Wadham College Statement on USS Pensions

26th April 2018


A statement from Wadham College Governing Body in relation to proposed reforms of the Universities Superannuation Scheme (USS).

This statement is intended to inform Oxford University of the view of the Governing Body of Wadham College in relation to proposed reforms of the Universities Superannuation Scheme (USS), so that the University is able to incorporate this in its future representations on behalf of all parts of the collegiate University.

It is firstly to be recorded that all members of Governing Body are both Trustees and also employees either of the College or the University or both, and therefore in matters of remuneration they are faced with a Conflict of Interest between these two roles. While bearing this conflict in mind, this statement represents the opinions of the members of Governing Body in their role as Trustees, and it flows from their concern that the College should remain an attractive place of employment for the very best scholars from around the world. It has been approved by the College’s Remuneration Committee, which includes independent external members.

Pensions are at the heart of universities’ ability to recruit, retain, and motivate staff. They should be considered as a central component of universities’ employment conditions. The strength of feeling expressed about diluting or extinguishing universities’ defined benefit (DB) pensions demonstrates the importance and value that employees attach to them.

DB pensions are enabled and supported by the uniquely robust covenant of the university sector. They represent a distinctive attraction of working at universities and provide a motivation for employment that is increasingly rarely found elsewhere. DB pensions should remain a core feature of university pensions. Coming only a few years after the last restructuring of the USS package, we see any decision to abandon DB as a failure of university management.

The focus on “de-risking” the USS pension fund by shifting its investments from higher return equities to lower return gilts obscures two ways in which risks would actually be increased by closure of the DB scheme. First, conversion from DB to DC shifts risk from employers to employees who in general will be less able to assess the risk that they are taking on, and will have little ability to mitigate the risk once in their old age. It intensifies gender inequality since higher female life expectancy makes female retirees dependent on pensions for longer periods with greater risks of exhausting their savings. The impact on pension burdens of enforced retirement under the Employee Justified Retirement Age (EJRA) is a further relevant consideration in this regard.

Second, shifting investments from equities to government securities may reduce risk in terms of volatility but increases it by raising the likelihood of the fund being unable to service its long-term obligations from lower yielding government securities.

The College recognises the need to perform periodic assessments of the fund’s financial health and accepts that consequential corrections to benefits and contributions may be occasionally required. However, these considerations should not mask the benefits that come from a fully funded pension scheme that provides mutual insurance among its members and exploits member institutions’ long-term planning horizons. The valuation exercise should therefore be reformulated on the assumption that the DB section of the scheme will remain in place for the foreseeable future, while foreshadowing periodic testing and adjustments to maintain its affordability.

Once this is recognized then attention appropriately shifts from posing questions about the value of pension fund assets in relation to their liabilities to a consideration of the degree to which projected earnings can cover future payments. In particular, the relevant questions switch from largely subjective and imprecise valuations to income and expenditure projections based on a range of assumptions about the composition of the fund’s investments.

Wadham College takes the view that the debate so far has been driven by results of a flawed valuation methodology, using questionable premises that have given insufficient attention to the role, importance, and sustainability of pensions and the competitive position of UK universities’ staff employment. An independent valuation of the USS scheme is a welcome proposal provided that it looks at a broader range of issues about methodology, assumptions and strategy than just the calculation of valuations.

The current dispute has been extremely damaging to the UK university system and we welcome the agreement that has been reached. We urge Oxford University to use this as an opportunity to promote a more constructive and imaginative consideration of the way in which the currently prized system of pensions can be strengthened and enhanced rather than sacrificed on the grounds of questionable valuations.