02 Feb

USS pension deficit assumptions

Context: The University Employers wish to remove the defined benefit element of the University pension scheme USS, claiming it is running an unsustainable deficit and they are not willing to shoulder the burden with staff to fix it.
If you are a UK academic in a USS pension University, you need to read this:
Unless we challenge the basis for the deficit calculation, we lose people. It becomes an argument about who bears the pain. Of course staff don’t want to pay an additional 2.5% for a pension that will be worse than before.
Our argument has to be that this pain is a fiction, if an artfully constructed mathematical fiction. The “problem” is a mathematical projection of a worst-case scenario constructed on dubious assumptions.
Key facts:
. the pension scheme’s assets grew in real terms by an average 12% pa for the last 5 years
. the scheme is growing as more people are enrolling
. the scheme could continue on a money-in-money-out basis without action for 40 years
On the deficit calculations
. actuaries from the Cass Business School have challenged assumptions of 4% pa salary income over the next twenty years and increases in projected lifespan that are not supported by current empirical data
. the best estimate (median, mode and mean for an approx Normal distribution) projected outcome is +£8bn surplus
. the chance of it being in deficit by 7bn or more is the same chance of it being in surplus of £23bn or more.
Tom
#ucu #uss