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Regardless of whether you think University lecturers should strike regarding the proposed changes to their pension and the significant negative knock on effect of students who are coming up to their exams. It cannot be disputed that over the last few years members of the University Superannuation Scheme (USS) have had their benefits reduced. From final salary benefits moving to a career average scheme, the rise in retirement age which is linked to the State Pension and for those earning over £55,000 those pensionable earnings are invested into a defined contribution approach.

It is important to clarify, the USS is not a government scheme backed by the taxpayer, like the teachers, civil service, health service and others. It is a private scheme run and regulated like a company scheme. It comes under the Pensions Regulator in the same way as, for example the schemes at BT, Royal Mail and British Steel.

These funded schemes trustees must be able to show the regulator that it will have enough funds to pay the pensions members have been promised and expect every month after they have retired.

USS has a £6.1 billion deficit and a significant increase in the cost of future defined pension benefits of more than one third since 2014. A plan to reduce this must be submitted to the Pensions Regulator by 30 June.

The pensions regulator has instructed the USS trustees that the pension deficit needs to be addressed. The two options are either to:

  1. Restructure the benefit to something which is affordable under current funding arrangements, or
  2. Increase the funds going into USS, from a combination of increased employer (university) and employee (staff) contributions.

Under current arrangements, a pre-1992 University, contributes 18% on top of salary for each staff member of USS. There are not many private employers offering that amount of employer contribution. (Post 1992 Universities are not in this scheme).

This is supplemented by a contribution of 8% of salary by each staff member.

To address the deficit, as per the UCU (the Union) proposal, would require an increase in employer contribution to 23.5% and in employee contribution to 10.5%. Understandably, a lot of Universities are not willing/uncapable to fund an extra 5.5% of salary.

This type of issue has affected many FTSEE100 companies who have been in a similar situation and many have closed their final salary/career average scheme not only to new members but also for future pension accrual and moved to a defined contribution approach. The well-used phrase "demographic time bomb" in the pensions industry and the fact that we are all living longer, the low interest rate environment which is linked to annuity rates are all factors affecting this issue.

Regardless of what happens in the future, there can be no changes to the pension benefits that members have already earned, both under the USS rules and pensions law. Any change to future pension benefits is not expected to come into force until 1 April 2019.

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