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USS Pension

Things an individual can do to maximise their pension

The new changes to our USS pension are very unattractive. There are, however, several things you can do to improve your position at retirement. Here are the ones of which I am aware:

  • Get into a scheme with better inflation protection. The TPS pension, offered by Post-92 Universities has inflation protection at CPI+1.6%; this roughly keeps up with average pay. Currently (but not for long) USS is in the Public Sector Transfer Arrangements, which allow you to transfer your existing USS pension rights into TPS or, for example, the NHS scheme. As shown in my previous post, this really protects your benefits. The downside is that you will probably have to change jobs. I guess you could, for example, move to Solent.
  • Retire a bit. If you were employed and at least 55 on 1st October 2011, you can retire at 60 without penalty. This is a big deal; if you didn’t meet the age cut-off, your pension would be reduced by about 20% for the rest of your life. The really attractive thing to do is to retire 20% (go to a four-day week and, like me, don’t come in on Fridays) and collect 80% of the pension. If you’ve been here a while, you will find that your overall pay goes up, while you work shorter hours. You continue to accrue pension (at 8/10 rate) and when you finally retire you can collect this and your remaining 20%. An added advantage is that your pension is calculated not on your last year’s pay, but on the best three of your last thirteen years, corrected for inflation. If you’ve been at the top of a scale for a while, your pay has not been keeping up with inflation and you will have a pensionable salary which is more than you have ever earned. An unmissable deal.
  • Pay cash AVCs. The Prudential AVCs give a reasonable return but that’s not the real point. They are a way of deferring and eliminating income tax. Money you pay in is paid before tax. You can later take out 25% of the cash value of your pension tax-free. You can take all the rest out too (there is no longer an annuity obligation) and pay tax only at your post-retirement tax rate. Even better, if you have a retirement pension, the total value of your pot is calculated as twenty times your pension plus all the cash (AVCs and USS lump sum); you can take up to 25% of this entire pot tax-free. This right will be lost for future AVCs after April 2016. You should set up AVCs before collecting any pension; the government doesn’t like to see pension money recycled.
  • Don’t forget the various bits of state pension and any other occupational pensions you may have.
  • You don’t ever have to retire. Keep your job as long as you want, and can do, it.
  • Get married to somebody young. USS will pay them for life after you die. Kids (potentially up to age 23) get paid too.

There are a couple of other important benefits which I hope will not affect you.

  • Ill health retirement. If you think this might affect you, do not resign. It is a complicated matter and you need UCU and USS advice before taking any action. If you have only a small pension, your family will be much better off if you stay employed and die “in service”. Resignation also seriously harms your chances of getting an enhanced pension through ill health retirement.
  • You should fill out the “nomination” form from USS. This will ensure that, in the event of your death, your dependent will get some money right away. If you don’t, there will likely be a delay and they might have to pay probate costs before receiving anything.

Denis Nicole

USS Pension Consultation

The formal USS consultation on the revised pension closes in two days time this Friday. Please take advantage of your opportunity to respond. They don’t make it easy (they wouldn’t, would they); you need your USS member number and your National Insurance Number. You will be able to find your member number on any official USS correspondence, including the invitation to respond, or you can call University extension 22445 and ask. You then go to this web page ( and sign in. Realistically, comments at this formal stage can only affect details of the proposed scheme; we have already reached (reluctant) agreement about the core of the changes.

I’d caution you about using the various benefit calculators; I have seen three (UCU, UCEA, USS) and they all make different fragile assumptions.

The hard core of what has been imposed on us is the  inadequate inflation protection. They call it USS inflation and it is slightly worse than CPI (with restrictions above 5%). The graph below should explain the problem. It’s based on ONS figures and only goes back to 1989, as that’s the first date of official CPI numbers.
USS_inflationClick on it if you need a bigger version.

