Oxford’s and Cambridge’s role in the demise of USS

Michael Otsuka
5 min readFeb 12, 2018

To be more precise: what follows is an account of the role of these two universities, and their constituent colleges, in the demise of the Universities Superannuation Scheme (USS) as a multi-employer scheme that promises a decent, defined benefit (DB) pension to its members. In the past, this promise has been generous and affordable, owing to the risk pooling across 68 well-established UK universities that the last-man-standing mutuality of the scheme makes possible. It is clear, however, that Oxford and Cambridge now want out of such a DB scheme. The clarity of this desire is revealed in the following figure:

From “Development and Background to UUK/EPF Guiding Principles” (February 2017)

It is striking that 73% of “Oxbridge” institutions — which must include constituent colleges as well as the universities — register opposition to the mutuality of USS’s last-man-standing arrangement, as compared with only 14% of all other USS universities (designated ‘Pre-92’).

They want out on grounds that last man standing exposes them to too much risk arising from “weaker” universities. In their submission to the September consultation, Oxford writes that “the level of risk being proposed is not appropriate for all institutions and allowing weaker institutions to rely on the strength of other employers in a manner which makes their pension benefits appear affordable must be addressed”. They conclude that a “DC-only structure…would help reduce the University’s concern regarding underwriting the risk of future benefit accrual for other institutions”.

In their submission to the September consultation, Cambridge objects that:

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).

Although this may strike some as an uncollegial, dog-eat-dog attitude towards their academic peers, Cambridge assures us that this is in the service of the greater good of society: “the University wishes to protect the long term health of the University as a major asset to the UK economy”.

Regarding the mutuality of the scheme, Cambridge writes:

· The University has a strong preference for sectionalisation, if this can be arranged, of both past and future service benefits and associated assets, with individual employers responsible for funding individual deficit amounts and future service benefits.

· If sectionalisation is unacceptable, then the University would look for the covenant reliance [i.e., level of investment risk that employers carry] to be reduced much more quickly….

The following question arises: if Oxford and Cambridge so dislike the ‘we’re all in this together’ last-man-standing mutuality of the scheme, why don’t they just leave the USS?

The answer is that this would cost more than they are willing to pay, as it would trigger the need to buy out their liabilities on a ‘section 75’ basis. This is the cost of purchasing annuities from an insurance company that are on a par with the DB pensions they have promised their workers. This would be very expensive, since insurance companies fund annuities out of ‘liability-matching assets’ such as bonds, which have much lower expected returns than USS’s portfolio. USS has estimated that the purchase of such annuities would require the equivalent of about 60% of pay, as opposed to the current 26% contribution level for DB pensions.

Oxford and Cambridge have, however, devised another, less expensive (to them) way of leaving the DB scheme: namely, pushing for its closure across all 68 pre-92 universities, with the upshot that everyone leaves it. This explains why they have been making the case to university employers (UUK) that DB is so risky that future pension contributions should either be entirely or at least very largely diverted into individual DC pension pots. [Update: see this account of a leaked Cambridge email for confirmation of this hypothesis.] Oxford and Cambridge are the most prominent and apparently hawkish members of the 42% of employers who ‘broke’ the September valuation by calling for a lower level of risk than USS proposed. Against the contrary views of the other 58% of employers, USS obliged the wishes of this minority, thereby rendering DB unaffordable.[*]

Oxford and Cambridge have, moreover, been moved to take action against USS by an exaggerated impression of the genuine risks to themselves of the last-man-standing arrangement. It should be emphasised that USS employers have explicitly refused to pledge any property or other assets held by universities as security against pension liabilities. The unfunded liabilities arising from a university that goes bankrupt would, instead, be covered only by increased pension contributions earmarked for deficit recovery, spread out among the remaining institutions. Moreover, the increase in such contributions arising from universities going under would be very small:

· If the smallest 50 institutions (by payroll) default, the subsequent increase in contributions of other institutions (as a % of payroll per annum) is 0.001%

· If the largest institution defaults, the subsequent increase in contributions of other institutions (as a % of payroll per annum) is 0.1%

· If the median 10 institutions default, the subsequent increase in contributions of other institutions (as a % of payroll per annum) is 0.005%

If these two great universities are so worried about risk, they would be better off moving their constituent colleges and other buildings, stone by stone and brick by brick, out of the flood plains on which they lie and onto higher ground. That would be taking action against a greater risk to their existence than the mutuality of USS.

[*] Note: The individual constituent colleges of Oxford and Cambridge are among the 350 institutions that belong to USS. The 42% figure involves a headcount by employer. Since we have been able to identify so few universities that fall within this 42% (see comment thread), one wonders whether these colleges have been counted as many of these employers. If so, this 42% figure will have been inflated, in a manner that involves double-counting. Assurance from UUK that this is not the case would be welcome. [Update: Click this tweet by the FT pensions correspondent, and also read the thread below it, plus this tweet and the thread below it, for confirmation that the 42% figure was significantly inflated by inclusion of the colleges.]

This post turned out to be the first in a series of four on Oxbridge and USS. Here are links to the others: (2)Cambridge Colleges coordinated a rejection of USS’s proposed level of risk’, (3)The rotten boroughs of the Isis and the Fens’, (4) Updates on Cambridge’s and Oxford’s influence on USS. The last post includes links to further updates on Twitter.



Michael Otsuka

Professor of Philosophy, Rutgers. Previously on UCU national negotiating team for USS pensions.