Archive for the Finance Category

End of Term Thoughts

Posted in Biographical, Finance with tags , , , on May 4, 2018 by telescoper

Today is the last day of teaching term at Maynooth University. My last lecture, a revision lecture, was yesterday morning and I spent most of the afternoon helping students put the finishing touches on their project work, which is due in on Tuesday next week. Next Monday is a bank holiday in Ireland (as it is in the UK), then there’s a short period of private study before the examinations start next Friday. As it happens, the theory paper for the module I’ve been teaching on Computational Physics is on the first day of the examination period.

It’s `Study Week’ in Cardiff next week too, and I have a revision lecture there. Owing to the Monday holiday we’ve juggled the schedule a bit to ensure all modules have a revision lecture so I’m doing my revision lecture on Thursday rather than the usual Tuesday. I have a meeting at the Institute of Physics in London on Tuesday and it’s the Annual General Meeting of the Royal Astronomical Society (also in London) on Friday so I’ll be spending all of next week in the UK, in between Cardiff and London. Since teaching is over I’m not planning any more midweek travel (unless it’s absolutely necessary) and intend to spend one week in the UK and one week in Ireland, and so on, apart from conferences and the like, until I fully relocate in July.

I thought I’d mention another thing, which represents a fortuitous bit of timing. Twenty-five years ago, while I was living in London, I took out a savings policy of the sort that involves making a regular monthly payment into a mixture of investment funds. The term of this policy was 25 years, and the maturity date was 23rd April 2018. On a couple of occasions I have been tempted to cash it in early but decided to let it run until maturity. The performance of my chosen funds has fluctuated over the last two and a half decades, but when the price of units drops and you invest a fixed cash amount you end up buying more units than when they’re expensive so if they do recover in value you do well. This is called Pound Cost Averaging.

However, when a policy like this reaches the end of its term the amount you get back depends on the value of the units on the day that it matures. Although my policy wasn’t doing at all well a decade ago, it seems my portfolio (more by luck than judgement) has done well over the last ten years, but with the stock market being rather volatile in the early part of this year it’s been a bit of a white knuckle ride recently. Thankfully the last few weeks seem to have been more stable, and although the units are not at an all-time high in terms of value they were not far off that when they were cashed in. aturity value turned out to be about three times the total amount I’ve invested. I received the money on 30th April, and the proceeds will make a significant contribution to the cost of purchasing a house here in Ireland.

The downside of pound cost averaging is that the final sum is paid in pounds to a UK bank account, and with the pound languishing against the euro there’s now a decision to be made about when to transfer it to Ireland..

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University Pension Differences

Posted in Education, Finance, Maynooth with tags , , , , , , , , on January 26, 2018 by telescoper

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.

 

Things Falling

Posted in Finance, Politics with tags , , , , , , on August 3, 2017 by telescoper

A very busy but also very interesting day at the office in the Niels Bohr Institute ended this evening with a thunderstorm, complete with spectacular lightning and torrential rain. I got wet on the walk back to my small home, but I managed to get inside before the worst of it started. I seem to remember a similar thing happened last time I was in Copenhagen. Maybe it’s the time of year.

Anyway, torrential rain isn’t the only thing that’s been falling today. The Pound dropped sharply against the Euro, so it is currently around €1.1069, not far from its lowest point in the last year. That’s not directly relevant to my visit to Denmark, which isn’t in the Eurozone, but the Pound has tumbled against the Danish Kroner too. In fact it’s been falling steadily over the past three months:

At 8.234 Kroner to the Pound, this the worst exchange rate I can remember in all the approximately 30 years I’ve been travelling to Copennhagen. The rate has usually been about 10:1 or even higher. Copenhagen has always seemed a rather expensive place, but converting prices into Pounds at the current exchange rate makes your eyes water. Fortunately I’m getting my local expenses paid by the NBI so the increased cost won’t really affect me, but it’s definitely noticeable. Such is the shambolic state of our government that I wouldn’t bet against the pound reaching parity with the Euro before too long.

Of course one is not allowed to suggest that the falling pound and sluggish economic growth might be something to do with BrExit because that would be `talking the country down’. The worrying thing, though, is that we haven’t left the European Union yet. Just wait until March 2019 when we leave the European Union, together with the Single Market and Customs Union without any trade agreement. Where will the pound be then, I wonder?