You can see the problem at a glance. If we had no career advancement and no annual increments, we would expect our pay to rise at the same rate as average annual pay in the UK. Thus even without annual increments or promotion, we would expect the 1/80th of a £20,000 salary that we earned in 1989 to be worth £650 if it were based on final salary, as average pay has multiplied by a factor of 2.6 over the period. In contrast, USS inflation (capped CPI) has only multiplied by a factor of 1.88 over the period, so even with the improved 1/75 accrual rate, you only get a pension of £501 twenty-five years later. You lose even without taking account of career progression. The teachers, in TPS, have negotiated inflation protection of CPI+1.6%; this roughly keeps up with average pay.

Why did the teachers get a better deal? Perhaps because of greater Union strength and militancy. The sad reality is that our scheme is supposed to be fully funded; there is meant to be enough money in it to pay our pensions. That allows the government pensions regulator, the USS staff, and the USS trustees (typically from the banking and government sectors) to impose very conservative actuarial assumption to force down benefits. They have even adopted de-risking which is banking-talk for deliberately selecting worse-performing investments which make the deficit bigger. And they have imposed a defined contribution section because, in their language, it is risk-free. It’s risk-free because we take all the risk. The teacher’s scheme, on the other hand, has no money at all, so they don’t have any actuarial rules to follow.

So what can you usefully say in your response? Feel free to rehearse the sad story above, but I doubt you’ll get far. I would concentrate on the defined contribution component, and address a couple of key issues:

  • The new USS is a very complex hybrid scheme. There is legacy final salary, legacy added years AVC, Prudential AVC, CRB, DB (with optional extra matched and unmatched contributions) and possibly a further cash purchase AVC option. This all gives the scheme staff an opportunity to spend money and impose fees. Insist that the fees on the DB parts of the scheme be kept low, well below the current 0.84% average as we are a very big scheme which should be very efficient.
  • All the risk in the DB part is carried by us, the members. So we (not the trustees) should be able to select the range of investment vehicles on offer. A member-led panel should be created for the purpose. We are likely to want various sorts of ethical and low-fees funds.

Here are some other suggested responses:

Denis Nicole

UCU Elections

You should all have received Electoral Reform Services ballots for the UCU elections. It is very important that you vote now; your ballot must be received by this Friday 27th February. There is something of a power-struggle in UCU between the “hard” Left (who seem to be associated with the old Socialist Workers Party) and the “mainstream” (who sometimes call themselves the Independent Broad Left). Currently, the Higher Education Committee and the other principal negotiators are led by the “mainstream” and I personally think they are doing a pretty good job under difficult circumstances. When I vote, I take care not to vote for UCULeft-backed candidates; I think they are divisive and tend to pursue wider political objectives to the detriment of our members’ interests. But that’s just me; you should, of course, make up your own minds. But VOTE. None of us are happy with the USS settlement; it is indeed a worse deal than the one the teachers and post-92’s managed for TPS. This is not, as commonly assumed, because of the accrual rate: our lump sum roughly compensates for their faster accrual. The difference is that the teachers managed to negotiate much better inflation protection. They get CPI+1.6%. We get CPI+0%, subject to some additional caps. We did, however, push the employers further than USS and the Government wanted to go. Getting any more would have required us to force, through industrial action, a government back-down. Could we have done that? I doubt it; our industrial strength is limited. We have four problems:

  • We don’t have enough members. Southampton is one of the bigger branches, but membership is nothing like universal. Could we “bring the University to its knees”?
  • Our members can be reluctant to take action. That’s a pity. Effective industrial action requires a membership who will act as a well-disciplined army; all must be willing to turn action on and off at short notice as required by the ebb and flow of negotiations.
  • Our house is divided; the hard left spends congress sniping at the leadership elected by the majority of members. Congress decreases our credibility amongst employers.
  • Unlike tube train drivers and teachers (parents have to stay home from work), action by university staff does not have an immediate impact on the general population.

The first paragraph might sound a bit hostile to the hard left. I’m particularly cross with them right now as they have exploited UCU’s rules (it only needs twenty branches to call one) to force a Special Sector Conference in Manchester tomorrow, and three of us have to spend the day there to vote against motions criticising our elected leadership. Apart from the public embarrassment—some at USS and EPF must be laughing—our membership fees are being frittered away on travelling expenses, probably about £200 each for 120 delegates, and booking a room at the Britannia Hotel. I’d guess an overall cost around £30,000.

