/ More on Pensions
The Bank of England step in. Hard to believe really at this late stage, given how important pensions are to people and all the gevernment and tPR certainty about DB valuation deficits being very real.
I've not read the full working paper - stepped in to do what?
The bit I did read had a bit of analysis of companies' response in other areas to having to pay into pension schemes, and the fairly obvious point that by depressing yields QE and forward guidance widens deficits (although in their opinion a small price to pay for its benefits) - analysis rather than action.
What the article says. If the deficit is partly artificial the decisions based on deficit need to be moderated and the need to fund deficit reduction is less urgent than tPR often indicates. The two arms of government need to get back on the same page.
The Bank of England paper supports the thrust of First Actuarial advice that there is no huge crisis such that the USS DB scheme needs to be closed right now based on the deficit and that a move to derisk to depressed gilts would be a bad idea (the reason the scheme has crashed now and we have damaging industrial action ongoing in our Universities.... as again the article points out).
My wife has a final salary pension with her private sector employer, it's >110% funded but they're cutting back input to drop that to 107%. Seems a bad move as it's ended up that way after last year. One of my untouched pension pots grew 18% last year, it was obviously a good year. They need that 'fat' for future lean years.
The accountancy basis under which pension scheme’s liabilities are measured are ludicrously conservative and outdated compared to other measures in the financial sector - “health” of banks etc. I note that Legal and General have released ‘mortality’ funds because the increase in life expectancy has slowed. How surprising! Who really believes human longevity is infinite? We live in a crazy world and schemes such as USS should adopt realistic views of their liabilities as should financial regulators.
> Who really believes human longevity is infinite?
Current understanding of cosmology rules out infinite lifespan, as one way or another the universe won’t exist, or be able to host life, forever.
I don’t see a fundamental reason why human life can’t effectively by infinite within the bounds of the universe. I don’t know that I’ll live to see such people born, but one day...
I skimmed the actual working paper, and its main content is barely at all related to the moneyweek article (the point on lowered gilt yields which they have picked on is a reference to research performed in 2011/2012).
It makes no recommendations on how tPR should use this information, just that it's something they might be interested in, and it offers no position at all that I could see on derisking and whether this is an opportune or inopportune time to do so. Given that USS will have to make defecit reductions whether it closes to future accrual or not, the speed of defecit reduction is only loosely related to that decision anyway.
QE was a buyer wading into the market and bidding up the price of assets across the piece, thereby reducing the yield that can be earned on them .The papers tone is that the knock-on to pension schemes was a price worth paying, not that it's therefore something that can just be ignored. Created by the bank, sure, but this was a real distortion of the entire marketplace, not an abstract exercise that's shifted a few numbers important for pension scheme valuation.
Money week are interested in the same things I am. Sensible pension valuations and companies investing in growth rather than using profits to overcompensate on pension deficits that are significantly distorted. You say it makes no specific recommendations to tPR as if that was a good thing.
tPR have pushed derisking recently which I think is the opposite of what they should have been doing. USS have decided to go for derisking possibly influenced by that.
Your statement about timing is dishonest in my view as that choice of USS to derisk now is the key reason DB is now regarded as unaffordable and a move to DC neccesary. I agree enteirely with you that the deficit needs to come down following actuarial process but the derisking added a step change to valautions on top of the gilt plus valuation problem (a valuation process I think distorted, as many actuaries do, and as now the bank of England agree). tPR said the maximum acceptable risk was the September valuation so they could (just) accept a return to that or something near that (maybe reduced DB) as a solution to the industrial dispute. With derisking there is no possible solution to the industrial dispute. The employer support for derisking was originally at around 40% including Oxbridge colleges with the same weight as big Universities... the biggest name institutions now appeared to have changed their mind on derisking ... Cambridge, Oxford, Imperial now joining the original critics like Sheffield, Glasgow Newcastle etc. Support for derisking amongst scheme members is estimated to be below 10%.. members the scheme must legally consult with.
Lest people believe actuarial views on gilt plus valuations are uniform I'll re-copy a link from the closed USS thread
Views are mixed.. another link in the subject (you need to sign in):
A new llnk from Henry Tapper. Local Government focussed this time (with a bit on USS lower down)
I'm not sure what much of your reply has to do with my post; I'm merely pointing out what the working paper actually says and doesn't say. It's a fairly dry analysis of company behaviour in given conditions, not some sort of call to arms.
Who said it was a call to arms? Its a rather late admission that gilt plus pension valuations were distorted by BoE actions. This is something that the article and I see as quite timely given a major dispute is live over this on USS. This is a dispute caused by disrisking partly at the behest of a different arm of government, tPR, who seem to be behaving as if these deficits are not distorted at all and hence derisking is more urgent and important. The dispute isn't really about how pensions are valued using gilt plus its much more about a distorted deficit and a derisking decision made in the face of only about 40% support from employers (including some oxbridge colleges who have a clear financial conflict of interest if trying to raise their own bonds) and almost no support from the scheme members. If the scheme returned to the September valuation position without derisking and with only a small adjustment to the maximum DB threshold the action would almost certainly be called off.
I guess we will wait and see if the collection of many of the UKs major educators at HE level and much of one of its strongest export sectors faces lengthy continued industrial action because USS sticks to its position or if realpolitik takes over as big name instututions realise the strength of feeling in their institutions forcing a change on USS that tPR will have to agree to.
Well, I’d argue that it’s Moneyweek being late to the party - the research on gilt yields is years old and to be honest it’s also been a pretty self-evident truth for some time - lowering yields was after all the whole point of the exercise. Nowhere are they saying the resulting yields are “wrong”, or that the impacts they have should simply be ignored - if anything their impact is acknowledged as a real cost but worth paying for the benefits they would argue it had.
I rather thought that when you said the Bank of England was “stepping in”, and argue above that they’re now admitting that gilts+ is wrong and so on that that meant they might have actually done something that looked like that: wading into the whole thing to make some action, make some public argument or criticise the way things are currently being done. Since they’ve done none of those, I don’t think there’s anything really new to discuss from my perspective save for the votes/strikes/etc aspect, which I find vaguely interesting but don’t really have any particular insights into. On balance, I wouldn’t bet against the higher risk strategy from September solving things from the employee side as you say, but it depends how many institutions have genuinely been persuaded versus how many are making all the right noises.
I read Moneyweek's commentary as ironic (they know how late this is). I also think you read too much into my words 'stepping in' which had the same ironic intent. My reading of the relevant parts if the report is that gilts plus valuations (and some aspects of company finances) are currently problematic but that the action that caused this was worth it, ie the economic intervention (one might say they would say that, being the instigators)... there are plenty of shades of grey and unintended consequencies in real world economics.
The ongoing USS dispute is looking messy. Branch votes on the recent offer on the activist links are showing huge majorities for continued action, often unopposed (except abstentions).
From the Guardian:
University strike: the offer explained
What’s on offer in the deal?
Significantly, the offer on the table is only a temporary arrangement for three years. There are three key strands.
First, it will retain “a meaningful level of defined benefits” for all scheme members. This has been crucial to the union’s negotiating position in its fight against plans to introduce a defined contributions scheme, but this rather vague promise is for the length of the interim deal only with no guarantees beyond. To fund it, both employers and staff will have to pay increased contributions. From next April, employer contributions will go up from 18% of salaries to 19.3%, while members’ contribution will go up from 8% to 8.7%. Secondly, there is an agreement to set up an independent expert panel to look again at the valuation of the Universities Superannuation Scheme (USS), which has been a source of fierce dispute between the two sides. And finally. the two sides agreed to get together again soon to look at risk-sharing alternatives for the future, ie what happens after three years - basically they start the process all over again.
Have university staff got what they want?
No. Many feel they are being asked to pay more in contributions for less in return, based on a valuation of a scheme that was based on flawed calculations. They fear that because it is only an interim deal, employers will come back in three years and attempt another assault on their pensions when resolve to resist may be weaker.