The UK Financial Contribution to the EU

Posted in Finance, Politics with tags , , on April 22, 2016 by telescoper

There’s so much misunderstanding and distortion flying around about the United Kingdom’s contribution to the European Budget and what it might be spent on if we left the EU that I just thought I would post this for information. It shows official figures from HMRC for 2014. Similar pie charts are available for other years, but often they include the EU contribution under “other” which is why I’ve chosen this particular one. Also, I’m very lazy and it came up first on Google…

fat cut

Although it’s a lot of money in cash terms, it’s very small compared to current expenditure on, e.g. Health, Education and Welfare and even compared to the interest payments on our national debt. Saving this contribution would not make sufficient financial resources  available to make a significant difference to these other big ticket  items. Note also that if the UK loses its current credit rating, the expense of servicing our debt will increase by an amount that could easily on its own wipe out the saving on our EU subscription.

And of course what we get for that relatively small contribution is access to beneficial trade agreements, inward investment from EU companies and other sources, and access to the science programmes. You may disagree, of course, but I think it’s money very well spent.

 

 

Nervous

Posted in Finance, Science Politics, The Universe and Stuff with tags , , on November 22, 2015 by telescoper

The outcome of the 2015 Comprehensive Spending Review is to be announced shortly (on Wednesday 25th November), a fact which suggested this piece of music. It’s a solo piano piece by the late great Mal Waldron. Among many other things, Mal Waldron was Billie Holiday’s regular accompanist from 1957 until her death in 1959 and it was during that time he was booked to appear on a famous all-star TV Jazz broadcast called The Sound of Jazz from which this solo performance is taken. It’s an original composition by the pianist, and it’s called Nervous.

p.s. I did a blog post some time ago about Billie Holliday’s heartbreaking last performance with Lester Young, which also appeared on The Sound of Jazz. You can find it here.

The Renewed Threat to STEM

Posted in Education, Finance, Science Politics with tags , , , , , , on July 26, 2015 by telescoper

A couple of years ago, soon after taking over as Head of the School of Mathematical and Physical Sciences (MPS) at the University of Sussex, I wrote a blog post called The Threat to STEM from HEFCE’s Funding Policies about how the funding policies of the Higher Education Funding Council for England (HEFCE) were extremely biased against STEM disciplines. The main complaint I raised then was that the income per student for science subjects does not adequately reflect the huge expense of teaching these subjects compared to disciplines in the arts and humanities. The point is that universities now charge the same tuition fee for all subjects (usually £9K per annum) while the cost varies hugely across disciplines: science disciplines can cost as much as £16K per annum per student whereas arts subjects can cost as little as £6K. HEFCE makes a small gesture towards addressing this imbalance by providing an additional grant for “high cost” subjects, but that is only just over £1K per annum per student, not enough to make such courses financially viable on their own. And even that paltry contribution has been steadily dwindling.  In effect, fees paid by arts students are heavily subsidising the sciences across the Higher Education sector.

The situation was bad enough before last week’s announcement of an immediate £150M cut in HEFCE’s budget. Once again the axe has fallen hardest on STEM disciplines. Worst of all, a large part of the savings will be made retrospectively, i.e. by clawing back money that had already been allocated and which institutions had assumed in order to plan their budgets. To be fair, HEFCE had warned institutions that cuts were coming in 2015/16:

This means that any subsequent changes to the funding available to us from Government for 2015-16, or that we have assumed for 2016-17, are likely to affect the funding we are able to distribute to institutions in the 2015-16 academic year. This may include revising allocations after they have already been announced. Accordingly, institutions should plan their budgets prudently.

However, this warning does not mention the possibility of cuts to the current year (i.e. 2014-15). No amount of prudent planning of budgets will help when funding is taken away retrospectively, as it is now to the case. I should perhaps explain that funding allocations are made by HEFCE in a lagged fashion, based on actual student numbers, so that income for the academic year 2014-15 is received by institutions during 15/16. In fact my institution, in common with most others, operates a financial year that runs from August 1st to July 31st and I’ve just been through a lengthy process of setting the budget from August 1st 2015 onward; budgets are what I do most of the time these days, if I’m honest. I thought I had finished that job for the time being, but look:

In October 2015, we will notify institutions of changes to the adjusted 2014-15 teaching grants we announced in March 20158. These revised grant tables will incorporate the pro rata reduction of 2.4 per cent. This reduction, and any other changes for individual institutions to 2014-15 grant, will be implemented through our grant payments from November 2015. We do not intend to reissue 2014-15 grant tables to institutions before October 2015, but institutions will need to reflect any changes relating to 2014-15 in their accounts for that year (i.e. the current academic year). Any cash repayments due will be confirmed as part of the October announcements.