Denis Nicole, Branch VP.

Commentary on the USS ballot

Several letters have been published about the on-going ballot.

…and please vote by Monday!

Denis Nicole,

Branch Vice-President

The USS pensions dispute

Many thanks to Joan for her very helpful summary.

Ed and I are just back from another meeting with Sarah Pook, Director of Finance. While we all hoped that the dispute could be settled quickly, I also emphasised that it is important that the small print, particularly the details of the defined contribution scheme that would come in over £55k, should not cause further problems later.  If DC happens, all risks will be borne by the members; we will in turn need real control so we can protect our interests.

Can I emphasise that it is essential that you vote in the ballot?  The worst possible outcome would be a rejection on a low turnout. We all have to decide between two unattractive prospects: an expensive ASOS/strike with no guarantee of success, and a worsened pension. It won’t help any of us to abstain because we don’t like either alternative.

For what it’s worth, I voted yes.

Denis Nicole,

Branch Vice-President.

EGM – Wednesday 21 January

Thanks to all the members who attend the EGM yesterday to discuss the revised USS proposals.

Our departmental representative in History, Joan Tumblety, has very helpfully written her own personal notes of the meeting that we share here.



The meeting was chaired by Denis Nicole of the local branch executive committee. He started by outlining the UCU’s Higher Education Committee’s agreed bargaining position in early November 2014. This included a push for:

  • 1/70th accrual rate in a career related benefits (CRB) scheme for all members, including those in the career average scheme who have joined since 2011, cf. the initial USS proposal’s push for 1/80th
  • The removal of the Defined Contribution element (in the initial USS proposal to be imposed on all salary over £40 000)
  • Increased employer contributions for future pensions (to 18.1%) cf. the former 14-16%

DN pointed out that the current USS revised proposals show movement in all these areas: they include a 1/75th accrual rate, an increase in the cap on earnings before the DC element kicks in (£55,000), and increased employer contributions (in the current proposals 18% on income up to £55,000, although only 12% on income above that cap). Although the current proposals would still give USS members a less good pension deal than the Teachers’ Pension Scheme (TPS), accepting them would have the advantage of ensuring an improvement for those members in the post-2011 career average scheme on what they have at present; and it would also abolish the current two-tier USS system, which is divisive and would arguably weaken any UCU negotiating position in future disputes. DN made it clear that he thought that this is as far as the employers and USS representatives will go at this point, and that members should probably vote to accept these proposals. He did emphasise that this advice represents his personal opinion.

DN also explained that the current round of reforms of the USS pension scheme was triggered by the most recent three-yearly mandatory review (USS has a legal obligation to The Pensions Regulator to conduct such things). Crucially, the review has taken place in a post-financial crash climate in which The Pensions Regulator (which is accountable to the Treasury) is keen to limit the potential risk to government of pension schemes that fail. In this climate, defined benefit pension schemes (like the current USS pension) are deemed inappropriate, risky and old-fashioned, and defined contribution schemes (like the one about to be imposed on all USS pension members) are preferred. In short, the DC scheme involves the shifting of risk away from the pension fund trustees (and ultimately government) and onto the individual (i.e. you and me).


Reflection and Q&A

One of the key points about the current reform proposals is precisely that the pension accrued on salary above the cap (the proposed £55,000) will be placed in a fund that will eventually pay out according to how successful its investment strategy has been. It seems that there is still quite a bit of uncertainty as to how the DC funds will be managed, how much individual members will have control over their own pot, and what kind of fees they will entail for members (in the Netherlands such DC funds are apparently quite costly to manage and the fees fall on individual members).

My understanding is that voting to accept the current USS proposals would establish the principle of a direct contribution model in lieu of a direct benefits one. This is a considerable sacrifice. But it isn’t clear to me what the UCU ‘bottom line’ would be if the industrial action resumes from 29 January, and whether it includes a total rejection of the DC element or merely negotiation over the cap.

