Overall cuts to our pensions
as of 5 Sep, 2022
In February, the employers’ association (UUK) completed the process of imposing the latest round of cuts to the future accrual of pension benefits. These cuts mainly took effect from April. Previously accrued pension benefits will not be affected. Our negotiators calculate the overall cut to our future pension accrual to be on average 21%. They report the employers’ confirm this is consistent with their actuaries’ calculation[1]. UCU also calculated that a typical member on a lecturer’s salary, aged 37, will suffer a 35% loss to the guaranteed retirement benefits (i.e. defined benefit) which they will build up over the rest of their career[2]. You can find how these cuts will impact the benefits you will accrue through the following modelers:
https://www.ucu.org.uk/ussmodeller
https://www.ussconsultation2021.co.uk/members/impact
How does the pension work, and what are the cuts?
Each year we work, a fraction (the accrual rate) of our annual salary is added to our retirement income, which we will receive per year from retirement until death. For example, someone earning £37,500 this year with 1/75 accrual would increase their annual retirement income by £500. Someone working with this salary for 30 years would have an annual retirement income of 30* £500 = £ 15,000. This is the defined benefit (DB) component of our pension. USS calls this the Retirement Income Builder. The amount of retirement income is also increased to keep up with inflation (inflation indexed) unless inflation goes above the inflation cap.
The above only applied to income up to the DB/DC threshold. Above this, money is put in an individual account invested in markets that might go up or down. This is the defined contribution (DC) component of our pension. USS calls this the Investment Builder. We and our employers pay retirement contributions for this. You can contact USS or the University of Edinburgh pensions office for more details.
On 2022’s February 22, USS imposed the following cuts proposed by UUK:
| Previous | From April 2022 | |
| Accrual rate in DB | 1/75 | 1/85 (~12% cut) |
| Inflation cap | % plus half of further inflation to 15% | 2.5%(to take effect in 2025) | DB/DC threshold | £59,884 | £40,000 |
| Contributions | Employees: 9.6% Employees: 9.8% |
Employers: 21.1% Employers: 21.4% |
| Amount added to DC funds above DB/DC threshold: | 20% | 20% |
The accrual cut reduces pensions by about 12%. The projected average effect of compounding below-inflation indexing had been projected to reduce pensions by a further ~5%, although one might reasonably believe that inflation will be higher than had been previously projected, making the cuts more severe. The cut in DB/DC threshold affects different members very differently, but is projected to reduce pensions on average by several percent; it greatly reduces the guaranteed (DB) part of the pension for new lecturers as well as others.
What are UCU’s demands?
UCU is now calling for[3]
UUK to revoke the massive cuts which they imposed on members of the USS pension scheme and put pressure on USS to restore benefits to 2021 levels as soon as possible.
UUK to put strong pressure on USS to ensure that the next and all subsequent valuations are moderately prudent and evidence-based.
What is the role of the valuation and the state of the pension fund?
The most recent figures from USS suggest that the pension fund is in surplus[4]. The employers’ association (UUK) imposed the cuts in response to USS’s 2020 valuation which reported a large deficit, although UCU (and initially UUK) disputed the methodology that was used to calculate the deficit. The large deficit USS reported in 2020 seems to be the result of (i) conducting the valuation on 2020-03-31 when financial markets were panicked and (ii) using an excessively pessimistic methodology. The employers’ actuaries described USS’s justification for the increasingly extreme methodology as “what feels like a hall of mirrors”[5]. The reduction of the supposed deficit arises from improvements in financial markets and not from the cuts to the pension[6],[7].
What is the view of the University of Edinburgh executive?
Our management is not satisfied even with these harsh cuts, describing them as “a step in the right direction” and suggesting a further downward adjustment of the DB/DC threshold and the creation of the option of an entirely DC scheme[8]. Our vice chancellor refuses to sign the joint statement on exploring alternative scheme design already jointly signed by the Cambridge, Oxford, and Imperial College London vice chancellors and UCU branch presidents. He refuse to sign any of the other joint statements on USS agreed by many other vice chancellors.
[1]https://twitter.com/MikeOtsuka/status/1382931061001310210
[2]https://www.ucu.org.uk/strikeforuss: 2021 March 28 entry.
[3]https://www.ucu.org.uk/article/12469/FAQs#How_can_the_USS_pensions_dispute_be_resolved?_
[4]https://www.uss.co.uk/-/media/project/ussmainsite/files/about-us/our-valuation/monitoring-of-the-fmp---june-2022.pdf
[5]https://www.ussemployers.org.uk/sites/default/files/field/attachemnt/USS%2031%20March%202020%20valuation%20-%20Aon%20report%209April2021.pdf
[6]https://www.uss.co.uk/-/media/project/ussmainsite/files/about-us/our-valuation/interim-monitoring-of-the-fmp---february-2022.pdf
[7]https://twitter.com/sussexucu/status/1560560511632023552
[8]https://www.ed.ac.uk/files/atoms/files/uoe-uss-consultation-response-final.pdf