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Pension provision in the higher education sector: initial report

This report has been written at the request of the Universities and Colleges Employers Association (UCEA), Universities UK and GuildHE in the light of increasing concern among their members about the rising cost of pension provision. Rising costs are partly caused by generic factors such as improving mortality, and partly also by a number of factors specific to the higher education sector.

Initially the major pension schemes operating in the sector – the Universities Superannuation Scheme (USS), the Teachers’ Pensions Scheme (TPS), the Self-Administered Trusts (SATs) and the Local Government Pension Scheme (LGPS) – are reviewed, and recent changes made to the public sector schemes TPS and LGPS are noted. Key conclusions from the Hewitt report (2007)1 are listed and it is noted that some of these give clear pointers towards possible solutions.

The position of the higher education sector at the boundary of public sector and private sector is interesting and has some consequences for possible pension scheme models in the future. The major pension scheme models are reviewed and their advantages and disadvantages explained. Designing a pension arrangement which rewards or encourages particular behaviour is described.

In looking at possible design models for the higher education sector, widespread adoption of money purchase provision is ruled out as there appears to be little employer appetite for such a large-scale transfer of risk to the members. However, the option of having a “menu” of pension options is worth further discussion although there are substantial practical difficulties with such an approach.

The widely expressed desire to achieve greater economies of scale is addressed from the point of view of reducing the number of pension schemes in the higher education sector. Moving towards a single scheme for each institution is ruled out, as is the option of adopting the TPS as the single scheme for academic staff. However, the possibility of USS developing in this way is worth further examination, which would have to include consulting the relevant government departments.

 The position of non-academic staff, especially those in pre-1992 institutions, is considered and it is suggested that merging the smaller SATs, either with each other or into a larger existing scheme such as USS or the Superannuation Arrangements of the University of London (SAUL), is a practical proposition. Some institutions have already done this and others are understood to be considering this approach.

The structure of USS, and in particular the role of its Joint Negotiating Committee (JNC), are examined and it is concluded that more work needs to be done, probably outside the USS framework, to establish an agreed route forward with the University and College Union (UCU) that would enable final salary pension provision to be sustained in its present form.

Finally, a possible pensions model for the future is outlined together with a proposal that more work needs to be done to refine such a model, and in particular how it would adapt to future changes such as continuing improvements in mortality rates.

Older people doing tai chi

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We are pleased that the Joint Negotiating Committee (JNC) has put forward a reform proposal to the USS Trustee Board to address the scheme’s substantial deficit.

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