What is a pension and why does it matter?
A pension is a way of saving for retirement, which everyone should do to have a comfortable life after they stop working. Workplace pension schemes – where a portion of your salary is automatically paid into a pension – are a good way to save for two reasons: 1) your contribution is deducted before tax (tax-free savings!) and 2) your employer also contributes. In fact, it is mandatory in the UK for your employer to enrol you in a pension scheme, though you do have the right to opt out.
What pension do I get at Cambridge?
The Universities Superannuation Scheme (USS) is the pension scheme for Cambridge staff who are:
- Academics (i.e. lecturers, teaching officers, professors)
- Researchers (i.e. postdocs, research associates, research fellows, early-career researchers)
- Academic-related (i.e. professional and support staff, mostly in Grades 7 and above)
USS is one of the larger private pension schemes in the UK and is paid into by staff at hundreds of universities, including the 31 Cambridge Colleges (which are separate legal entities and have their own contract and pension arrangements with their staff).
USS members currently pay 9.6% of gross (pre-tax) salary into USS, while the University contributes an amount equivalent to 21.1%. This pays for the pension members receive on retirement, plus a few other benefits, such as a pension for their spouse/children when they die.
USS is primarily a “defined benefit” (DB) pension scheme. In this kind of pension scheme, you get an annual income of a guaranteed (inflation-adjusted) amount all through your retirement, however long you live. This is different from a “defined contribution” (DC) structure, where the money available to you on retirement is directly linked to how much you saved in an investment account during your working life, and how those investments performed.
What is happening with USS at the moment?
USS has a legal obligation to conduct regular checks – called valuations – on its financial health, to make sure that it will be able to pay the pensions it is committed to. These valuations usually happen every three years. There is one happening right now – the 2020 valuation. Recent valuations were controversial, and the 2020 valuation will likely have some of the same difficulties.
The central issue is that USS projects a significant deficit for the scheme – it believes its liabilities could exceed assets in the future. To address a pension scheme deficit, either a) members and employers must pay more into the scheme or b) future benefits must be reduced (benefits already built up are protected), or both.
For the 2020 valuation, USS projects a deficit requiring total contributions to increase to between 42% and 56% of salary (up from 30.7% now). Members would need to pay 13-18% of salary, up from 9.6% now. This is clearly unaffordable for many individuals, and most universities could not afford their increased share of the contributions either.
Members and employers, including the University of Cambridge, strongly dispute how USS calculated this deficit, and believe that with alternative methodologies there would be a much lower deficit, meaning any changes to benefits or contributions could be much smaller.
All the parties involved now need to negotiate to find a tolerable way forward for everybody. This will happen in the months ahead and will likely require compromise from all parties. It is not presently clear what the solution will be.
How to find out more
For the latest updates about the 2020 valuation and USS, check the USS latest page of the University staff website. We email members directly about crucial developments via the USS bulletin.
For more information about how your USS pension works, visit the USS website.
Pensions terminology can be confusing! Here is a handy list of definitions for terms used in relation to USS valuations.