Universities have warned that they might have to end the guaranteed pensions offered to 200,000 employees because of a shortfall in the scheme of more than £14 billion.
Universities UK, which represents 140 universities, has conceded that one option would be to scrap the defined-benefit scheme and move to a cheaper defined-contribution plan in respect of future service.
Other options are to stick with a pared-down version, under which employees would clock up benefits only in respect of the first £40,000 of salary and at a less generous rate.
The threat to the defined-benefit scheme received a negative response from the University and College Union, which has called three strikes over pension issues in the past three years. “There will be months of further negotiations and lobbying, but as it stands employers have offered very little to dissuade members from voting for another round of industrial action,” it said last night.
A report from the Universities Superannuation Scheme last month has thrown university treasurers into turmoil because of the estimated size of the deficit — between £14.9 billion and £17.9 billion — and a new determination by the scheme’s trustees and regulators that employers must address it.
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In a consultation document yesterday, Universities UK said that, on the scheme’s most conservative scenario, contributions equivalent to 19.2 per cent of pay would have to be made to repair the deficit. “This would likely lead to a mass opt-out of members and the effective end of the USS as we know it,” it said. In this scenario, “it is difficult to envisage any meaningful [defined-benefit] pension being provided” and an alternative defined-contribution scheme would have to be considered.
One suggestion was that accrual rates be reduced from 1/75th of final salary for each year worked to 1/170th. Universities UK says the scheme might be saved if only the first £40,000 of salary was covered, rather than the present £60,000. That would require a cut in the accrual rate to 1/85th.
Even to get to this point universities would have to agree to new restrictions on future borrowings as well as commit to remain employer members of the scheme for at least the next 20 years.
The decision by Trinity College, Cambridge, to quit the scheme rattled regulators. The scheme is a “last man standing scheme”, so remaining employers pick up the bill when a member leaves. It has about £80 billion of assets and 460,000 members. None of the potential reforms affects benefits clocked up from past service.
