USS funding position -- how to understand the situation?

kidmugsy

kinger101 wrote: »

I'd be in favour of universities capping all contributions above a certain threshold, but still being required to make the employer's contribution into the scheme (with no benefit accruing to the employee) in order to make up for the deficit.

I suppose one difficulty there is that the decision-makers are the very people who would suffer most from such a decision. The modern VC seems to be acutely aware of his own financial benefit.

kinger101 wrote: »

What concerns me is that if DB schemes do have to cut the benefits, then there are many more people who will be in the position where they haven't made adequate provision for their retirement.

I suppose that's an argument for one merit of the idea of relating your final pensionable salary to your salary at the moment the final salary section closes: at least the younger people get many years of notice of their need to increase their savings before retirement.

On another tack; I have been thinking about the proposed £50k p.a. limit for future DB pensions. Do you suppose it's coincidence that that will result in a DB pension quite close to the maximum that the PPF will protect?

kidmugsy

And another thing: the UCU document says "Our advice indicates that a more appropriate method would be to value the scheme liabilities by taking into account the actual investments held by the scheme and the expected returns on these investments".

This seems to me mad. The liabilities remain the same whether you invest in gilts, gold, shares, or sherbet. Some of the liabilities - those referring to current pensioners and deferred members - depend on inflation and longevity assumptions. The liabilities corresponding to active members depend also on assumptions about pay rises and eventual lengths of service. I can't for the life of me see why liabilities can possibly follow from investments. I can see a connection in the other direction - you would choose investments partly to hedge your predicted liabilities, and partly in hopes of outgrowing them.

Why on earth would UCU say something so foolish?

UPDATE: the penny drops. They are not really talking about the actual (estimates of) future liabilities at all, but about the discounted value that will be attributed to them all. Such a value depends on a discounting rate, the value for which is classically plucked out of thin air. They want their patch of thin air to be different from the Trustees'. I remain of the view that UCU has expressed itself so badly that it leaves me wondering how many of that shower, the union officers, want the point to be understood by the members.

Bits of the rest of the UCU stuff I've looked at are pure Dave Spartism.

guymo

kidmugsy wrote: »

They are not really talking about the actual (estimates of) future liabilities at all, but about the discounted value that will be attributed to them all. Such a value depends on a discounting rate, the value for which is classically plucked out of thin air. They want their patch of thin air to be different from the Trustees'. I remain of the view that UCU has expressed itself so badly that it leaves me wondering how many of that shower, the union officers, want the point to be understood by the members.

Right. This is more or less exactly where I came in --- I just can't see how one would choose between the UCU's position and the Trustees' position, and I was wondering if anyone could shed light. The above is actually really helpful, without actually shedding light, because it helps me begin to believe that perhaps the story I have is all there is.

UCU's expression of the position is dreadfully unclear throughout, I agree. It's very disappointing. They've been quite good at rabble-rousing on this one (very high turnout and overwhelming support in the ballot) but not good at arguing their case. Academics ought to be able to make robust arguments.

The lack of clarity around all this was my reason for starting this thread. I am really grateful to everyone who has participated --- what you've all written has helped me think my way through the issues quite a bit.

Anyway, there is now an alternative proposal from UCU for the future of USS. I have no way of telling whether it would address the shortfall. If it would, maybe it's preferable to the current proposals. It can be found in section 4 of this document
http://www.ucu.org.uk/circ/pdf/UCUHE236.pdf

kidmugsy

guymo wrote: »

I just can't see how one would choose between the UCU's position and the Trustees' position

One could always take Ralfe's position, as explained in his 2013 article in the FT, and use the discount rate that the other private sector schemes use. At least that means the choice isn't being biased by one's own position, or one's hopes or fears about USS, or one's complacency about the future of the Higher Education "industry", or one's desire to retain power for union officers.

guymo wrote: »

Anyway, there is now an alternative proposal from UCU for the future of USS. I have no way of telling whether it would address the shortfall. If it would, maybe it's preferable to the current proposals. It can be found in section 4 of this document
http://www.ucu.org.uk/circ/pdf/UCUHE236.pdf

Thanks for that.

UPDATE: two points, after an admittedly quick scan.

(i) UCU dislikes DC schemes; partly, I dare say, because if you evaluate their merits using current low annuity rates, they look pricey for the old-age income the member will get. But this is bonkers, given that (most?) opposition to the proposed reforms is based on the argument that interest rates must soon rise. Hell, if they did that then annuity rates would rise too. What a glaring inconsistency!

(ii) Their argument ignores the new attractions of DC schemes given the Chancellor's announcements since March. Personally, in this uncertain world, I can see merits in having a "base load" DB pension of about the size protected by the PPF, and a DC scheme on top. Especially if I thought I might want to retire before State/Scheme Retirement Age, so that I could use the DC pension as a gap-filler and thus avoid the actuarial reduction required by taking the DB pension early. I can see the union's gripe about DC: a reduced role for the union. Aw, the poor dears!


