Is the USS really in deficit?

Dennis Leech
Emeritus professor of Economics, Warwick University

Everybody should keep calm about the universities superannuation scheme. Contrary to sensational press reports last week in the THE, Financial Times and BBC, the USS is not actually in deficit – not in the usual meaning of the word ‘deficit’ anyway.

If it were truly in deficit it would not have enough money coming in to pay its outgoings. It would be forced to sell some of its investment portfolio to keep going. But in reality it has an annual surplus each year of about £1.5 billion available for new investments. It has just bought a large stake in Thames Water, for example. The scheme is cash rich and can remain so for many years. Membership is increasing with over 29,000 new members joining last year.

What, then is the problem? The headline figures quoted are theoretical numbers based on particular hypothetical assumptions about the future, whose realism is in doubt. Many members, the UCU, some universities and some actuaries are questioning whether they really give a true picture of the health of the scheme.

The ‘deficit’ emerges as the difference between the scheme’s assets (its investment portfolio) and liabilities (the value of future pensions benefits). The press reports are sensational because they quote raw figures baldly without any context. The liabilities are estimated to be £72.6 billion, which, with assets of £60 billion, means a shortfall – the ‘deficit’ – of £12.6 billion.

Reporting figures like that as raw numbers, expressed as billions of pounds, without putting them in context is misleading. (It is reminiscent of the way that government debt and deficit are reported in absolute numbers in order to frighten us into accepting cuts in public spending.) Given the size of the USS, with almost 400,000 members, it is actually not surprising that the figures are so large. They need to be put in proper context before any conclusions can be drawn. They represent a funding ratio of 83 percent: the assets are currently worth 83 percent of the liabilities. So is that high or low?

Compared with the funding levels of the almost 6,000 private UK schemes, of which the USS is the largest, it is not out of line. Its funding ratio is fairly typical. The average for schemes in deficit is 83 percent, according to the Pensions Regulator Scheme Funding Statistics 2007. The BT pension scheme funding ratio is 64 percent.

So it is not fair to say, as the FT article claimed, that the USS has the largest gap between assets and liabilities of any scheme in the UK. It is only large because the scheme is very large.

While the USS ‘deficit’ is not out of line with other privately funded schemes, we still need to ask where it comes from in the first place and what it means. The main reason for pension scheme deficits – not just USS – is that the accountants tend to insist on an assumption that schemes be invested only in bonds (even though that may not be true). In this they seem to be following a herd mentality and advocating something which is irrational. Why anyone would believe that investing in gilts at the present record low real interest rates, which entails expecting to make a loss, reduces risk is hard to understand.

But gilt interest rates have really very little to do with the USS pension scheme. After all, the pensions that members will receive are not paid out of the meagre returns from gilts but the much better returns from the long-term investments the scheme actually has, that it has built up over the years, mostly equities and other high-return assets. Such assets – if held for the long term – yield a high return with minimal risk.

[The USS uses this best estimate rate of return to value liabilities but with a substantial – some say excessive – margin of prudence to allow for market volatility of equities and other assets (the technical provisions). However they update this figure regularly using gilt rates, and it is this that appears in the accounts.]

The report also gives an alternative figure for the deficit if liabilities are valued using the actual rate of return from its assets but without the large dollop of prudence and without the gilts updating. This ‘best estimate‘ for the liabilities figure is £38.1 billion, which means the scheme would be in SURPLUS by £3.5 billion! Of course the necessary degree of prudence needs to be applied here, but it does show that this is not a scheme that is in trouble. We are due the consultation on the triennial valuation in the next months and it seems likely that the best estimate valuation will have improved.

Members should stay calm and insist that the scheme remain open to new members and accrual. The biggest threat to the scheme is closing it.

