit in 1997 looks all the more harrowing.

    Margaret Thatcher’s cutting of the earnings link for the state pension has left this basic pension provision well below the poverty line. The UK’s state pension system will fail its most basic function – namely to provide security for all and ensure that everyone in society has an adequate income in retirement to enable them to live in financial security and with dignity.

    Britain’s demographics point to a tough time for many in the coming years. We need a holistic approach that brings a far greater degree of security of income for retirees than the current hodgepodge of unfunded state benefits, defined contribution schemes and defined benefit schemes.

  • Barnaby,

    the stats show some 2 million landlords renting out 5 million properties in the UK (about 18.5% of the housing stock).
    Many have come to the same conclusion as you that Property Investment is a better means of providing for retirement than saving in a pension scheme where the lion’s share of income and gains can be absorbed by management charges.

    The problems you highlight – private pension system wrecked, many people without any provision for their retirement, shortage of houses for sale and high rents – are serious ones and clearly related to the low returns/uncertainty around pension pay-outs in retirement.

    Although initially relatively low the investment limits on New ISA’s have now increased to £20,000 per year (£40,000 per couple) and are a credible alternative to self-invested personal plans for the self-employed or investment in a property market held aloft by very low interest rates. We have recently started to see the emergence of ISA millionaires who have been using these forms of tax free investment since they were first introduced in 1999 to replace the personal equity plans and Tax exempt savings account that existed then.

  • Andrew McCaig 25th Feb '18 - 6:37pm

    Well, I and most other University Lecturers regard the pension as deferred salary. One of the things the Universities are doing is taking the opportunity to cut their or pension contribution by 5%, having already cut salaries by over 15% in real terms since 2008. While private sector salaries are now beating inflation, ours continue to be squeezed.
    Meanwhile the USS pension fund has easily beaten inflation over many years. This is because they have experts on stock market investment running it. And where I live property values have fallen by 25% in real terms since 2008 as well, so investment in property may not be a safe solution either. I don’t want to spend my retirement worrying about investments, and finding out the hard way how little I know about the Stock Market, so I would probably go for one of the “Ponzi schemes” that Barnaby mentions by buying an annuity….
    However since I am nearing retirement I imagine I will be “not too bad Jack” compared to my younger colleagues..

  • Laurence Cox 25th Feb '18 - 7:02pm

    @JoeB

    One of our Peers, John Lee, reached that milestone back in 2003, having started investing in the days of PEPs and TESSAs. There is also the benefit that (like ISAs) because they were bought out of after-tax income there is no income tax payable on withdrawals from them, or any capital gains tax on the increase in value. This is a big benefit if you wanted to take an income that would put you into the higher rate of income tax if it were paid out of a pension fund.

    http://www.thisismoney.co.uk/money/diyinvesting/article-4328824/Here-Isa-millionaire.html

  • Andrew McCaig 25th Feb '18 - 7:48pm

    Laurence Cox,
    That sounds like a bit of a wealth tax loophole that needs plugging!

  • ‘But the poorly paid is surely relevant to what they do and their qualifications. They are by definition highly qualified, all holding PHDs’…
    No, ‘poorly paid’ is relevant to the experience of the population as a whole. This really is an ‘aw, diddums’ dispute for the millions of JAMs in the UK. And for the students racking up debts they’ll never pay off.
    We need to fix the pensions system so everyone can afford basic living costs, and so it isn’t the current hodgepodge, as Joe puts it. THAT would be a great campaign for the Lib Dems to focus on.

  • Nonconformistradical 26th Feb '18 - 10:24am

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