21 March 2011
The Vice-Chancellor explains the University's position on pensions, in the light of the UCU strike action scheduled for tomorrow [Tuesday 22 March].
The recent cuts in our funding from HEFCE are examples of the severely challenging financial environment in which we now operate. Growing existing and new sources of income will help offset funding cuts. However, we have to address the substantial cost pressures that face us, and the growth of pension costs is one of the most significant challenges we face.
Every three years, pension schemes undergo a formal valuation which calculates the value of their assets compared to an assessment of the value of the future liabilities of the pensions they are funding. At the last valuation of USS in 2008, the trustees calculated that the scheme was ‘fully funded’ as long as employer contributions increased from 14% to 16% of salary, which they did. Since then, the financial position has deteriorated significantly. An interim valuation in March 2010 calculated that USS had a deficit of assets, compared to liabilities, of around £7bn measured on an accounting basis. The University of Bristol’s ‘share’ of this would be around £140m.
We don’t know what the results of the 2011 formal valuation of USS will show, but we fully expect a significant deficit that will have to be addressed by either increased contributions or changes in benefits, or both. The University cannot afford to increase its contributions.
As members, we expect our scheme to pay us for a much longer retirement compared to when the scheme was established in 1975. The average life expectancy of USS members has increased by over 13 years since then, and longevity expectations continue to rise. These welcome changes in life expectancy have, unfortunately, added significant pressure to the affordability of the pension scheme, and pension benefits need to take this into account.
The proposals have been designed and communicated in such a way as to preserve the overall scheme. There has been extensive communication and consultation about the proposed changes to USS. A summary is available. The complete proposals are also available (PDF format).
Also, we must not lose sight of the fact that it will continue to provide final salary pensions to existing USS members and a career average salary scheme to future new USS members.
These proposals are born out of a commitment to the future of the scheme. The reason that the proposed changes were put forward is that university employers want to safeguard the scheme for existing and future members, with the best benefits that are affordable.
Professor Eric Thomas, Vice-Chancellor
University of Bristol,
Bristol, BS8 1TH, UK
Tel: +44 (0)117 928 9000