Saving Gold-Plated Pensions Stokes Bitter British Union Fight
Saving Gold-Plated Pensions Stokes Bitter British Union Fight
(Bloomberg) --
As the embers of Britain’s once mighty labor movement flicker, the biggest fight in years has come to this: academics are weighing a strike to save their gold-plated retirements.
“Unlike a lot of people, we will not be tricked out of our pensions,” Deepa Govindarajan Driver, a former employee at Citigroup Inc. and the securities regulator, said over tea at the British Library. “Until last year many of us were not paying attention.”
The University of Reading lecturer on regulation and governance last year helped organize the largest strike in British academic history. On Thursday, the University and College Union, where Govindarajan Driver sits on the national executive committee, voted to authorize a strike, according to a statement.
At issue is the traditional defined benefit pension that was once common and is now virtually extinct, replaced by less generous U.S.-style 401(k) plans.
The campaign represents one of the last battles to protect pensions where payouts are linked to salaries. The 73 billion-pound ($95 billion) Universities Superannuation Scheme is the country’s largest private pension plan, with 420,000 members; it’s among the 12% of defined benefit plans still open to new members, according to Pension Protection Fund data.
Universities UK, the organization that represents higher-education institutions in discussions over USS, proposed closing the scheme to new money after the fund’s deficit surged in 2017.
The cost of caring for retired baby boomers in the U.S. and Europe has exploded since bond returns evaporated in the wake of the global financial crisis. In the Netherlands, for example, there aren’t likely to be any defined benefit plans a decade from now, Theo Langejan, a special adviser to the board of the Federation of the Dutch Pension Funds, told a U.K. pensions conference in October.
Since its formation in 1974, the USS fund, which now has some 350 member institutions, has struggled to ensure it was fully funded; contribution levels were occasionally raised and payout ratios lowered. Most recently, despite annualized gains of 10.5% in the past decade, the fund has again asked members to increase their monthly payments.
Between April 2019 and October 2021, university workers need to gradually lift their monthly contribution to 11% from 8%. Universities are also increasing their contributions. That extra whack meant a lot to some lecturers who saw the USS pension as one of the few financial benefits in an otherwise poorly remunerated industry.
“We recognize the difficulties in levying higher contributions but USS, along with all similar pension schemes, faces a challenging environment in which the costs of funding high-quality defined benefits have increased dramatically,” a USS spokeswoman said by email.
The unions worry that the increases won’t stop here. UCU General Secretary Jo Grady has warned of a “death by a thousand cuts,” with the killer blow being the eventual closure of the fund.
To buttress their arguments, UCU has pointed to a panel of outside experts appointed in the wake of the strikes. Among the panel’s initial conclusions was that the deficit was overstated and the fund was in a stronger financial position than headline numbers suggested. The fund’s industrywide membership meant it was more stable than a single-company pension plan and so could be assessed more leniently, the report said. A second report from the panel is expected before year-end.
“Employers remain committed to USS. It provides a hugely valuable benefit to members and staff,” a Universities UK spokeswoman said by email.
The higher contribution rates could cost universities an extra 250 million pounds a year and could affect investment in other areas, according to a Universities UK presentation. Among the discussions on the future of USS are ideas to create cheaper plans, including defined contribution schemes, for colleges that don’t want to join the existing fund.
Any effort to dilute the membership of the defined benefit scheme would draw the ire of staff, said Govindarajan Driver. Employers should ensure a healthly scheme continues to run in a sustainable way rather than push people off it, she said. “At some other schemes, people unfortunately just accepted the changes. We will not.”
To contact the reporters on this story: Benjamin Robertson in London at brobertson29@bloomberg.net;Suzy Waite in London at swaite8@bloomberg.net
To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, James Hertling, Patrick Henry
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