Frank Field MP
Your MP for Birkenhead
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MPs probe university sector’s £12.6bn pensions deficit


23 August 2017
FT

The parliamentary committee that took on Philip Green over the BHS pension scandal is now probing how the funding hole at the UK university sector’s main retirement fund doubled to £12.6bn in three years.

Frank Field, who chairs the House of Commons work and pensions committee, has written to ministers, the Pensions Regulator and the trustees of the Universities Superannuation Scheme seeking answers to why the fund’s finances had deteriorated so sharply.

The USS provides pensions for academics and has more than 390,000 members spread across 350 universities.

In annual accounts published last month, the USS reported that the shortfall between the fund’s assets and liabilities had widened from £5.3bn in 2014 to £12.6bn at the end of March this year. When measured using an accounting principle used for company reports, the deficit soared by £9bn over the year, to £17.5bn, the largest on record for any British retirement fund. This accounting deficit is not used to set pension contribution rates.

John Ralfe, an independent pensions expert, has warned that the options for fixing the pension fund’s ballooning deficit were “unpalatable”.

Mr Field said the prospect of students incurring higher tuition fees and student debt, in part to cover the burden of historic defined benefit pension entitlements that they themselves would never enjoy, was an important issue of intergenerational fairness.

“This is an opening skirmish,” he told the Financial Times. The pensions shortfall is the latest scandal to hit British universities following growing concerns about soaring vice-chancellor pay, the rising debt burden on students, and fears over whether those attending higher education are getting value for money from their courses. In letters to the regulator and David Eastwood, vice-chancellor of the University of Birmingham and chair of the USS board of trustees, this month, Mr Field said the “large and growing funding gap” in the USS scheme was giving rise to “serious concerns” about how the fund would address the deficit and what implications it might have for universities.

Mr Field also questioned the regulator over decisions in 2011 and 2014 that allowed the USS to stretch its deficit repayment plan to 10 and 17 years, respectively.

He asked the regulator what involvement Bill Galvin, group chief executive of the USS, has had in discussions between the USS and the regulator. Mr Galvin was chief executive of the Pensions Regulator for three years, until 2013. The Pensions Regulator said it remained “closely engaged with the trustees of the USS regarding the funding of the scheme as part of our role to protect member benefits and the Pension Protection Fund”.

“We do not comment on specific pension schemes or employers unless it is appropriate to do so,” it added.

Universities UK, the representative body for universities, said it would send a “full response” to a letter Mr Field had sent to its president, Janet Beer, who is vice-chancellor of the University of Liverpool.

Universities UK said: “It is clear that changes need to be made to ensure pension costs and risks are controlled and these issues are being addressed.”

The USS has said that the main reason for the ballooning deficit was a large drop in long-term interest rates, which has inflated liabilities. The fund’s assets grew 20 per cent, to £60bn, in the 12 months to the end of March but did not outpace the growth in liabilities over the period. USS said that the pension fund was currently undergoing its 2017 actuarial valuation, which determined the contributions needed from employers to close the deficit.

“The deficit is unlikely to be as large as the £12bn shown in our annual accounts and remains within affordable levels for sponsoring employers,” it said.

But it added: “The lower expected returns on assets will increase the cost of future pensions and our stakeholders, Universities UK and the University and College Union will need to decide how to respond.”

Mr Field has also written to Jo Johnson, the universities minister, questioning the role of university vice-chancellors who also oversee the pension fund.

“Jo Johnson is concerned about the rate of pay vice-chancellors are awarded and this is a way for him to say, ‘how can you justify these sort of awards when some of you sit on your pension fund, and you steering it on to the rocks’,” Mr Field said.

In response, Mr Johnson said: “When students and taxpayers invest so heavily in our higher education system, value for money should be guaranteed. That’s why I have repeatedly called on the sector to exercise restraint and put an end to the upward ratchet of vice-chancellor pay.”

Mr Johnson added that he would be “issuing new guidance” to the new sector regulator, the Office for Students, to “use its powers to address this problem”.

Josephine Cumbo, Financial Times


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