They argue that any changes to their pensions should not be agreed until a more credible evaluation is carried out. They are also irritated about a clause in the deal that suggests they should reschedule classes lost during strike action, which they say adds insult to injury.
What happens next?
The strike action continues as planned while the proposal is considered by local branches and the higher education committee of the University and College Union. It is also being looked at by employers at Universities UK and the USS.
The original proposal had said that if there was agreement strikes would be halted, but with angry protests outside UCU headquarters and #NoCapitulation trending on Twitter agreement seems far from guaranteed.
Without agreement, industrial action is due to continue through the week and the UCU has threatened a further 14 days of strikes around exam time if the pensions dispute is not resolved.
Interesting details thanks. The BBC article was a bit light on specifics so I had been meaning to chase down a bit more detail.
I wonder if the fact it's essentially a pause is to try and fit with the statutory timelines (do I remember right that USS has a ticking clock to end June or something. One of the blogs from that guy Mike you shared)?
I guess the view on the pause is going to partly be driven by whether you really believe in the independent reassessment or not - after all if the current voew comes through as flawed as so many have argued then you pay your 0.7% extra until the next triennial and then contributions drop massively after that to reflect a revised scheme position. And if the scheme position is so much better the risk of a renewed attempt to close is reduced since the cost:benefit so obviously skews away from it being worthwhile.
The proposal's officially rejected.
The negotiators have made a bad tactical blunder here, which will leave the general public nonplussed. There should at least have been some better soundings out before that deal was agreed to.
It's now looking messy.
Preserves things more or less as they were for now, long term future not guaranteed. So a pause in making a decision on the long term structure.
That proposal has been rejected.
I can't help thinking that the only thing that really matters is the rate at which the employer pays into the pot, that 19.3% is very high compared to national norms, and thus that it's foolish to reject this offer.
The risk sharing of the DB scheme between individuals is important too as you don’t have to plan to live to 100 but only an average age. This could be replicated in a DC scheme with care, I assume, at which point I agree with you it’s the total sum that matters. I suspect the union ran into the reality that 19% is the limit but aren’t able to communicate that to members who have bought the conspiracy rhetoric.
Some of that 19.3% would have been a deficit recovery contribution to the scheme itself, not to individual's 'pots'.
(Of course the reality of the deficit is itself a major cause of contention in any case.)
> Some of that 19.3% would have been a deficit recovery contribution to the scheme itself, not to individual's 'pots'.
True, but that 19.3% would still have gone to the overall pot, and legally the only thing that can be done with such money is then use it to fund scheme benefits.
I was just pointing out that the percentage of your salary being paid to your own pension by the employers would have decreased under the agreed terms.
> I was just pointing out that the percentage of your salary being paid to your own pension by the employers would have decreased under the agreed terms.
But I'm not sure that's true. The amount put into my personal DC pot would have increased (since it would now cover a large fraction of salary).
The amount put into the overall pot (DC plus DB) would also have increased (from 18% to 19.3%).
DB benefits promised would indeed have decreased (owing to them covering a smaller fraction of salary), but if the overall money put in is increasing, and if that money can only go to benefits, I'm not sure that that makes me actually worse off in the long run.
It's all moot now since that deal has been rejected. However note that 4.5% of that 19.3% was earmarked for paying off the notional deficit.
> However note that 4.5% of that 19.3% was earmarked for paying off the notional deficit.
Agreed, but the whole 19.3% goes into the pot, and, regardless of any notional "deficit", it increases the money in the pot, and that pot can only be spent on benefits.
I wish the gov could put more regs (e.g higher minimums) into employers in the private sector funding DC schemes.
The average employer contribution is under c3.2%.!
My employer will pay a max of 6%
> I wish the gov could put more regs (e.g higher minimums) into employers in the private sector funding DC schemes.
Lobby for it. Pensions matter.
> I wish the gov could put more regs (e.g higher minimums) into employers in the private sector funding DC schemes.
As an employer I'm in broad agreement with the new statutory requirement to support employees' pension planning. But legislation to force the issue isn't without consequences. Employers will already by April next year have to put 4% into staff pensions. This isn't a tax on profit, as people might perceive it, it's a tax on employing people which makes companies less profitable. The unavoidable consequence is that fewer new jobs will be created, existing ones are rationalised way (robots don't need pensions), or worse, weak companies fail casting workers into poverty. All of those outcomes cost all of us in one way or another.
> ... The unavoidable consequence is that existing ones [jobs] are rationalised way (robots don't need pensions) ...
That will happen (and is happening) in any case. It's not a convincing argument in this context.
It will happen where and whenever robots become cheaper than humans. By making humans more expensive you hasten the arrival of that flex-point. Governments can counteract this effect by taxing automation but this stifles competitiveness in a gobal market. Either way, workers and the state itself might suffer.
I would not bother arguing the case. As an employer you are seen by a succession governments as a bottomless pit of money to be extracted at their whim and on this ever so slightly left leaning forum your seen as some kind of robber baron who's sole function in life is to extract ever last ounce of energy and spirit from your employees whilst paying them a pittance.
That was a cracking point about the pension requirements being a tax on employing people. I never thought of it that way. Some of my guys moan like hell about the statutory pension contributions, "why do I have to give up part of my wage" your not your saving it for old age and I am topping it up. "But why can't you just give the top up money to me directly" because it doesn't work like that and I am not allowed to discuss it with you incase I coerce you to opt out so I suggest you look it up online and maybe go see a financial adviser.
> The unavoidable consequence is that fewer new jobs will be created, existing ones are rationalised way (robots don't need pensions), or worse, weak companies fail casting workers into poverty.
A rather narrow view. Alternatively, lower costs to the state supporting pensioners > lower taxes > more competitive environment for business. Or, higher wage economy > highly skilled jobs>less susceptible to automation> more competitive globally.
> I would not bother arguing the case. As an employer you are seen by a succession governments as a bottomless pit of money to be extracted at their whim and on this ever so slightly left leaning forum your seen as some kind of robber baron who's sole function in life is to extract ever last ounce of energy and spirit from your employees whilst paying them a pittance.
Well I'm glad you've got that off your chest!
In fact the arguments made by BnB are exactly the same as those we heard made against the introduction of the minimum wage.
> Well I'm glad you've got that off your chest!
> In fact the arguments made by BnB are exactly the same as those we heard made against the introduction of the minimum wage.
Not exactly. I opened by explaining that I'm in broad agreement with the policy and I encourage all my staff to partake to the fullest extent they are able/willing. I was simply pointing out that there are limits to what can be achieved by coercion of employers before the system breaks down. The new pension rules mean that employers pay tax of 17% on almost every penny paid to any employee, irrespective whether the company makes a profit. The government has to find a sweet spot which doesn't harm job creation or cause consumer prices to rise. I never argued against the policy, only that it has limits.
> A rather narrow view. Alternatively, lower costs to the state supporting pensioners > lower taxes > more competitive environment for business. Or, higher wage economy > highly skilled jobs>less susceptible to automation> more competitive globally.
How does forcing construction firms to set up a company pension scheme for its bricklayers increase the proportion of patent lawyers or chemical engineers in the economy? I don't follow your logic.
Let's face It, most well paid professionals already have good pension schemes. The pension legislation is aimed at disciplining lower income groups to save for a future that the state won't be in a position to insure. It's one of Gordon Brown's more far sighted achievements.
Is contributing to your employees pension a tax? The ultimate result of employers spending as little as possible on wages has been a vast taxpayer bill for in work benefits and a retired population dependent on the state.
> How does forcing construction firms to set up a company pension scheme for its bricklayers increase the proportion of patent lawyers or chemical engineers in the economy? I don't follow your logic.
It doesn’t directly, of course. But generally high wage economies have higher skilled jobs for the reasons you outlined. It’s your conclusion that’s wrong - high wage economies don’t have no jobs or companies.
