The U.K.’s largest private-sector pension scheme may close its defined benefit plan, prompting beneficiaries to threaten an industry-wide strike.
British university lecturers say they will vote to strike if a proposal to switch the £60 billion ($79 billion) Universities Superannuation Scheme to a defined contribution model is not abandoned. Universities U.K., the organization representing the employers funding the scheme, suggested moving to a DC model in an attempt to stem the scheme’s growing deficit, valued at between £12.6 billion and £17.5 billion depending on the valuation method.
The deficit has ballooned in recent years, growing by as much as £9 billion in 12 months, according to a valuation method used in USS’s annual report.
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Universities U.K. said that “difficult economic circumstances” were responsible for the increased deficit, as well as a “significant increase in the cost of future defined pension benefits of more than a third since 2014.”
In a statement, Alistair Jarvis, chief executive of Universities U.K., said urgent action was now required to ensure the USS scheme remains sustainable.
“The costs of USS need to be controlled,” he said. “Most universities can’t afford to pay more into pensions without diverting money from other central areas, such as teaching or research… The option of no reform would be a dangerous gamble that employers in the scheme are unwilling to take.”
The switch to defined contribution, however, would slash benefits for scheme members. The Universities and Colleges Union – which represents lecturers and academics in the scheme – described the proposal as a “bolt from the blue,” adding that it would begin balloting members on strike action starting on Monday, November 27.
Universities U.K. has promised to continuing paying contributions of 18 percent of salaries, but the organization has yet to resolve how it will resolve the deficit. An individual familiar with the matter told Institutional Investor that discussions between Universities U.K. and the trade union over how the 18 percent payment would be used were still ongoing.
John Ralfe, an independent investment consultant and former university pension trustee, told II that both parties need to reach an agreement on how to repair the deficit, or the situation may not improve by changes in economic circumstances alone. “They are in a hole and they have stopped digging,” he said. “But that doesn’t solve how they are going to get out of the hole.”
The UCU trade union, meanwhile, is furious at suggestions that the scheme be moved to a defined contribution model. General secretary Sally Hunt wrote to trade union members on Friday, advising them to vote in favor of strike action. In the note, which was reviewed by Institutional Investor, Hunt said there was “no point pretending that anything other than sustained strike action” would “make the employers listen.”
“This is not something that I ask you to do lightly,” she wrote. “I know first-hand that you always put your students first. However, this dreadful proposal is predicated, in my opinion, on the employers’ belief that because you care you will put up with this.”
A spokesman for USS said the scheme’s primary duty was to ensure that the pensions already promised to its members were secure, and that pensions offered in future can be met with a high degree of confidence.
“It has been impartial and objective in its analysis and is now working with employers and union representatives as they determine future benefits,” he said in a statement. “Benefits members have earned to date are secure and protected in law.”