Originally posted on 9th August on Dennis’ blog


Dennis has also written a piece that has appeared in the THE:

https://www.timeshighereducation.com/letters/estimates-may-vary


You may also wish to read this post by Henry Tapper@

https://henrytapper.com/2017/09/03/dont-make-the-teachers-pay/

Pension scrabble image from Flickr

Matt Western MP on Statute 24

The matter of Statute 24 has been brought to my attention and I am extremely concerned by any possible plans, brought by the administration at Warwick University, to vary the protections afforded by it. I will plan to raise this with the Vice Chancellor, Stuart Croft, when we are able to meet and I hope this will be in the very near future.

Matt Western MP, Warwick & Leamington

Senate backs UCU – Statute 24 proposals refused approval

As outlined in Tuesday’s EGM‎, the University of Warwick Senate was meeting yesterday and amongst the issues being considered was Statute 24. A number of members have emailed us asking what was the outcome.

Please note this is not an official update but we have been informed that, based on the outcome of Assembly, Senate has decided not to approve the proposals as they stand, and not to recommend their adoption by Council in July. Instead, we are told that a sub-committee of Senate will be formed to look at the proposals and only after this has reported will Council consider sending any revised statute to the Privy Council. Obviously this is subject to official confirmation.

If our understanding is correct, then UCU believes this decision is a step in the right direction. UCU will be encouraging management to engage meaningfully over the Statute, Ordinances and Policies in the near future.

A huge thank you to everyone who has been involved in this, to all the people who have signed the petition, to members and non-members who attended and voted in the Assembly, departments who put forward motions (and the staff who took time out of their schedules to write these and provide UCU with a detailed analysis of the reforms).  The fight is not over but, at the least, we have created more time for the changes to be scrutinised more fully and, hopefully, improved by the University for the benefit of the whole academic and student body.

Extraordinary General Meeting – Statute 24

On Tuesday a strong turnout at EGM saw members overwhelmingly support an amended motion rejecting the University’s latest proposals for Statute 24, the associated Ordinances and Policies. The vote is a clear message to the University that what is currently on the table remains far below the sort of terms and conditions that our members would expect at a university which aspires to be world-leading.

The full text of the amended EGM Motion can be read here.

Letter of solidarity from Coventry TUC

Warwick UCU has received the following letter of solidarity from the Coventry TUC which is very heartening. 


Dear Warwick UCU members,

I am writing on behalf of Coventry Trades Union Council to provide fraternal greetings and send a message of solidarity in your ‘Save Our Statute’ campaign. Coventry UCU let us know about the new Vice Chancellor Stuart Croft attempting to repeal Statute 24 that provides your members with protections, particularly in a redundancy situation. This is a clear attack on staff terms and conditions and job security at Warwick University.  If this is allowed to go through then it’s highly likely these moves will be emulated throughout the Higher Education sector in general.

Sadly it has become common for today’s employers to lead a race to the bottom, treating employees as a commodity rather than as individuals that deserve respect. We condemn this kind of attitude and whole-heartedly support your campaign to defend Statute 24.

We understand that you are circulating a petition for lecturers to sign. Most of our affiliated branches aren’t lecturers but they would like to show their support. We would be happy to circulate the petition to the wider Trade Union movement in Coventry. Please let me know if this is something you would like us to do.

Our delegates would also welcome hearing a report directly from your members. We will be meeting on Thursday 15th June and Thursday 20th July. If you would be able to send a representative to one of those meetings please let me know and I will make sure your report is included on the agenda.

We would appreciate it if you would let us know how your campaign progresses. If the campaign needs to be stepped up then we will provide whatever support we can to your branch.

In solidarity,

Coventry TUC

Solidarity Message from Coventry University UCU

SOLIDARITY WITH COLLEAGUES AT WARWICK UNIVERSITY

Coventry University UCU expresses its solidarity with our colleagues in Warwick UCU in its ‘Save Our Statute’ Campaign. This campaign concerns the way the University Management at Warwick are currently seeking to remove Warwick University’s ‘statute reforms’; which involves the repealing of current provisions for redundancy, discipline and dismissal. These changes makes it quicker and easier to sack and discipline members of staff at the University.