> Is contributing to your employees pension a tax? The ultimate result of employers spending as little as possible on wages has been a vast taxpayer bill for in work benefits and a retired population dependent on the state.
I'm using the "word" tax to mean a payment mandated by the state, which absolves the state of its financial burden. It's calculated exactly like Employer's NI.
If I spent as little as possible on wages I'd have no staff. In the last 5 years, I've issued new shares in the company with the effect of granting a substantial proportion of the ownership of the company to my employees. That gift might ultimately be motivated by a form of self-preservation but I reject the assumption that all employers are evil.
> It doesn’t directly, of course. But generally high wage economies have higher skilled jobs for the reasons you outlined. It’s your conclusion that’s wrong - high wage economies don’t have no jobs or companies.
I didn't conclude anything of the sort. You're perverting my reasoning. I was simply pointing out that actions have a reaction. Have you pondered that the continuing depression of wages despite reasonable growth in recent years might have something to do with the new pension rules?
If you subtract 4% of the total cost of staff wages out of the company's coffers you reduce the pot available for salary increases.
Before you argue that corporation tax has been cut to swell company coffers you need to consider that the tax on dividends (profit distributions to shareholders) was increased at the same time to neutralise the benefit. Bizarrely, only overseas owners get the benefit without the penalty.
The state is making it the default option to save for a pension. Employees can opt out. What financial responsibilities are they absolving themselves of? If anything, companies have been absolving themselves of the need to help employees with their pension provision.
That you consider money that goes to your employees a "tax" doesn't reflect well on you.
If you can't see that the government is foisting its former obligation to pay a state pension onto employers and employees then there's no point in continuing the conversation.
It hasn't gone unnoticed that you regularly take the opportunity to issue little smears against my character and professionalism. I'd hope that these threads are enhanced by the possibility of debate afforded by the alternative and valid viewpoint of an experienced employer. As you can't be civil I'll have nothing more to do with you or your preconceptions.
> If you can't see that the government is foisting its former obligation to pay a state pension onto employers and employees ...
Is that the position though? The state pension still exists of course.
It's already inadequate today and, with the surge in the ageing population, the sums don't add up for its prospects of keeping pace in the near future, let alone thirty years from now.
For the third time, and for the above reason, I'll state that I think the auto-enrolment scheme is a good policy.
Genuinely, what smears are these? I seem to remember a misunderstanding about lieing which I apologised for unreservedly at the time. Might not even have been you. It won't take you long to find them, I don't post a lot.
I think we disagree on who should pay for their retirement. I think an individual, supported by legislation that requires employers to help then. You think the state. I'd think it was obvious that if individuals don't do it, then your employers NI will likely rise to pay for it.
Every single one of my employers, private and public sector has contributed to my pension. It's not exactly groundbreaking.
I maintain that money that goes to your employees is not a tax and using emotional language like that does you no favours.
I'm sure you're very professional.
> It's already inadequate today ...
The relevant question is whether or not it's now worse in real terms than its historical average. (I can't find figures on that just now.) If it's not declining in real terms then your 'foisting' claim would be incorrect.
> ... and, with the surge in the ageing population, the sums don't add up for its prospects of keeping pace in the near future, let alone thirty years from now.
Let's see the detailed figures.
(I am not saying that the state pension is a sufficient income, by the way. That's a separate question.)
I would agree with you on the State transferring the burden to employers (and employees).
Me. I have no way of adding to my Single State Pension payable at 67. Gone is the additional SP which was effectively a defined benefit scheme provided by the gov. I would pay into a scheme allowing a person add to their standard entitlement. The new Single State Pension, at £8.2k, is well below the living wage and also short of minimim estimates required for a 'decent' pension income, at £13k.
> I'm using the "word" tax to mean a payment mandated by the state, which absolves the state of its financial burden. It's calculated exactly like Employer's NI.
The minimum wage could be argued to be a tax on the same basis. As sensible people, I am sure that we can agree it isn't. As employer pension contributions are part of a pay package, except in this case deferred, they are no more a tax. All payment to or on behalf of employees absolves the state of some financial burden.
> The relevant question is whether or not it's now worse in real terms than its historical average. (I can't find figures on that just now.) If it's not declining in real terms then your 'foisting' claim would be incorrect.
The burden stands to increase substantially for demographic reasons. These multiply the costs irrespective of the performance of pensions relative to CPI/RPI. The new regulations give the state flexibility on the size of the state pension and the age at which one qualifies, which is rising, thereby shifting the burden.
> Let's see the detailed figures.
Seriously? You can't google "old age time bomb"?
> The burden stands to increase substantially for demographic reasons. These multiply the costs irrespective of the performance of pensions relative to CPI/RPI. The new regulations give the state flexibility on the size of the state pension and the age at which one qualifies, which is rising, thereby shifting the burden.
The retirement age for many/most private pension schemes also now track the state pension retirement age, don't they? If so, it nullifies your argument.
> Seriously? You can't google "old age time bomb"?
Sounds like a tired cliche.
Curiously enough, the second hit when I type in your phrase is this: https://www.independent.co.uk/life-style/health-and-families/health-news/britains-old-age-time-bomb-may-have-been-exaggerated-say-experts-8935649.html
More news on USS
UUK press release hardly looks like they smell blood:
Jo Combo from the FT with some awkward facts on timing:
Cambridge VC view:
The battleground for the dispute seems to be primarily social media based and that means the UUK message has been challenged and proven wanting, especially the valuation methodology and the USS employers consultation, mainly by bloggers but a few brave VCs and the odd journalist in a way that students in particular find believable and hence, I think their stronger than expected ongoing support for the industrial action.
What's the source of the statement Combo quotes? She doesn't make it clear.
(Cancel that: I see it's from the Pensions' Regulator.)
I think its impossible to accurately judge the so called timebomb. The latest data on mortality rates show the poor have much lower longevity on average than the middle class and the timebomb costs would be much larger for the poor. I see significantly increasing stress levels in bulk professional public service roles (teachers, lecturers, nurses, doctors, police, etc) leading to much shorter lives than those who retired 10 to 30 years ago. Our Social Care system seems almost designed to suck money from the middle classes and the NHS and reduce longevity to boot. General health levels seem to be declining as illustrated by increases in obesity and type II diabetes, especially worrying in children. On the other hand medical improvements will keep people alive for longer if people can access them. Overall I can see average lifespans, where increases are already stalling, start reversing quite soon.
> It's already inadequate today and, with the surge in the ageing population, the sums don't add up for its prospects of keeping pace in the near future, let alone thirty years from now.
> For the third time, and for the above reason, I'll state that I think the auto-enrolment scheme is a good policy.
The stated intent of the policy is good, but the implementation is bad. The main issue is that employees have to go with whatever provider the employer chooses for them. It therefore encourages the employee to be passive.
Therefore competition is low between providers, value for money poor, and I suspect, in fact, I know, that million of people will discover in 30 years that their pension pot has gone nowhere.
I have pension pots with 5 different providers and they all performed vastly differently. If the employer put you with one if the bad one then you are pretty much screwed.
I recommend standard life btw, so far the best !
Auto enrolment is good and my employees have taken to it like a duck to water.
Howver the contribution needs to be about 20% imho to make it worthwhile .
> Auto enrolment is good and my employees have taken to it like a duck to water.
Yes, agree, but would be better if they could chose their own provider.
> Howver the contribution needs to be about 20% imho to make it worthwhile .
> The stated intent of the policy is good, but the implementation is bad. The main issue is that employees have to go with whatever provider the employer chooses for them. It therefore encourages the employee to be passive.
> Therefore competition is low between providers, value for money poor, and I suspect, in fact, I know, that million of people will discover in 30 years that their pension pot has gone nowhere.
> I have pension pots with 5 different providers and they all performed vastly differently. If the employer put you with one if the bad one then you are pretty much screwed.
> I recommend standard life btw, so far the best !