THIRD and FOURTH POINT
(iii) And a DC section would allow one to offset any investment bias that one might think the DB section guilty of. Not enough equities in the DB investments? Easy, hold all your DC section in a nice cheap passive equities fund. Not enough gilts? Easy, hold a gilt of suitable date in your DC fund. Not enough gold? Hold the Gold Bullion Securities ETC in your fund. Et bleedin' cetera. Actually, I'm warming to the idea of a DC section into which the employer puts such a big contribution. In a way it's a natural extension of the old combination of DB plus a money-purchase AVC, but free of the limited choice and high charges of the Pru.
(iv) The union also whinges that USS will be less attractive than TPS, as used in post-92 universities, and so will inhibit staff from moving from the latter. To which I reply (a) Well, since USS has no limitless power to pillage the public purse, eventually it can't expect to match TPS, can it? (b) Any proper university that can't make itself a more appealing working environment than a post-92 doesn't ruddy deserve to attract such staff. (c) Pay 'em more, you berks.

As usual, a union manages to object to paying employees more on the resentful grounds that not all staff would get the rise. Drag 'em out and shoot 'em; it's the only language these effing socialists understand.

kidmugsy

kidmugsy wrote: »

I suppose one difficulty there is that the decision-makers are the very people who would suffer most from such a decision. The modern VC seems to be acutely aware of his own financial benefit.

Apols for quoting myself, but did my sally identify one reason why some individual employers don't like the sound of the proposed reforms? Do you know, I think it might. Incentives, incentives, incentives.

kinger101

kidmugsy wrote: »

On another tack; I have been thinking about the proposed £50k p.a. limit for future DB pensions. Do you suppose it's coincidence that that will result in a DB pension quite close to the maximum that the PPF will protect?

I hadn't thought of that. It does seem conveniently close. Almost as if they were expecting PPF to pick up the bill after the reforms inevitability fail to address the underlying problem.

kidmugsy

kinger101 wrote: »

I hadn't thought of that. It does seem conveniently close. Almost as if they were expecting PPF to pick up the bill after the reforms inevitability fail to address the underlying problem.

There is one problem with My Brilliant Idea - USS is so big that it might sink the PPF anyway. But I don't think that that necessarily makes my conjecture wrong. As I've said elsewhere, USS could fail by one institution after another becoming insolvent, until everything ends up as an inverted pyramid sitting atop Trinity, Cambridge. And that would presumably take some time.

If ever you read that Trinity is withdrawing from USS, run for the hills.

guymo

Quick update to this thread with the outcome of yesterday's negotiations:

JOINT UCU/UUK STATEMENT FOLLOWING THE USS JOINT NEGOTIATING COMMITTEE (JNC) HELD ON 13 NOVEMBER 2014

The JNC held today noted that both UUK and UCU had submitted negotiating position papers but did not regard the current iteration as their final positions. Accordingly, no proposals were submitted to vote at the meeting.

The parties have agreed to a series of negotiating meetings between now and the next scheduled JNC to be held on 15 January 2015. The purpose of these meetings is to close the differences between the stakeholders’ negotiating positions, with a view to reaching agreement. This will include a meeting between the respective actuaries of the USS Trustee Board, UUK, and UCU.

With the aim of encouraging productive discussions, UUK and UCU agree to consult their constituent structures on the prospect of suspending the current industrial action from 20 November 2014 until after the JNC scheduled for 15 January 2015.

The consultation will be concluded by 19 November. The intention of the consultation is to consider whether the parties are able to reach agreement that a suspension of industrial action at this early stage will mean that no member of staff will have had pay deducted and students will not have been adversely affected. This is on the basis that, at this point, institutions will not have found it necessary to apply their policies to withhold pay for the assessment and marking boycott and that individual members of staff who were participating in the industrial action will have been able to remedy, within a reasonable time scale, any backlog of work that actually resulted from the industrial action between 6 to 20 November.

Southend1

guymo wrote: »

Quick update to this thread with the outcome of yesterday's negotiations:

Thanks for the update

grastgirl

I'm trying to follow what is written in the UCU proposal. It talks about closing the final salary scheme in favour of CARE, I'm assuming that the final salary entitlement already built up will also go and that all years prior to Apr 2016 would be part of CARE. Am I reading it correctly?

I have already had a look at the model produced by UCU, but as they don't have their newest proposal included in the modelling, I can't gauge how much of an improvement on UUK's their's is.

Personally, I always felt that certain parts of the previous pension negotiations were done with the mentality of "I'm alright Jack", e.g. allowing 6 year gaps in contributions before moving them to CARE.