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Communicating about pensions
Today I attended a large and lengthy meeting about the coming changes to the Universities Superannuation Scheme (USS). The situation is most simply cast as that the government regulator deems the pension scheme to be significantly in deficit, the University and College Union want the universities to pay more into it accordingly and the universities mostly prefer to shift more risk onto the employees: by switching more to
At the meeting it seemed to me that the union folks did not acquit themselves at all persuasively, from not justifying their claim that a switch to defined contributions would cause the breakup of the whole pension scheme, to characterizing such a scheme in terms of stocks and shares without including safer asset classes. If they did have a valid point to make I am not sure I was even inclined to find it underneath all the misrepresentation.
A member of my own division in my school asked some questions relating to an issue that I found far more interesting. The USS is mostly a
It appears that, in making a big thing of maintaining the level of the employer's contributions after the proposed change, these contributions are to include an increased amount that actually goes toward fixing the existing pension deficit. So, not only are new employees disproportionately expected to pay for events that preceded them but this violates the mental model of USS as a funded scheme by introducing an element in a manner that makes more intellectual sense in an unfunded scheme. In USS I expect new contributions to go toward payouts beyond its existing liabilities so for universities to count this
Update: What I have not yet found is how much the current and proposed deficit recovery fraction is: is it really to increase significantly? At least I ought to be able to ask.
defined contribution(running more like individual investment accounts for retirement) from
defined benefit(offering a guaranteed payout).
At the meeting it seemed to me that the union folks did not acquit themselves at all persuasively, from not justifying their claim that a switch to defined contributions would cause the breakup of the whole pension scheme, to characterizing such a scheme in terms of stocks and shares without including safer asset classes. If they did have a valid point to make I am not sure I was even inclined to find it underneath all the misrepresentation.
A member of my own division in my school asked some questions relating to an issue that I found far more interesting. The USS is mostly a
fundedpension scheme: its assets should conservatively cover the liabilities to which it is already committed. This contrasts with an
unfundedpension scheme in which one hopes that current employees' contributions cover past employees' payouts. One may think of USS' assets as being about covering what is required due to past contributions. Correspondingly, one may reason that any further contributions would commensurately increase future payouts beyond those existing commitments.
It appears that, in making a big thing of maintaining the level of the employer's contributions after the proposed change, these contributions are to include an increased amount that actually goes toward fixing the existing pension deficit. So, not only are new employees disproportionately expected to pay for events that preceded them but this violates the mental model of USS as a funded scheme by introducing an element in a manner that makes more intellectual sense in an unfunded scheme. In USS I expect new contributions to go toward payouts beyond its existing liabilities so for universities to count this
deficit recoveryamong the employer's contribution seems to me to be a convenient category error. I believe it clearer to say that the employer contribution is temporarily reduced because the university cannot afford to pay more overall so they must divert some funds to patch the asset gap.
Update: What I have not yet found is how much the current and proposed deficit recovery fraction is: is it really to increase significantly? At least I ought to be able to ask.