I'd be wary of basing your recommendation on the past performance of any provider. Asset managers move jobs too. And buying into a fund whose underlying asset prices have already soared can be riskier.
As most people change jobs every few years the younger workers will likely end up with several pensions. Older ones probably have a few already. I have six or seven going back to the days before I became the employer, none of them substantial. At one point they were all with different providers. Today, M&A in the pensions sector means they've mostly united under Aviva, Royal London and L&G.
For our company scheme I chose the pension company with whom I have the most invested. It seemed the right choice to align our interests.
> Auto enrolment is good and my employees have taken to it like a duck to water.
> Howver the contribution needs to be about 20% imho to make it worthwhile .
Take up is 100% among those over the eligibility threshold at my firm. And yes, 20% would produce the "right" size of pension.
However, working towards a 10% employer contribution would constrain employers' ability to give any meaningful pay rises for a considerable period, exacerbating and extending the nationwide fall in disposable income.
> I'd be wary of basing your recommendation on the past performance of any provider. Asset managers move jobs too. And buying into a fund whose underlying asset prices have already soared can be riskier.
The main difference ares in the fee structures.
I like the Australian system because you can choose your provider. Typically they have much better pensions and much better value for money. You also have the option to take out of your pension for a first home deposit, which makes sense.
Low fees beat 'clever' management because on average management and nobody else knows how to be 'clever' next year.
> Low fees beat 'clever' management because on average management and nobody else knows how to be 'clever' next year.
Well yes and mostly because most pension funds dont manage the fund themselves. They just resell you someone else's product, usually blackrock...
Clearly you are not involved in the admin of the scheme! It would defeat the object if both the employer and the employee had this sort of choice...nightmare.
The big plus is that employees are being told what to do...simple opt in or out. Most employees unfortunately just find the choices in pensions overwhelmingly difficult or complex.. You have to have a reasonable nous to figure out the best option, even then you may get it wrong.
Oh and Standard life is fine ( brillaint pension scheme provider with good returns, but their auto enrolment scheme is poor unless you have a serious number of employees.
I agree although I suspect that within 10 -20 years it will be at that level.Something has to give in the future.
My accountants/ financial advisers view it as not a question of if but when, along with virtually zero state pension.
Every business owner I know says that the scheme has been a success and have been surprised. I think alot expected employees to opt out, which has not happened.
Might get those in the University scheme to understand what is happening out there for other businesses etc.
> The retirement age for many/most private pension schemes also now track the state pension retirement age, don't they? If so, it nullifies your argument.
> Sounds like a tired cliche.
> Curiously enough, the second hit when I type in your phrase is this: https://www.independent.co.uk/life-style/health-and-families/health-news/britains-old-age-time-bomb-may-have-been-exaggerated-say-experts-8935649.html
The problem is the 'dependency ratio' - number of taxpayers versus number of pension claimers. The 'bulge' of baby-boomers in the population changes this ratio for the worse at a time where the costs upon the State increase massively due to medical inflation. Lots of people stop paying into the sytem, start taking out, and start needing expensive healthcare. Cancer drugs can easily cost £30k per head per year, and lots of people now get old enough to get cancer instead of dying from smoking earlier. All the above is probably why immigration of young workers isn't being discouraged. It's fine if the workers come in, pay tax, then go back home and don't become a burden on the State in their old age. If they stay and have huge families the benefits of bringing them in disappear.
> Clearly you are not involved in the admin of the scheme! It would defeat the object if both the employer and the employee had this sort of choice...nightmare.
Why ? It is the case in Australia and the system is the envy of the world.
> The big plus is that employees are being told what to do...simple opt in or out. Most employees unfortunately just find the choices in pensions overwhelmingly difficult or complex.. You have to have a reasonable nous to figure out the best option, even then you may get it wrong.
yep, and no offense but employers, especially small ones, have no clue as to what is best fir their employees, they may have vested interest in choosing one provider over another, and don’t have much of an incentive to do due diligence. More importantly, each employee will have different needs.
If employees had the choice, they would be involved more actively in their pension, in the current system, you are basically encouraged to just be passive, whilst a significant chunk of your money goes into some fund you have no clue about and had no say in choosing.
And what happens when customers are just putting money in without asking questions ? They get ripped off big time and torn a new asshole. Most the plans currently charge 0.5% to 1% fee even though most are basically just a bunch of trackers with very little management involved.
In large parts this is what has made the success of the Aussie system, as talking about what’s the best pension fund and how much you save around the barbie has become a sort of national past time ;-)
Is it- never heard of it-- and I regularly speak to/deal with Aus. I will ask next week and come back to you on that.
I suspect that most employers in the uk would not have a clue what best fits their employees.... and at what point is it our responsibility.
Customers even sophisticated ones get ripped off in the UK( is it a rip off or a market adjustment). The sophisticated ones recognise this as a risk...and also plan for something to go pear shaped/ belly up.I am sure you do.
It would be far better if the education system addressed this, which in a way is what perversely the Aussies do well. For example their engineers are taught about finance and marketing, something which is distinctly lacking here.
don't think you'd want to ask University staff to be teaching about pensions at the moment apparently they don't know anything about valuations
which is nicely circular for the OP
LOL. Point taken....and we have got off topic..
True, there will be always some people who get ripped off. But at the moment I think that the vast majority of people in the U.K. pay double what they actually need to pay in “management fees” even though your money isn’t even being actively managed.
But mind you, it hasn’t happened by chance, the minister who devised the policy is now an executive for Royal London, so you see the problem...
I'd agree entirely, arguably a larger scandal in sums lost than PPI misselling and only slightly less dishonest given on average managed pension funds under-perform compared to index trackers. If you pay 2% more fees than you could and should then your pension is half of what it would be in 35 years. Same applies to a lot of investments.. bank products are often dreadful and the big name ISA funds can be heavily discounted in a share supermarket but many buy them direct at a much higher fee (again 2% more halves the value it could have been in 35 years). The government seems happy to see the little people getting ripped off.
Expressing fees as a percentage of capital is the sleight of hand. As a percentage of income they firstly appear very large and secondly the differences are much clearer.
How do you express fees as a percentage of income? Are you referring to the gain on the investment or the salary of the investor?
Woody Allen described a financial advisor as someone who will help you invest your money until there is none left.
Gain on the investment.
Capital £100, cost 1%(=£1), income £3 ,sounds ok
Captial £100, income £3, cost 33%(=£1) sounds rubbish but is actually what you are paying.
> Gain on the investment.
> Capital £100, cost 1%(=£1), income £3 ,sounds ok
> Captial £100, income £3, cost 33%(=£1) sounds rubbish but is actually what you are paying.
And you wonder why they don't choose the latter? Seriously though, it's not possible to predict the gain so I guess that's what they rely on. I'm well acquainted with financial management fees and they are pretty outrageous. Basically I get charged 1% for the recommendation of an investment. Seems reasonable enough. But then they charge me 1%pa for the lifetime of the investment while doing sweet FA. The trick is to change advisor whenever you get sick of being ripped off.
> But then they charge me 1%pa for the lifetime of the investment while doing sweet FA. The trick is to change advisor whenever you get sick of being ripped off. The trick is to change advisor whenever you get sick of being ripped off.
That's essentially what your typical pension fund is doing. Except that you can't change whenever you are sick of being ripped off, because you are stuck with whatever your employer chooses, and if you want to move the money to a different pension pot, they hit you with massive fees and an over complicated process
As much as I think auto enrolment and mandatory employer contributions are good, as long as there isn't effective competition and regulation clamping down on opaque fees and commissions, the system is currently a large scale state-sponsored scam. These pension funds perform worse than the markets, the only thing that makes it worthwhile is the tax advantage.
> And you wonder why they don't choose the latter? Seriously though, it's not possible to predict the gain so I guess that's what they rely on.
Although it’s not possible to predict capital either, we are repeatedly told! I think this is something regulators could act on. Fees as a percentage of capital are inherently misleading. The difference between 0.9% and 1% of capital sounds small but in terms of returns it is large.
