University Pension Differences

Following a ballot of members of the University and College Union (UCU), the UK university sector is gearing up for strike action over proposed changes to the USS pension scheme. Unless the dispute is resolved in the meantime (which I think is highly unlikely) the first strike lasting two days will place on 22nd and 23rd February. Thereafter strikes will escalate to cover three days, four days and five days in subsequent weeks.  I’ll actually be in Maynooth for the first 48 hour block so won’t have to worry about crossing a picket line initially, but will have to later if it drags on. It looks set to be a bitter dispute which will not be easily resolved.

When I joined USS (in 1988) it was a simple `Final Salary Scheme’. Both employer and employee contributed and the benefits accrued were an index-linked pension of 1/80 of the final salary for each year of contributions and a (tax-free) lump sum of 3/80 for each year of contributions. I joined at age 25 so I expected to accrue 40 years of pension if I retired at 65, namely a pension of half my final year’s salary and a lump sum of three-halves. It looked a good deal and was a significant factor mitigating the relatively low starting salary for academics in those days.

Over the years it became apparent that this scheme is actuarially unsound because (a) people are living longer, increasing the scheme’s liability and (b) investment growth achieved by the USS fund managers has decreased, with a negative impact on asset growth. Moreover, the USS fund is not underwritten by the government, so if it collapses completely members could be left with no benefits at all.

The USS Final Salary scheme was closed to new entrants some years ago and replaced by a less generous defined benefit scheme. A couple of years ago it was closed to existing members too, though the benefits accrued are retained; I will now only be able to get 28/80 of my final salary from that scheme when I actually retire. The scheme was replaced by a hybrid of an even less generous defined benefit scheme and a defined contribution scheme (where the pension benefit is dependent on the fund valuation at retirement, as most private pensions). Now the proposal is to remove the defined benefit component entirely. The loss of pension benefits will be substantial.

I don’t see any easy settlement of this dispute so I’m glad that it won’t affect me very much. I’ll be leaving the UK Higher Education system this summer and relocating to Ireland. Quite a few people have asked me how the pension scheme works here so I thought I’d point out the differences.

The first thing to say is as a professor in the National University of Ireland at Maynooth I am treated as a public servant so my future pension benefits here are covered by the Single Public Service Pension scheme. This resembles the final salary scheme that USS used to be, but with the important difference is that it is integrated with the State Pension to which everyone is entitled if they pay social insurance contributions. This – called the SPC – is similar to the old State Earnings-Related Pension Scheme (SERPS). Since public employees benefit from this as well as the public service pension scheme, the accrual rate in the latter is lower than the old USS scheme – just 0.58% per year – on salaries up to €45,000. For salaries above this figure the amount above the  limit generates an accrual rate 0f 1/80, just as the USS version. There is also a lump sum which accrues at 3.75% per annum, the same as the USS scheme.

In summary, then, the big difference is that in Ireland the public service pension is integrated with the state pension, whereas in the UK the latter is entirely separate. It’s also the case that in Ireland the pension is guaranteed by the government (which, of course, can change the rules…)

In my opinion the pension scheme for University staff in Ireland is significantly better value than the diminishing returns provided by the USS scheme, yet another reason why I made the decision to move here.


13 Responses to “University Pension Differences”

  1. Dave Henley Says:

    Wasn’t the USS Pension Scheme the name of ship in Star Trek VI?

  2. The UK university sector — apart from the half of it that isn’t in USS at all. Oddly, TPS has come off slightly better, partly because it is not investment-based.

  3. Tom Shanks Says:

    Is USS unsound? Last revision was supposed to take care of ageing populations etc! Lot depends on actuarial method. If junior academics sign up en masse for UCU next week, then issue would be quickly resolved at least cost to everybody!

  4. May I point to the entry of my colleague at Warwick, Prof Jane Hutton, who has investigated the issue most thoroughly!

  5. Loretta dunne Says:

    Are you allowed to transfer your uss benefits to Ireland Peter, I thought those transfers were no longer allowed?

    • telescoper Says:

      No. I can either take early retirement (from this year, when I’ll be 55) or defer them until I actually retire. Either way I’ll have two separate pensions.

      • telescoper Says:

        Yes, the full benefit is paid at 65 in my case (and a couple of years later for newer entrants). Taking early retirement means that there is an actuarial correction. The USS scheme does not allow anyone to retire younger than 55, so in my case if I take the benefit this summer I will get the maximum penalty. It still might be worth my while retiring, though, as the pension is index-linked while salaries in the UK academic system have been static for a decade or more.

  6. telescoper Says:

    As long as you paid into the scheme….

    Also you have to have asked for the benefit to be deferred when you left.

    P.S. the pension is also index linked,

  7. […] you can find an example of the effect of the proposed changes on a real person’s pension. I blogged about this a few weeks […]

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