This is a clear attack on staff terms and conditions and job security at Warwick University. If this is allowed to go through these moves will be emulated throughout the Higher Education sector in general.

We are concerned that these changes come at a time at which the stress levels experienced by staff in the HE sector are rising considerably. A recent study into this by Prof Ronald Persson, who has previously worked at the University of Huddersfield, noted that:
“The deterioration [in staff well-being] between 2006 and 2010 has been remarkable…The pressure caused by the REF has grown much worse…if you examine newer universities, in particular, they have really embraced the concepts of new public management wholeheartedly,” he added, saying these are a major source of staff unhappiness. (THE 4/5/17)

We see these initiatives as part of a developing approach by University Senior managers in which they have ceased to see themselves as not publicly accountable. British Universities are legally defined as charities and as such they have a responsibility to consider the wider public interest. It is difficult to see how an initiative such as this which increases the power of academic managers is in the interests of staff, students or the wider public.

Coventry University UCU joins the calls across the HE Sector for these changes to be withdrawn as soon as possible.

(Originally posted to Coventry UCU Facebook timeline)


Warwick UCU is very grateful to have received this statement of solidarity from Coventry UCU.

UCU Press Release: MASSIVE VICTORY FOR WARWICK UNIVERSITY ASSEMBLY

STAFF OVERWHELMING REJECT MANAGEMENT REFORMS THAT THREATEN JOB SECURITY AND ACADEMIC FREEDOM.

On 12 May 2017, members of academic staff at the University of Warwick voiced their overwhelming opposition to the university’s plans to gut its employment statute because of their concerns about the impact on academic freedom and job security. 97% of the assembly (over 140 people) voted in favour of a motion calling on the university to rethink its approach.

The motion, proposed by Professor Jimmy Donaghey of Warwick Business School and seconded by Dr Jonathan Davies of the History Department, calls for the university to keep measures for redundancy and serious disciplinary matters within statute and for any changes to statute to be agreed through the democratic structures of the university, including agreement with the recognised trade union.

Professor Donaghey noted that the proposed changes were “regressive” and would impair “the ability of academic staff to be free thinkers”.  He also attacked the university’s claims of equity, arguing that the proposals represented “levelling downwards and not upwards”.  In a strongly-worded statement Professor Donaghey challenged management to justify this “race to the bottom”.

A string of speakers from the floor drew attention to various concerns particularly around academic freedom and ability of the university to recruit world-class scholars. No one spoke against the motion, even when explicitly invited to do so.  Members of management, other than the VC who has to chair assembly meetings, were conspicuous by their absence.

Professor Saul Jacka, one of the longest-serving professors and a member of Senate, drew attention to the fact that while the university’s proposals might be acceptable in times of benign management, he feared for what might happen if any future regime was minded to operate differently. Another speaker from the floor highlighted that since both sides were in clear agreement about the importance of academic freedom, it was important to consider whether the current proposals would extend or curtail academic freedom. He argued that they would inhibit the ability of researchers and teachers to ask those “inconvenient” questions which challenge received wisdom and thereby extend the boundaries of knowledge. Another contribution from the floor dismissed the university’s reforms as unnecessary and urged the vice-chancellor to build trust between academics and management which had suffered much damage during the previous VC’s tenure.

University of Warwick UCU branch president, Dr Justine Mercer, commented:

“This is a hugely important victory. The proposals which are on the table will seriously erode job security and academic freedom. We have been arguing for five months that university management need to take a step back and rethink their approach to this reform. We have offered an alternative model statute for discussion which we would like to see taken forward. A university such as Warwick which aspires to be world-leading should not be undermining academic freedom and eroding the job security of the staff on whom that reputation rests.”

Statement of Solidarity – Bristol UCU to Warwick UCU

University of Bristol UCU expresses its solidarity with Warwick UCU in its ‘Save Our Statue’ Campaign.

Warwick University’s statute reforms, the repealing of current provisions for redundancy, discipline and dismissal, effectively making it both quicker and easier to sack academics, are a blow to academic freedom and job security at Warwick University and Higher Education in general.