The other side of the argument is if you find a good adviser -stick with them through thick and thin - and cough up the fees. The difficulty is finding good ones .
I have seen some really good ones and some you would just not touch with a barge pole .
what I find useful with the good ones is the balance and perspective they give. For that I am prepared to pay for it, even if in the end I go a different route.you need a sounding board, other than the internet!
> The other side of the argument is if you find a good adviser -stick with them through thick and thin - and cough up the fees. The difficulty is finding good ones .
> I have seen some really good ones and some you would just not touch with a barge pole .
I did happily(ish) stick with mine for 20 years but eventually the proportion of my investments that were simply "buy and hold" for 5 years at a time meant that I was paying ever increasing fees relative to the amount of advice worth acting on. I switched to a slightly more expensive advisor with a much more active approach. Yet the deal was worthwhile from the outset for the fact that the new bank took on the existing investments at a much reduced fee (0.25% I think) relative to the old provider (0.6%). New investment advice is more in line with traditional structures, as you'd expect.
The "smart" thing might be to switch adviser each time the investments rotate into the more expensive portfolio to re-base the advice costs. But, as you say, good counsel is worth keeping.
And yes, the sounding-board is very helpful, not to mention the depth of experience which might prevent one's most naive errors.
> Although it’s not possible to predict capital either, we are repeatedly told! I think this is something regulators could act on. Fees as a percentage of capital are inherently misleading. The difference between 0.9% and 1% of capital sounds small but in terms of returns it is large.
It certainly is. It does pay to negotiate. But that's not possible in many circumstances.
> It certainly is. It does pay to negotiate. But that's not possible in many circumstances.
The phrase 'actively managed', can certainly cover a wide range too.
I have been looking at some vct’s with some staggering fees on the gains of 20%.
There again the gains could be pretty high and worth a shot........
A very interesting open letter.
> And what happens when customers are just putting money in without asking questions ? They get ripped off big time and torn a new asshole. Most the plans currently charge 0.5% to 1% fee even though most are basically just a bunch of trackers with very little management involved.
Actually, autoenrolment fees are capped at .75%
A good post from Bob MacCallum to the UCU activist list. The first part....:
Before we get back to work, I just wanted to synthesise my thoughts on required/expected future pension fund investment returns that I have gleaned from a very simple model I developed during the dispute.
Early on I became uncomfortable with the "USS will be cashflow positive for 40 years" narrative because on the back of an envelope, ignoring pay rises and inflation, 40 years of contributions at 26% of salary X cannot fund 25 years of pension at 53% of salary X. (Hat tip actually to John Ralfe for challenging my tweets in his own inimitable style...) Of course, USS has regular income from its assets too (dividends on shares, "coupons" on bonds, and rent from property), so I'm not saying First Actuarial are wrong, but the scheme didn't just get given a massive pile of assets from nowhere overnight, so I wanted to look into what kinds of investment returns would be needed to support the DB promises we currently have. My model, a Perl script with source code here https://gist.github.com/bobular/d39472996ec5ec7ad7f6b85fbd983d72 (see also two previous versions with comments via here: https://gist.github.com/bobular/ )makes the following assumptions: A1. No inflation. All asset or salary growth numbers are assumed to be above inflation.
A2. No in-service death or other non-core benefits. The model considers only this: a single employee, paying in to a "pot" while working, taking a lump sum on retirement and drawing a fixed number of years of career-average-based pension from that same pot. The fixed number of retirement years needs to be the average expected - I have just used a value of 25 gleaned from Twitter, and haven't looked in detail at the demographic arguments.
A3. Career/salary progression follows a simple trajectory - some years of linear growth followed by some years of plateau up to retirement. An annual above or below inflation pay deal can also be applied.
A4. No salary cap and DB/DC split. It's pure DB with a very simple arithmetic mean career averaged salary used to calculate pension entitlement.
A5. All contributions go into the pot. No service charges, deficit contributions or other overheads are taken into consideration.
A6. Growth rates (e.g. asset growth) are assumed to be constant for the entire period. This is a big assumption! If the scheme really did maintain an individual pot for each person, then any poor asset growth in the early years would seriously affect their final amount.
A7. There's currently no way to model early leavers (e.g. those who stopped contributing some time before retirement). Late joiners (who cost more because their "investments" do not have as much time to grow) can be modeled by reducing the total number of years paying in. My ballpark figures below assume 40 years service followed directly by retirement.
In reply .... part2:
In reply part 3:
These calculations obviously indicate that subject to major economic problems (like Japanese stagflation) the scheme is comfortably affordable as of its September position and it seems to me that even then if major economic issues are what USS and tPR is worried about they need to explain that in contrast to the government forecasts (of all varieties). In such economic disasters all of us may be worrying about other things in our lives (Japan is a very stable country and they behaved calmly.. in the UK, US or EU I'd predict at best consequencies similar to those of austerity, at worst a financial and/or revolutionary system breakdown)
This also neatly explains why the coal miners pension scheme, which itself faced dire predictions ten years back, is currently in massive surplus (such that the government currently skims hundreds of millions annually).
The large DB scheme type is clearly a very good way to invest for pensions, due to the ability to ride short to medium term economic problems, that is oddly being valued by methods that exasperates short term issues, like QE depressed gilt values. For those like Coel, who seem to think DC will give the same outcome on averege (countered by experts they seem to predicting lower outcomes for technical reasons in like-for-like) the proposed fully DC scheme is a major problem because the money going in is less, so that missing income loses the employer contribution and the missing employee bit needs investing elsewhere (in practice a partial opt out from USS) and also because the money you get in your pension is a big individual risk depending on the exact numbers when you retire, as opposed to the guarantees of DB.
I do not disagree that pensions for younger people is an issue and they have a right to be angry about it..
The solutions are not easy.
It's worth remembering that the UK's last decade has by some measures been worse than Japan's lost decade - UK GDP per capita growth since 2007 has been worse than Japan's was after the bubble burst. And no-one (certainly not the OBR) is predicting anything much better for the next 5 years, at least. So there's a good argument that low asset yields aren't any more a short term problem, but the new normal.
USS assets have grown well above the 2% in those years: in fact since the scheme was last reorganised to be affordable ( just over 6 years ago) average USS asset growth has been about 12%.. I take AJMs point (and Bob's hint not too look too closely) that some of that growth may be illusary under the current valuation methodology, for various reasons (including in my view the methodology being broken) but equally, as I have said in response, government don't advertise those sorts of readjustments when they crow about their growth forecasts based on their economic strewardship (if USS takes that hit so will many other economic indicators); nor do they clarify the cognitive dissonance between the BoE point on the effects of QE on gilts and DB deficits and the tPR pressure on urgent reduction of DB deficits and worse still to derisk into gilts.
The results of doing nothing about it are even less easy... this will break the 'social contract' and I think will lead to serious political unrest. The rise of revolutionary and facist governments is built on such levels of social unfairness.
Yes, asset values have increased, but that's the mirror image of yields being low. In the long run you'd expect the total returns on any asset - gilts, property or shares - to more or less track real growth in the economy, so if the economy permanently slows down, then in the long run you'd expect returns to fall as well. There's no doubt that since the global financial crisis the economy has slowed down; the question is, was that a blip, or did something fundamental change? After 10 years it's looking less like a blip. The break is really striking - for more than 40 years, up to the GFC, real GDP per person increased with great regularity by 2.3% per year. But the *total* growth in real GDP per capita from 2007 to 2017 was only 3.5%, and the OBR is predicting growth rates around 0.8%. We really are in a new period of slow growth that's pretty much unprecedented in living memory.
Which in economic terms would be a major disaster, that the government(s) are (dishonestly) not even talking about as a possibility, with the potential consequencies I mentioned. I'm more optimistic... scientific advance brings new unexpected growth areas and new efficiencies. In any case USS has historically never been close to being in that position as yet for long term asset growth (even including the 2008 crash).