There was much discussion about what could be achieved if the ballot resulted in a rejection of the current proposals. I think there was a mood in the room that carrying out further action short of a strike in a period when – for many – marking season is drawing to a close, may be fruitless. In the event of ineffective action short of a strike, it seems likely that the improved USS proposals would be withdrawn and we would be in a worse situation all round. There was some suggestion that UCU nationally might continue to think of more effective means of strike action anyway, action that can be carried out by all members (not just those who teach and who happen to have marking duties at any given moment). Perhaps the biggest strategic problem at present is that the employers – who have in many instances including our own been like-minded with the UCU position, at least in some respects – are not the biggest threat to our pensions. That means that taking industrial action against them doesn’t hit the real target – the USS trustees, The Pensions Regulator, and ultimately ideological support for the kind of de-mutualisation of which this recent shift to the de-risking of pension schemes is but one lamentable example. So what kinds of (non-strike) action might be employed to gain leverage against these foes – demonstrating outside banks? Seeking judicial review? Threatening legal action? As you can imagine, there was no definitive answer to this question…

In any case, voting in the UCU ballot is crucial, and if you are not inclined to take part in a protracted industrial dispute that would probably involve indefinite strike action, my advice is to vote to accept the proposals.

More information:

USS and employer statements (with a USS pension modeller) are here:

UCU pension modeller with links to other pages is here:

The Universities UK pension landscape

It can be helpful to look at the advice the employers’ side is receiving in these negotiations. The key players seem to be,

We can also get a feel for the attitude toward pensions of individual Institutions by looking at their attitude to their  Self Administered Trusts that provide pensions to support staff; ours is PASNAS. There is a list here, and an overall report here. Many are closing or being restricted.

Denis Nicole

Today’s informal Pensions meeting

Ed Zaluska and I are just back from a very helpful meeting with Sarah Pook (Finance Director) and her team. As you can see from the previous post, Southampton made a rather helpful response to the technical consultation and, overall, it seems our University is among those that are most supportive of continuing a good USS scheme.

We don’t have any real information about progress with the on-going negotiations, but it seems that there are now real meaningful discussions between three sets of actuaries about the accuracy of the Trustees’ pessimistic conclusions about deficits in the scheme. UCU and Universities UK have a common interest here, both in maximising investment returns (no de-risking), and in keeping contributions under control (no excessive pessimism).

The employers in Universities UK seem to be taking very different positions about the amount of employer contribution that would be acceptable in the future. Currently, this stands at 16% and I think a number of employers would be able to let it rise to 18%, but few are willing to go further. There seem to be hawks both inside and outside the Russell Group who would like to reduce their contribution to around 10%.

I asked about USS’s perception of its own future role as an organisation. They have recently hired Mel Driffield to take up a new role developing the trustee company’s pensions services; perhaps this suggests a turn away from dedication to running a defined benefit scheme and towards becoming a wider financial services company, exploiting the membership base?

We will be meeting again on 19th January, when we will know the out-turn of the 15th January Joint Negotiating Committee and, if things go badly, we may already be taking action short of a strike.

Best wishes for the holidays,

Denis Nicole

Progress with the USS Dispute

We have a further informal meeting about USS with Sarah Pook, the University’s Finance Director, tomorrow afternoon. Several University responses to the USS consultation have now become public and most seem quite helpful, particularly about the valuation. Please read them and, if you have time by tomorrow lunchtime, suggest any special points you would like raised.

Best wishes,

Denis Nicole


How to value a pension fund for an ongoing pre-92 higher education sector that is not about to become insolvent

Michael Otsuka, a Professor of Philosophy at the London School of Economics, has written a detailed critique of the USS approach to valuing pensions. More text here…

…the approach being taken by the trustee is not an unusual one and indeed may be quite reasonable for a scheme which is closed to accrual, has a weak employer and is aiming to get to a position where it can buy out benefits. (A position which does reflect the position of a large section of UK pension funds – and one reason why comparisons between USS and the approaches used by other schemes are unhelpful). The point is that USS is not in this situation. Large open schemes with strong employers do not need to take this approach to valuations ….

Ongoing versus Solvency Valuation a