They represent yet another example of a UK university’s callous disregard as regards protecting staff from the whims of unaccountable academic management.

Warwick’s disgraceful institutional behavior in the Docherty affair in 2014-15 clearly did not serve as much of a lesson.

Bristol UCU asks that the reforms are withdrawn as soon as possible and joins with its sister Warwick branch in advocating the continuance of the current Statute 24 at Warwick


Warwick UCU is very grateful to have received this statement of solidarity from Bristol UCU.

SOS: Assembly 12/05 – Register now.

WARWICK ACADEMICS – ACT NOW!

***Register for the assembly***

SIGN UP FOR THE FORTHCOMING UNIVERSITY ASSEMBLY TO STOP THE DOWNGRADING OF YOUR TERMS OF EMPLOYMENT

Stuart Croft, VC for the University of Warwick, has called an assembly on Friday 12 May (10:30 to 11:30 in Oculus 1.05) over the reform of Warwick’s Employment Statute (Statute 24).

The changes to the Employment Statute being proposed by the Provost constitute a massive downgrading of the redundancy, disciplinary/dismissal, grievance and appeal procedures for staff on academic, teaching-only and research-only contracts. This is the most serious attack on academic freedom and job security since UK universities abolished tenure nearly 30 years ago.

The assembly will vote on a formal motion calling for the university to revise the employment statute, instead of gutting it; and for Council not to approve any changes until they have the support of the affected staff, UCU, Heads of Department and Senate.

The replacement Statute is much weaker than the current one because, amongst other things, it abolishes the Academic Redundancy Committee and the right to have appeals heard by an independent legal expert. Further information about the specific changes can be found at our dedicated website: http://warwickucu.org.uk/campaigns/statute-24/

The Law School and History department have already passed motions opposing the changes. Other departments are scheduling extraordinary staff meetings to discuss this one issue.

The campaign needs everyone’s support. We can’t let down the next generation of Warwick teachers and researchers. We can’t let the legal safeguards that have protected Warwick academics for nearly 30 years get abolished on our watch.

What can I do? 

Warwick UCU committee.

Save Warwick’s Employment Statute

SIGN THE PETITION HERE: http://bit.ly/statutepetition

Senate failed to stop the planned repeal of Warwick’s employment statute (Statute 24), so now we need to protest more loudly. You may have seen the Save Our Statute flyers and posters in UCU colours. More information can be found on the dedicated web pages http://warwickucu.org.uk/campaigns/statute-24/

Poster / Leaflet (front)
Poster / Leaflet (front)
SOS Poster / Leaflet (front)
Poster / Leaflet (front)
Poster / Leaflet (back)
Poster / Leaflet (back)
The campaign needs everyone’s support. We can’t let down the next generation of Warwick teachers and researchers. We can’t let the legal safeguards that have protected Warwick academics for nearly 30 years get abolished on our watch.
What can I do?

  • Talk to everyone in your department so they realise what’s at stake; use the flyers we delivered to staffrooms and pigeon-holes, as well as the UCU Briefing on Statute 24; You can print more or we can send some to you (click on the images above for PDFs you can download and print).
  • Get eligible staff to join UCU so they can vote in the forthcoming ballot;
  • Direct people to the dedicated Warwick UCU Save Our Statute website. It has lots of information and an FAQ section rebutting everything in the official version.
  • Table a motion at your next departmental meeting asking your Head of Department to write to the VC and Provost outlining staff concerns. Several departments have already done this and the passed motions are now being sent to University management.
  • Warwick UCU represents over 800 members of staff, so we shouldn’t have to act individually. But management aren’t listening, so feel free to provide feedback directly to emprelations@warwick.ac.uk.
  • Sign the forthcoming petition.

See the UCU site where this issue is being picked up nationally:

https://www.ucu.org.uk/article/8722/Staff-force-emergency-meeting-at-University-of-Warwick-in-jobs-row?list=1676

Warwick UCU committee.