To repeat the argument with AJM, USS growth isn't entirely the same as yeilds being low as they are outperforming the pensions sector and unlike many 'investment' vehicles they don't charge annual percentage fees. Thats if you trust the gilts plus model for valuation in the current economic circumstances. Tables comparing long term gilt growth to equity growth often fails to include re investment of dividends, which makes a huge difference.... an example from the Barclays equity gilt study:
"If you had invested £100 in the UK stock market in 1945, the nominal value of the shares you would now own would be worth £9,148 after inflation. Not a bad return. But if you had reinvested the dividend income you had received over this period, you would be sitting on a nest egg of £179,695."
> Yes, asset values have increased, but that's the mirror image of yields being low. In the long run you'd expect the total returns on any asset - gilts, property or shares - to more or less track real growth in the economy, so if the economy permanently slows down, then in the long run you'd expect returns to fall as well. There's no doubt that since the global financial crisis the economy has slowed down; the question is, was that a blip, or did something fundamental change? After 10 years it's looking less like a blip. The break is really striking - for more than 40 years, up to the GFC, real GDP per person increased with great regularity by 2.3% per year. But the *total* growth in real GDP per capita from 2007 to 2017 was only 3.5%, and the OBR is predicting growth rates around 0.8%. We really are in a new period of slow growth that's pretty much unprecedented in living memory.
Asset prices tend to reflect the global economy not the UK one. 60-70% of FTSE100 earnings are made overseas. And that presents a very different picture. Furthermore, asset prices in the short term reflect investor confidence rather than profits or economic growth, with p/e averages fluctuating over a wide range. In the long run, they do broadly converge.
> unlike many 'investment' vehicles they don't charge annual percentage fees
According to the report and accounts, the investment cost for USS is 32bps of assets under management (Key figures a few pages in and p15). That's 0.32%. It doesn't get charged to you explicitly as a reduction to your benefits, but between your contributions and those of your employer you do pay it, just via another route.
I found something you might find interesting whilst looking for that previous info. In Bill Galvin's report, p5, there's the line:
"Most challenging for scheme funding levels, however, is that over the last year, a portfolio of gilts that matches our liabilities has returned over 20%, as yields have fallen"
So as the schemes assets have earned 12%pa, the assets whose cash flows most closely match the expected cash outflows of the scheme have been earning 20%pa (assuming time periods are consistent between those figs. I haven't checked)
So whilst in general over the long run you would expect to do better from an investment strategy more heavily into risky assets, over this particular period they'd have done better sticking the whole lot in some blend of mostly long dated gilts.
Gilt yields are derived from gilt market prices, so in some respects it's saying nothing different to the previous discussions about yields, but I thought the fact its approaching it via a comparison of two different asset portfolios (and in terms of prices - no "extrapolation" of yields requires, just actual observed asset returns over the period) might be an interesting and more intuitive way of looking at it.
> Which in economic terms would be a major disaster, that the government(s) are (dishonestly) not even talking about as a possibility, with the potential consequencies I mentioned.
To be fair to the government, the 2017 Autumn budget did acknowledge that rates of productivity growth would be permanently lowered (or to be accurate, the OBR forecast forced them to face this fact). It is indeed odd that this is not being talked about very much (a certain amount of coverage in the FT, and the Resolution Foundation has being doing a great job highlighting the last decade's wage stagnation, which is a direct consequence).
As regards "breaking the social contract" and the "serious political unrest" that this might give rise to, I think that ship's already sailed.
>I'm more optimistic... scientific advance brings new unexpected growth areas and new efficiencies.
Well, maybe, but you have to ask whether these unexpected growth areas will be in sectors that the UK economy can benefit from. The UK's very low research and development intensity, compared both to traditional peers like Germany and France and to rising countries in the far East, like China and Korea, don't make me very confident of that.
You need to go back well into the 19th century, I believe, to find a decade when productivity growth was so weak. So I don't disagree with you that collective investment vehicles are best, I do think there are some real issues underlying the questions of long-term sustainability, and we need to be careful about drawing many conclusions on the basis of post-war economic history.
I think that's about right. It seems to me we are basically finding that for various reasons we will be poorer in future than expected. While UUK have been high handed and opaque, UCU are believing their own rhetoric about what's possible. Neither are serving university staff well
Maybe your pessimism is because you don't know STEM research very well. The creativity that drives realy important growth producing research (as opposed to bean counting expenditure and outputs) is still doing much better in the UK than almost anywhere else and way better than the eastern economies. Where we lack is large scale development and the investment for that. We also do very well on the finance side of things. All economies gain from efficiency producing unpredicted step change (like say the arrival of the internet).
The scale of political unrest I'm thinking of hasn't happened in the UK yet but if we had Japanese style stagflation with the continuing levels of inequality we see now, that would be very likely. That would be an extistential threat to the whole economy.
Some UCU activists may well believe in financial magic (hardly unusual for some trots and their pals), but those I cite most certainly do not. Currently Mike is spending as much time critiquing the idiocy of some on the far left on the activist pages as he does on forensic evaluation of UUK, the employers and USS. UCU negotiators did their job and produced a compromise deal (one I regarded as rather weak but probably workable and it happened that way as UUK still underestimated how angry their staff are and gave too little). Branch memberships rejected that, often without any supporting votes... the membership are the guilty party if anyone is guilty, not UCU: those who voted and those who felt the deal was OK and didn't go to branch meetings and those who don't join UCU and sponge off their negotiating outcomes.
Very interesting... I'll reply later as its complex and I have a busy day. I can say all funds have costs and 0.35% is OK by me for the USS performance and a country mile from the fees on some investment funds that perform way worse.
No real quarrel about whether they're high or not: I was pointing out that they're still there just allowed for in a different way so maybe less visible. I dont think anyone gets to invest for free...
The fact that we lack investment in large scale development is pretty much the point. No matter how clever and creative your basic research is, if you don't have the funding and resources to scale it up to make a product you can sell it's not going to make a material contribution to the economy; the best you are going to do with it is license the IP or sell the company at an early stage to a larger overseas company. This might be a good outcome for you personally and for your university, but it doesn't lead to much in the way of jobs and wider prosperity. As for finance, that's been, since 2008, one of the most underperforming sectors of the economy in terms of productivity growth (probably reflecting the fact that much of its apparently high pre-crisis productivity was illusory).
Just to back that up, this is Mike from the list this am "The people at First Actuarial know what they're talking about. Sadly, as Bill Galvin has been able to exploit, many of the other lines of criticism that UCU members have concocted in their basements are ill-informed and easy to debunk. These home remedies are not helpful to scheme members."
All well and good but lack of investment in UK development has been with us since the 1980's and we did well enough despite that.
Not so, the big fall in applied R&D (both business and government) was in the late 90's/early 2000's, partly a result of privatisation of the utilities, partly a conscious withdrawal by government from "near market" research resulting in a run-down of public sector research establishments, partly the turn in business to "shareholder value" resulting in the breakup of the old industrial combines like GEC and ICI.
Latest from Mike:
It started in the 80s. I was in a big R&D company working with the many of the other big industrial R&D players and government research centres from 1980 to the late 80's and I watched it happen. Everything became target focused with silo budgets which destroyed some of the best collaborative development work. Graduate apprenticeships stopped alongside much other government developments support. The probable gutting of major manufacturing was the biggest issue of discussion when I did about 20 industrial visits in the midlands in 1980, and with family friends in the iron and steel business.
Yes, I'm happy to agree with you that the process started in the 1980's - if you look at the R&D intensity numbers that's when the fall began, but it continued pretty relentlessly - I think 2004 was the low point, since when it's plateaued. What I'm puzzled by is your optimism that this makes no difference to long-term growth rates (not that I'd claim it's the only factor by any means).
The key point, though, is this - economic growth stalled in 2008, and 10 years on it remains stagnant, and I've not seen anyone with any kind of credible argument why this might change any time soon, our excellent science base notwithstanding.
