Don’t object to the high cost of your own making

Applying the lesson of Prof Cohen’s kidnapper to USS

Universities UK objects to a union proposal on grounds that “it requires scheme members to pay much more for a reduced pension benefit”. UUK’s concern for our bank balances reminds me of G. A. Cohen’s kidnapper’s concern for the welfare of the child, which prompts him to plead to the parents to hand over the ransom money. The concern rings hollow in each case, since it is on account of the unjustified and reversible actions of the complaining party that large sums of money must now be paid. (For avoidance of doubt, I am not claiming that UUK is analogous to Cohen’s kidnapper in other respects, or that it is the moral equivalent, etc.)

On the union proposal under scrutiny, DB up to £55,550 would be retained, but with the accrual rate slightly reduced from 1/75 to 1/80. (DC would remain as is, except that the unpopular voluntary 1% DC match would be eliminated.) This proposal could be funded by a modest increase in contributions — a little more than 1% for members and 2% for employers — on the assumptions of the valuation that USS proposed in September.

Unfortunately, a 42% minority of employers ‘broke’ that valuation by declaring that “My institution wants less risk to be taken, acknowledging the implications this might have for benefits and/or costs” (my emphasis). Against the wishes of 58% who accepted the proposed level of investment risk or a higher level, the opposition of 42% prompted USS to revise their valuation in November by speeding up an expensive ‘de-risking’ of the portfolio out of growth assets and into bonds (to almost no good purpose, by the way).

On this revised valuation, the union proposal would require a higher 2.9% increase in member contributions and 5.5% increase in employer contributions. It is these large increases that UUK rejects as unaffordable. But the unaffordable is now required only because of the 42% minority of its members that UUK is standing behind without good justification.

If UUK instead sides with the 58% majority of its members, and joins with the union in persuading USS to do the same by reverting to the September valuation, it will be possible to preserve a pension scheme almost as good as at present, out of a relatively modest increase in contributions.

If UUK is really so concerned about how much members would have to pay for the union’s proposal, they should simply abandon their stance that low risk is intolerable when shared by 350 institutions but high risk is fine when borne by workers individually.

Written by

Professor, Dept. of Philosophy, Logic & Scientific Method, LSE

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store