On top of this, any extra students recruited as as  result of the government scrapping student number controls won’t attract any support at all from HEFCE, so we wll only get the tuition fee.And the government says it wants the number of STEM students to increase? Someone tell me how that makes sense.

What a mess! It’s going to be back to the drawing board for me and my budget. And if a 2.4 per cent cut doesn’t sound much to you then you need to understand it in terms of how University budgets work. It is my job – as the budget holder for MPS – to ensure that the funding that comes in to my School is spent as efficiently and effectively on what the School is meant to do, i.e. teaching and research. To that end I have to match income and expenditure as closely as possible. It is emphatically not the job of the School to make a profit: the target I am given is to return a small surplus (actually 4 per cent of our turnover) to contribute to longer-term investments. I’ve set a budget that does this, but now I’ll have to wait until October to find out how much I have to find in terms of savings to absorb the grant cut. It’s exasperating when people keep moving the goalposts like this. One would almost think the government doesn’t care about the consequences of its decisions, as long as it satisfies its fixation with cuts.

And it’s not only teaching that is going to suffer. Another big slice of savings (£52M) is coming from scrapping the so-called “transitional relief” for STEM departments who lost out as a result of the last Research Excellence Framework. This again is a policy that singles out STEM disciplines for cuts. You can find the previous allocations of transitional relief in an excel spreadsheet here. The cash cuts are largest in large universities with big activities in STEM disciplines – e.g. Imperial College will lose £10.9M previous allocated, UCL about £4.3M, and Cambridge about £4M. These are quite wealthy institutions of course, and they will no doubt cope, but that doesn’t make it any more acceptable for HEFCE to break a promise.

This cut in fact won’t alter my School’s budget either. Although we were disappointed with the REF outcome in terms of league table position, we actually increased our QR income. As an institution the University of Sussex only attracted £237,174 in transitional relief so this cut is small potatoes for us, but that doesn’t make this clawback any more palatable from the point of view of the general state of health of STEM disciplines in the United Kingdom.

These cuts are also directly contrary to the claim that the UK research budget is “ring-fenced”. It clearly isn’t, and with a Comprehensive Spending Review coming up many of us are nervous that these cuts are just a foretaste of much worse things to come. Research Councils are being asked to come up with plans based on a 40% cut in cash.

Be afraid. Be very afraid.

Awaiting The Barbarians

Posted in Finance, Poetry, Politics with tags , , , , , on July 13, 2015 by telescoper

— Why are we come together in the market place?
 
            Barbarians are expected here to-day.
 
— Why in the Senate-house this inactivity —
why sit the Senators and do not legislate?
 
            Because barbarians are to come to-day
            What laws should they make now — the Senators?
            Presently the barbarians will make laws.
 
— Why has our Emperor risen close upon the sun —
why is he waiting there, by the main city-gates,
seated upon the throne, — august, wearing the crown?
 
            Because barbarians are to come to-day
            And so the Emperor in person waits
            to greet their leader. He has even prepared
            a title-deed, on skin of Pergamus,
            in favour of this leader. It confers
            high rank on the barbarian, many names.
 
— Why do our consuls and the praetors go about
in scarlet togas fretted with embroidery;
why are they wearing bracelets rife with amethysts,
and rings magnificent with glowing emeralds;
why are they holding those invaluable staffs
inlaid so cunningly with silver and with gold?
 
            Because barbarians are to come to-day;
            and the barbarians marvel at such things.
 
— Why come not, as they use, our able orators
to hold forth in their rhetoric, to have their say?
 
            Because barbarians are to come to-day;
            and the barbarians have no taste for words.
 
— Why this confusion all at once, and nervousness:
(how serious of a sudden the faces have become):
why are the streets and meeting-places emptying,
and all the people lost in thought as they turn home?
 
            Because the daylight fails, and the night comes,
            but the barbarians come not. And there be
            who from the frontier have arrived and said
            there are no barbarians any longer.

And now what shall become of us without barbarians?
These people were in sooth some sort of settlement.

by C.P. Cavafy (1863-1933); posted on the occasion of the all-night negotiations between the EU and Greece over a bailout deal.