According to the media (so it must be true), news bulletins broadcast in countries outside the UK contain, on most days, a short feature during which the object of much mirth is this country’s attempt (if that is what it can be called) to leave the European Union (EU). Apparently (according to Pensions News’ (PN’s) relatives who have recently visited the country), the UK has made the news on television a “must watch” for most Australians with events played out to comedic, Benny Hill-style music.
Whilst PN is generally in favour of his fellow human beings enjoying themselves through whatever medium of entertainment they can get, this piece of information depressed him somewhat. To take his mind of both it and whatever it is that is happening in this country’s parliament, PN listened to “My Teenage Diary” on BBC Radio 4. The guest on that programme was Ms Sara Pascoe. Ms Pascoe has, in PN’s view, been one of if not the funniest stand-up comedian in this country for at least four years. If you dislike witty, sharp and intelligent humour, don’t listen to her. If you, like PN, like that sort of thing and you have not yet listened to the programme referred to above, go and find it on BBC’s iPlayer. Sara Pascoe brightens life.
Turning seamlessly from things that brighten life to things that don’t, PN read with mixed feelings reports about the Universities Superannuation Scheme (USS); an occupational pension scheme which provides benefits for many of the teaching profession working in higher education. The USS is the largest private sector occupational pension scheme in the UK. If this causes you, the reader, to wonder what that means, the USS has assets worth approximately £64bn under management. It also has liabilities valued at more than that figure. The value of those liabilities has been the subject of some debate for approximately two years. At the time the scheme’s valuation was published, the media stated (so again, it must be true) that the deficit in the USS was approximately £17.5bn. That figure caused uproar from many sections of the teaching profession and, more interestingly, the USS itself. Towards the end of 2017, the USS explained to members that the figure of £17.5bn was incorrect and that the trustees felt that the deficit in the USS was actually just over £7.5bn – still a substantial number even if the scheme’s own figure (rather than that quoted in the media) indicated that the scheme was 89% funded. Subsequent to this, measures were proposed to close the USS to benefit accrual – a step that is not uncommon in private sector occupational pension schemes where evidence appears that indicates that scheme funding is getting out of control. This proposal caused consternation in the higher education teaching profession and that consternation manifested itself in strike action which took place during 2018.
The USS trustee, Universities UK and members’ representative bodies have not agreed on a final plan to address the deficit in the USS. They have, however, agreed on a more immediate set of measures. Originally, it was felt that to keep the USS open to benefit accrual, a combined employer/ member contribution of 36.6% of members’ salary needed to be paid. This was later revised down to 35.6% which will be achieved by 1 April 2020.
The USS’s plan (therefore) is to phase in increased contributions. The process will start in about a week (1 April 2019) so that contributions payable by members will increase from the current 8% of salary (a term defined in the USS rules) to 8.8%. Employers’ (namely this country’s universities) will contribute at an increased rate of 19.5% (up from the current 18%). From 1 October 2019, members’ contributions will increase from 8.8% to 10.4% with employers’ contributions increasing to 22.5%. Finally, from 1 April 2020, members of the USS will contribute at the rate of 11.4% and employers will pay into the scheme at the rate of 24.2%.
To most of us outside the higher education sector, the numbers quoted above probably provoke a mixture of reactions ranging from the apathetic to the concerned and, possibly, the outraged. At the former end of the scale, why would anyone not having to pay that much be particularly worried about a profession whose members were prepared to pay 11.4% of their salary into a pension scheme? Perhaps many of us (PN included) might feel genuine concern that an assessment of the cost of purchasing a salary-related (or defined benefit) pension came up with a figure of 36.6% of salary (even if that figure was then revised down to 35.5%). This point in particular seems to put into sharp focus contributions which, from 6 April 2019, will be payable under automatic enrolment legislation. From that date, a combined (employer / employee) contribution of 8% will be payable (split roughly 3% employer, 5% employee). PN finds it difficult to disagree with the journalist, Mr Paul Lewis, who stated in the Financial Times (FT) earlier in the week that auto-enrolment contributions were (still) far too small. As an aside, fee-paying university students and parents of those students may feel a different sort of concern at the thought of a significant proportion of student fees potentially going directly into the USS as part of a university’s 24.2% contribution.
A solution of some sort for the rest of us (those of us outside the USS) is required so PN was interested to read that, according to the FT of 18 March (2019), the Government has confirmed that it will legislate “as soon as parliamentary time allows” (these words seem to PN to constitute one of the century’s clearest euphemisms – don’t hold your breath) to introduce collective defined contribution schemes (CDCs). CDCs are already available to citizens of Norway and the Netherlands however their existence would be new in this country. The principle involved in a CDC is that members can benefit from economies of scale. The way a CDC would work is (to give readers the shortest of summaries) that individuals pool contributions into a single fund which would (probably) be capable of achieving better investments than an individual could achieve investing on his/ her own. Giving the Government’s announcement a somewhat lukewarm reception, former Pensions Minister Mr Steven (“Steve” to the FT) Webb stated that it was “good” to see the Government “moving forward with CDC scheme”. In a departure from his better known role (that of explaining that it is permissible to invest one’s pension in an Italian sports car), Mr Webb added that he thought that it would be years before CDCs were properly established and that, under the proposed legislation, their scope would be “very narrow”. In short and not for the first time in this article, you, the reader, would be well advised not to hold your breath. PN seems to remember that this advice has already been prescribed in relation to political goings-on not covered in detail in PN.
If, having read the above, you, the reader, feel in need of humour, rather than going to Boston, Berlin, Ballarat or Bordeaux to watch that country’s take on this country’s news, “My Teenage Diary” was broadcast on BBC Radio 4 on Tuesday 19 March at 18:30h.
Until next time…….