I'm optimistic because the biggest boosts to growth in the past that were not based on exploitation of resource or cheap labour elsewhere were always unpredicted. I look at the improved collaboration of industry and academia in STEM and its a big positive change from a decade ago.
Talking of exploitation there is one group who can be forgiven for being nervous about their support strike action: tier 2 visa holders. shamefully any strike day can be regarded as one day in their 4 week maximum for unauthorised attendance and only a small minority of USS employers (led by Cambridge) have said they will not exploit this:
Statement in support of the right to strike for international staff
Sign here: https://goo.gl/forms/On0xmf7t6BUeW0kA3
We, the undersigned, commit to defend the right to strike for all workers in the UK, including international staff.
Our universities are international communities; in 2014-5, 13% of academic staff, 4% academic-related staff and 36% PhD students were foreign nationals from outside the EU.
During the past four weeks, we have experienced the diversity of our international community on the picket lines, where we stood shoulder to shoulder in the struggle. This unity and participation has been key to our confidence and success in the first round of industrial action. However, punitive requirements applicable to Tier 2, 4, and 5 visa holders are a direct threat to this wonderful unity in action. In particular, we note that staff on Tier 2 visas cannot be absent from work without authorisation for 4 weeks or more in any one year.
We must defend the right of our international colleagues to strike without fear of victimisation. UCU has written to Home Secretary Amber Rudd, asking for clarification on the right to strike for international staff. We must also fight to get concessions locally. Cambridge University UCU demanded and secured a concession from the Vice Chancellor, who has agreed that strike days will not be counted as ‘unauthorised absence’. We demand other Vice Chancellors follow Cambridge's example.
We stand shoulder to shoulder with our international colleagues and we demand their right to strike without fear of victimisation from the Home Office.
An injury to one is an injury to all.
> Maybe your pessimism is because you don't know STEM research very well.
I'd suggest that few on this forum know STEM research better than Richard J !
Bear in mind that people at some institutions are still on strike today and tomorrow (i.e. they are still in the middle of this dispute - and with more to come) so now is not the time for a post-mortem. However:
> Some UCU activists may well believe in financial magic (hardly unusual for some trots and their pals)
Characterizing people as 'trots and their pals' is just unhelpful playground stuff.
> UCU negotiators did their job and produced a compromise deal
The negotiators did 'a' job. Whether they did a good or expected job is questionable on account of what appears to be a wholesale rejection of the deal - and in particular anger at the idea that work not done during the strike should be done 'for free' later on. That's both a ridiculous suggestion, and a completely impractical one.
However this all relates to a point I made (on another thread) right at the start of this: since there is no actual 'log of claims', no one can be sure what deal is or isn't acceptable.
> Branch memberships rejected that, often without any supporting votes... the membership are the guilty party if anyone is guilty, not UCU
The membership *are* UCU.
Beyond that, the fact that the deal was presented in haste (with the real idea that strike action would be called off immediately were it accepted) whilst there was no real way of having an immediate democratic vote on the deal, points to a failure of process. Which again relates to my previous 'log of claims' comments.
> Not so, the big fall in applied R&D (both business and government) was in the late 90's/early 2000's, partly a result of privatisation of the utilities, partly a conscious withdrawal by government from "near market" research resulting in a run-down of public sector research establishments, partly the turn in business to "shareholder value" resulting in the breakup of the old industrial combines like GEC and ICI.
The ERDF/innovate UK and EU Framework programmes from V through to H2020 did a reasonable punt at plugging that gap. All unfortunately up in the air now.
> I'd suggest that few on this forum know STEM research better than Richard J !
You’d be surprised......
> The negotiators did 'a' job. Whether they did a good or expected job is questionable on account of what appears to be a wholesale rejection of the deal - and in particular anger at the idea that work not done during the strike should be done 'for free' later on. That's both a ridiculous suggestion, and a completely impractical one.
I assume that they're not paid whilst they're on strike?
correct, I think Cambridge has said it won't deduct pay if they do their catchup teaching
> I assume that they're not paid whilst they're on strike?
Correct. Nobody on strike gets paid.
> correct, I think Cambridge has said it won't deduct pay if they do their catchup teaching
No. Cambridge (its VC) has said it won't deduct pay for 'action short of a strike.' That's a different matter.
sorry my mistake, i just went and read his full statement. still a lot more than our VC who is being very quiet
I used to be more adult about trots but decades of trying to work with them knocked it out of me. I do respect a few, but really that's despite their politics. Its also not a post mortem until its all over.
It was the negotiators job to negotiate and they obviously felt they had tried as hard as they could in the face of the other side of the table. Realism in negotiation means that if there is no more movement you have to go back and consult the membership again, and if the deal isn't good enough (like in the J D strike) then a continued dispute results. Just to be clear I see the real problem as brinkmanship from UUK, who still don't get the level of real concern, not a failure of negotiation (as some activists unfairly implied). On the membership, I know of quite a few people who voted to strike but felt the deal was just about OK but also didn't want to go to branch meetings to say so, knowing the likely reaction there. That's a reality: branch meeting votes never match ballot results.
The reasoning around making up work was supposedly a misunderstanding: they were tying .to protect some in a casualised category but I don't have a clear picture on the detail why as yet.
I fully agree the membership are UCU... all of them... not just what the hardline activists say they are. About 10% voted against strike action in the first place. In this case I think support for the ongoing strikes is comfortably solid enough but in some past pay disputes (also after poorer than I'd have liked offers were made) I wasn't convinced the membership wouldn't accept the deal and polls subsequently proved me right (albeit the trots said the act of the poll was mainly what caused the polling to go agaisnt them... poor dispute leadership, plebescites and all that).
Bottom line, in such serious circumstances I think it is important not to grossly overstate support nor make up financial nonsense if you want to win. Especially in a pension dispute where USS and tPR are the main problems but not the employer.
More from Mike:
"Bill Galvin, via FT correspondent Josephine Cumbo, on the prospects of a reversion to the September valuation:
See my reply, in this separate twitter thread. Click and scroll up to the top for Galvin's amplification on reversion to September, and then scroll down for a series of tweets from me:
Oh and reminder of who Bill Galvin is and his massive hypocritical pay rise on leading on what he is portraying as a failing scheme requiring rescue.
The European money was useful but not at the scale needed to plug the gap. In round numbers UK got about a billion euros a year from FP7 and another third of a billion from structural funds (ERDF). But business R&D would need to be about £9 billion a year bigger for the UK to be at the OECD average. But as you say, losing that money would make things worse.
I assume Bill Galvin is a pensions guru and is not a " university employee" in which case his salary will be linked to equivalents in the market to run this type of scheme. Maybe your views on his salary need to be pegged to that. If he is good he will easily be able to command that salary elsewhere. His cv indicates this.
I'd be very happy for him to go elsewhere. I find those in leadership roles getting huge pay rises at the time their organisation is in trouble as immoral and a sign of failed governance. Bill is a special case as the Cheif Executive for USS: the main reasons the scheme is in as much trouble as he says it is are the proposals under his leadership, especially Test 1. His pay rise is about double the salary of the average scheme members and if he were honest, he would as a minimum have refused it, having failed USS under his own terms. There is no excuse for someone who was previously CEO at tPR .. what matters at these lofty heights is success, not CVs.
I have no issues at all with market payment for success.... those who have grown the assets in USS deserve high pay. He has overall responsibility for what has come about, a scheme in so much trouble he supported closing the main DB route, triggering this serious industrial action in a process that no one anywhere seems to be saying was handled well, so in my view really he should resign.
I imagine you may have seen already, but my wife received an email relayed from the trustee earlier on - a link to couple of articles also linked from the front page of USS.co.uk - might be of interest.
