Defined Contribution Vs Defined Benefit (USS Scheme)

kidmugsy

Sam_J wrote: »

the old final salary members appear to have been shafted. There were making contributions on the assumption they were accruing a proportion of their salary at retirement. Instead, when the scheme was closed last year, their final salary was deemed to be their salary on the day the scheme closed

Yes, I didn't like that either. But probably that's a price paid for members making do with approximate summaries of the scheme rules rather than studying the trust deeds (or whatever the controlling documents are). Of course you may wonder why the relevant trade union hadn't read the documents and routinely warned its members of their contents. You would wonder in vain - when I was an academic the union (then called the AUT) was utterly useless on anything to do with pensions. Indeed, it seemed to be useless on everything except for the occasional personal case.

kidmugsy

Sam_J wrote: »

UUK proposal. ... move to a DC scheme with employee contributions of 4% and employer contribution of 13.25%. ... [plus] service/death benefits for the DC scheme ...

That looks to be a more attractive offer than many employees elsewhere in the economy get. But the question is whether it will do the desired job in contributing to attracting and retaining staff of the required calibre. I suspect that to know that they'll have to suck it and see.

The UCU proposal looks absurd to me:

Sam_J wrote: »

• Employer contributions rise from 18% of salaries to 23.5% of salaries

kidmugsy

One other point about the swap from DB to DC: it may expose more people to constraints from the Lifetime Allowance. That's because of the absurdly extravagant treatment of DB pensions under the current LTA regime.

Southend1

My employer’s response to the UUK consultation was that they were prepared to pay increased contributions to keep the current benefit structure. I personally would also be happy to increase my contributions to maintain a guaranteed benefit as the risk in a D.C. scheme is too high for me on a (just slightly above) average salary.

The UUK proposal is a massive transfer of risk to individual employees and even on their figures someone in my own position will lose a third of their USS income in retirement. Of course that could be much more depending on the vagaries of the market. Add to that the fact that collective pension provision is much more efficient, individual USS members are being completely shafted. I knew as soon as they proposed the current hybrid scheme that it would only be a matter of time before they sneaked in a switch to 100% D.C.

kidmugsy

Southend1 wrote: »

My employer’s response to the UUK consultation was that they were prepared to pay increased contributions to keep the current benefit structure.

Ah, but do they mean it? And, in particular, would they agree to a rise in employer contributions from 18% of salaries to 23.5% of salaries? If so, how would they expect to fund it? Close departments?

Southend1 wrote: »

The UUK proposal is a massive transfer of risk to individual employees

True: that's the point.

Southend1 wrote: »

even on their figures someone in my own position will lose a third of their USS income in retirement. Of course that could be much more depending on the vagaries of the market.

Or much less: that's the nature of the uncertainty.

Southend1 wrote: »

Add to that the fact that collective pension provision is much more efficient ...

I must say I take that "efficiency" argument with a pinch of salt. It seems to me that nobody here has mentioned a central characteristic of DB pensions: the pooling of mortality risk. That loss of that seems to me a far more important point than some rather nebulous appeal to "efficiency".

Southend1 wrote: »

I knew as soon as they proposed the current hybrid scheme that it would only be a matter of time before they sneaked in a switch to 100% D.C.

Yep; that was the obvious next step, though I can't for the life of me see why you say "sneaked". It may be disagreeable but it all seems to be above board.

Southend1

kidmugsy wrote: »

Ah, but do they mean it? And, in particular, would they agree to a rise in employer contributions from 18% of salaries to 23.5% of salaries? If so, how would they expect to fund it? Close departments?

True: that's the point.

Or much less: that's the nature of the uncertainty.

I must say I take that "efficiency" argument with a pinch of salt. It seems to me that nobody here has mentioned a central characteristic of DB pensions: the pooling of mortality risk. That loss of that seems to me a far more important point than some rather nebulous appeal to "efficiency".

Yep; that was the obvious next step, though I can't for the life of me see why you say "sneaked". It may be disagreeable but it all seems to be above board.

Yes, they indicated at a consultation meeting I attended that 23.5% would be acceptable and affordable from cash surpluses.

It is true that with D.C. you may end up with more but this is a gamble I can’t afford to take- if I lose, I end up with little more than state pension and an impoverished or non existent retirement.

I think I used the wrong terminology- pooling of risk was what I meant by more efficient.

I said sneaked because the rhetoric at the time was all about putting the scheme in a sound footing for years to come and many members bought that line.

kidmugsy

Southend1 wrote: »

Yes, they indicated at a consultation meeting I attended that 23.5% would be acceptable and affordable from cash surpluses.

I wonder how many other employers could say that. What on earth are they doing with cash surpluses (beyond the necessary funds held in case of emergencies)? Have they no labs that need refurbishing, no young staff that need a bit of funding to get their research started?

Southend1 wrote: »

It is true that with D.C. you may end up with more but this is a gamble I can’t afford to take

I sympathise: I wouldn't care to either.

Southend1 wrote: »

I said sneaked because the rhetoric at the time was all about putting the scheme in a sound footing for years to come and many members bought that line.

They may even have hoped that it would put it on a sound footing. But USS has been badly run for quite some time, so I'd put no faith in the predictions of its managers. To repeat myself from another thread, I invite you to google “Pension fund punt could undermine UK universities” and click through to Plender's article in the FT. Note its date.

Southend1

I think the willingness to contribute more to the pension is at least partly in recognition that we have suffered significant real terms pay cuts every year for ten years now. This has not only caused hardship for many staff but is also making it difficult to recruit and retain high quality academics in some areas.

kidmugsy

Southend1 wrote: »

making it difficult to recruit and retain high quality academics in some areas.

That's a good argument for sweeping away national pay scales altogether. The idea of uniformity over different disciplines and different parts of the country is foolish.

But back to the point: if I were young and had ambitions to be an academic (and if I were young I wouldn't) I would probably be keener to get more pay than more (eventual) pension. If I had more pay I could, for instance, take out a bigger mortgage loan if I wanted to, or I could spend the money on something determined by me, now. If I wanted to save more for old age I could do so in my own favourite way at my own favourite time, not in a way determined by other people who know nothing about my circumstances.

Anyway, one test for the proposed DC scheme, if adopted, is simple. If there is a mass flounce-out by academics seeking pastures new then something will need to change, pay or pensions. The problem of a decline in the standard of new recruits, if that were to happen, would be insidious rather than dramatic, I imagine. But then I wonder why on earth anyone who doesn't have a private income wants to enter academic life anyway.

Puddylove

I work for an HEI which is planning to offer around 24% of the workforce the 'opportunity' of redundancy 2018-19. I can't see them being willing to pay any more employer contributions.

And as for the USS - they are awful to deal with. I requesting a statement back in July 2017, was told they would be sent out by Nov. Contacted them again, and was told mine was full of errors so they'll send it by March.

8 months, just to get information.