For the past three weeks, Pensions News (PN) has been unable to travel to work by train. PN has been unable to travel to work by train because there have been no trains on his usual line. There have been no trains on PN’s usual line because of “essential work” which has been carried out on said line. That work has been rendered more difficult because of a burst water mains which caused land to slide onto the train track which the train PN usually travels on was used to travelling on.
PN has never been a fan of the trains (these are no longer called “trains”, they are now called “services” by the train operators) which run between the city he works in (which is Manchester) and the town he lives in (which isn’t). The “services” are rarely on time, usually crowded and invariably superannuated; ready for retirement in fact. The “rail replacement services” which temporarily replaced the usual “services”, however, succeeded in making PN positively nostalgic about the suspended “services” and this is remarkable. PN would not have believed that anything could have made him nostalgic about the sort of train which he, PN, typically has to travel in. Accordingly, PN was on his way into work by bus on Tuesday of this week and, not for the first time, he considered the use of the word “service” in the context of a bus (or “rail replacement service”) which took over 90 minutes to cover the 14 miles between the town in which PN lives and the city in which he works. PN is confident that he, PN, is capable of running / walking 14 miles in 90 minutes or less.
Over the past three weeks (up to and including Tuesday), PN spent a good deal of time on the bus to and from work. Other than considering the mis-use of the word “service”, PN has used some his travelling time in considering the latest news about pensions. There has been a good deal of pensions news for PN to think about.
Just over two weeks ago, the Pensions Regulator (TPR) decided to prosecute Mr Dominic Chappell, the former owner of British Home Stores (BHS). TPR decided to use its powers under existing legislation to prosecute Mr Chappell on the basis that Mr Chappell had not co-operated with TPR’s previous requests to provide information. If convicted, Mr Chappell could be fined up to £5,000. If it were to be established that Mr Chappell had hidden or destroyed information which TPR had requested, things could become more serious still for Mr Chappell. At time of writing however, no such thing has been established so such speculation is unlikely to be broadcast on the News at Ten. Mr Chappell’s prosecution, however, did mark the beginning of another round of verbal sparring between two of the other protagonists in what PN has previously referred to as the BHS Pension Scheme (BHSPS) imbroglio.
On the day TPR announced that it would prosecute Mr Chappell, Mr Frank Field MP decided to give another view (meaning that Mr Field MP has previously made public his views on the subject) about the man from whom Mr Chappell bought BHS; Sir Philip Green. Mr Field MP indicated, in an interview (part of which was broadcast on News at Ten), that Sir Philip Green should not consider himself free and clear of the BHSPS imbroglio just yet. Sir Philip has since indicated, in a letter to Mr Field MP (which PN has read about but not seen), that he expects the MP to apologise for his statements and Mr Field has since stated that he does not consider that Sir Philip’s correspondence has much substance. He also stated that he, Mr Field MP, has “nothing to apologise for”. The next round of this match is, almost certainly, due to start again soon.
Mr Field MP probably does not have time to apologise for anything because he has been busy making his views public about another problem with another pension scheme. The pension scheme in question this time is the pension scheme which provides retirement benefits to teachers employed in higher education. Called the Universities’ Superannuation Scheme (USS), the scheme which sounds like the prefix to an aircraft carrier deployed by the United States of America pays pensions to superannuated university lecturers and its problem is that it does not have enough money to do it. The problem deserves further explanation. The USS has money / assets. In fact, the USS is the country’s largest private sector pension scheme and has assets worth in excess of £60bn. The problem is that the cost of providing pensions to superannuated higher education teachers is estimated at being higher than £60bn; a lot higher than that in fact. The latest valuation (based on assumptions which lawyers such as PN are not meant to understand) of the USS indicates that the deficit in the scheme is approximately £5bn. There are a number of reasons for the deficit. The reasons do not include (however) a decrease in the amount of money scheme members and scheme employers (such as universities) are paying into the USS. Such amounts have increased steadily. The problem can be summed up as the Financial Times (FT) summed it up in its weekend edition for 2/3 September; “the cost of funding future retirement promises [has] increased by 35%”. The USS has launched its own consultation in which it seeks the views of the 350+ employers participating in the scheme. Essentially, the USS wants to receive views from higher education employers about how best to fund the £5bn+ deficit. As he read about the consultation, PN wondered aloud (he was on his own when he did this and not on a “service”) how many of the 350+ employers would actually respond to the USS. PN hopes that all of them do but he believes that not all of them will.
As you, the reader, will appreciate, there are a number of factors at play when it comes to funding the USS and those factors are unlikely to leave anyone unaffected - although some of us will be more affected than the rest of us. Universities receive a substantial proportion of the money they need to keep going from “central funds”. Put differently, a lot of the money universities need is funded by the taxpaying public. Not all of universities’ money comes from central funds however. A significant proportion of it comes from university students who, since an impressive but nonetheless disconcerting U-turn performed by the Liberal Democratic party in 2010, have been required to pay up to £9000 per year (this figure is set to increase and has, in some cases, increased already) as their contribution towards the cost of a university education. One question for students is; how much of that £9,000 (or more) is likely to be paid to the USS? Would a university’s answer affect a student’s choice of university and, if that answer were anything less than straight, could a student complain about the proportion of his/ her fees that appeared to be going into a single pension scheme? Should universities and colleges take the point into account when giving feedback to the USS? PN’s own view is that they should.
Of course, the issue the USS is working hard to deal with has an application which is significantly wider. The 35% increase in the cost of providing pensions is not specific to the USS. The increased cost of providing pensions applies to all of us and, as Ms Josephine Cumbo stated in the FT (referred to above), “no one saving for retirement is immune to the changes in the investing environment”. By this, the FT means that it currently costs more to produce a return on an investment than it has done in the past and, although the problem has very clear consequences for the USS, it affects us all.
Higher education employers have four weeks to make their views known to the USS. PN hopes very much that all of our universities and colleges have views and communicate them to the USS. He also hopes that at least some of the views expressed include a view as to the strategy which would address the increasing deficit in the USS and that at least some of those views involve a plan which includes not taking more money from students or the taxpayer. The risk to university / college teachers is that the ultimate solution may involve a restructuring of the USS to the point that that scheme moves away from providing benefits on a salary-related basis and moves toward the sort of money purchase provision that most of the rest of us have to manage with. This would put higher education teachers in a position similar to the one PN has found himself in lately; feeling nostalgic about a service previously provided.
Until next time……….