It might be the same thrust as the Bill Galvin post Mike replied to above (alledged misinformation from UCU.... true in some strictly technical terms but massively overblown in its implied effect, to almost propaganda levels, given it's activist output based on reasonable misunderstandings about the technicalities of the covenant (ironic one might say given the doom laden tone of the complaints the trustees make). The fundamental issue here, as Mike regularly points out, is the UCU First Actuarial advised view is technically correct in these respects and that's the formal basis of further negotiation. You can't hold a union as responsible for all its activists in the same way as individual management statements on the USS that have been pretty dumb can't be regarded as a UUK view. I'd add, UUK seems to be struggling more to hold a consistent line from its members than UCU is.
I think one of the articles is answering some of those points, some of which seem more logical misunderstandings than others! The other was an explanation of the process and some of the wider context. I found them fairly decent explanations, although I imagine I'm hardly the target audience so would be curious as to whether (agree with them or not) others found similar or different.
I've no objection to the logical application of their particular actuarial reasoning. It's their reasoning I disagree with (as does First Actuarial) but even more the way this was all handled, which was a complete c*ck up (albeit more the fault of UUK). I'd say they are no longer trusted in the actuarial argument from the media coverage, messages from top VCs etc. This is becoming more political and less about pension detail all the time... see for instance this article:
A wit's reaponse to the Trustee letter:
Thank you for your “Urgent update from the USS trustees”, which I received on 17 March 2018, and which helped to dispel some of the rumour and disinformation that has circulated around the pensions issue. It is a great relief to learn that I am not expected to live to 147 years of age.
A number of other even more scurrilous and damaging pieces of misinformation have come to my attention, and I hope you can clear up these pieces of mischief before they inflict further damage on the reputation of USS and the higher education sector.
What gives this rumour a particularly nasty edge is that after claiming that the running costs for the pension scheme are £125 million per year, including two staff members earning more than £1 million, the BBC correspondent quotes Mr Galvin as saying that the pension scheme is “excellent value”.
I think it would be a good idea to ask the BBC to publish a retraction, because this sort of rumour is likely to undermine the reputation not only of USS but of the higher education sector as a whole. I hope I will receive another urgent update on this matter as soon as possible.
2. An even more damaging piece of misinformation surrounds the results of the September 2017 survey of member institutions of USS. USS reported the survey found that 42% of employers wanted a lower level of risk.(2) This finding justified the “de-risking” exercise that increased the projected deficit in the pension fund and which ultimately gave rise to this unfortunate dispute. Could there be any greater mischief than the ugly rumour, originating with the Financial Times’s pension correspondent, that UUK “told the FT that Oxbridge colleges accounted for one third of the total wanting less risk” because Oxbridge colleges “are employers in their own right” and hence each college was counted as having an independent vote? (3)If a third of those wanting lower risk were Oxbridge colleges, this would mean that, beyond Oxford and Cambridge, the opinions of barely a quarter of the respondents to the survey justified the reduction in benefits that led to the strike."
"Anyone gullible enough to believe that USS would accept this sort of gerrymandering must think that we still live in feudal times! I think it is important that USS nip this story in the bud. It is the sort of thing that might otherwise lead to the complete collapse of trust in both USS and UUK.
The thing that worries me, though: how did hackers manage to plant these stories with the BBC and the Financial Times correspondents? Could this be part of a concerted digital attack by a hostile foreign power?
3. As if that weren’t enough, the rumour-mongers must have hacked into Cambridge University’s response to the September 2017 survey, in which one finds the following justification for lowering the level of risk: “The University (and the other financially stronger institutions) continues to lend its balance sheet to the sector, which contains the cost of pension provision for all employers. In a competitive market for research and student places the University would be concerned if this appeared to be having an adverse effect on the University’s competitiveness (by allowing competitor universities access to investment financing or reducing their PPF costs in a way that would not be possible on a stand-alone basis).(4)
No one could possibly believe that Cambridge University would be so selfish as to drive the whole education sector into turmoil in order to improve its relative position on the capital markets vis-à-vis other universities—or that the USS posture would collude with this sort of behaviour.
I hope you can see the urgency of correcting this bit of misinformation. The mystifying thing, though, is how someone has managed to plant the quoted statement in Cambridge’s response to the September 2017 survey, found on Cambridge’s own website. What evil force is trying to tarnish higher education in this way?
4. What USS must correct most urgently of all, though, is the following narrative: that in 1996, rather than build up a healthy surplus, USS permitted the employers to reduce their pension contributions from 18.55% to 14%, on the understanding that there would be no reduction in benefits; that the employers reduced their funding between 1997 and 2009, when hard times hit us all; and that when the fund was found to be in deficit, rather than ask the employers to pay a surcharge to compensate for their earlier reduction, USS instead instituted a series of reductions of benefits to the pension beneficiaries."
This story is the most damaging of all. Any child who has been immunised against profligacy by the fable of the grasshopper and the ant would recognise the impropriety in allowing the grasshopper employers to reduce their contributions in the apparently endless summer of 1997 to 2009, then requiring the employees (who, conscientious as we are, never reduced our contributions) to accept lower benefits in response to bad times. No responsible adult would let the employers get away with this, let alone an organisation like USS with fiduciary responsibilities. If we were to believe this story, we would have to believe that every time push came to shove, the independent chair of the Joint Negotiating Committee sided with the employers. That is not possible, because the very first words of the “urgent update” you just sent say that USS “has the primary duty to act in the best interests of the scheme’s beneficiaries”. No organisation would be so shameless as to allow itself to quote those words having permitted the employer to treat the beneficiaries in the way this mean-spirited story recounts.
I do hope that USS sees the urgency of dispelling the rumours that I have reported. If they continue to circulate, they will reinforce the belief that USS has acted as the servant of the most aggressive employers in the sector, who want to improve their balance sheet position even if that poisons relations between universities and their staff for a generation, destroys trust in USS and UUK, drives university employees into penury in their old age, tarnishes the reputation of the higher education sector, and thus does irremediable harm to the nation.
I look forward to your next urgent update containing apologies from all of those whose words and actions have brought USS and higher education into disgrace.
With my best wishes,
a USS beneficiary
(1) Sean Coughlan, BBC News education and family correspondent, “University Pension Boss’s £82,000 Pay Rise,” http://www.bbc.co.uk/news/education-43157711.
(2) “UUK Responds to USS’s Consultation on Funding Proposals”, https://www.uss.co.uk/how-uss-is-run/valuation/2017-valuation-updates/uuk-responds-to-usss-consultation-on-funding-proposals.
(4) Response to Question 3B, “University of Cambridge
Responses to Questions from the UUK Survey on the 2017 USS Valuation,” https://www.staff.admin.cam.ac.uk/general-news/uss-pension-valuation.
Some possible movement on the USS dispute:
What do you make of it?
There's an obvious concrete bit - it looks like the freeze until April 19 is being extended to employee (and employer?) contributions as well as benefits.
And then there's this expert panel which is going to be nominated by both sides and bring harmony and agreement where currently none exists. I'm more puzzled by this bit, just because I figure if agreements could be reached just by sitting down and working through things together we probably wouldn't be in the current situation in the first place? I'm not sure whether to interpret this as a meaningful change in how things will be run going forwards or whether it's just going to end up at loggerheads just without a casting vote (which is presumably the greivance with JNC?). What do you read it as?
I agree... such a panel risks being a rigid restatement of the two sets of actuarial views when an open mind and compromise is what is needed.
I always thought (and it has been some time since I last read it) that the First proposal was about a different investment strategy first and foremost, but that, in the form of the tests etc, is also within the remit of the panel so at risk of the same outcome unless the various attitudes to scheme risk have changed.
Possibly as much in terms of creative logistics as anything else, I'm going to be interested to see how this panel and USS relate to each other (in the sense that as trustees USS actually have responsibility for a lot of the things the panel will opine on, so how they find a way to fit it into that legal framework, whether this sits in USS or otherwise...)
Now this is news..., I suspect there will be a lot of angry activists when they read this but Mike to me has been consistently honest, and carefully analytical in this dispute.
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