Death knell sounds for final-salary pensions as employers’ proposals win casting vote

Final-salary pensions are likely to be abolished for new entrants to the Universities Superannuation Scheme, raising the prospect of national strike action by the University and College Union.

At a meeting in London yesterday, Sir Andrew Cubie, the independent chair of the USS joint negotiating committee, used his casting vote to back the employers’ proposals for reform.

This means that plans to place USS entrants on a reduced career-average scheme are likely to go ahead, creating a two-tier system in which they will receive pensions inferior to those of existing staff, who will remain on final-salary deals.

The normal pension age for all members will also rise from 60 to 65, although existing members aged over 55 will be exempt from the changes. Further rises will reflect changes to the state pension age.

The contribution rate for members of the final-salary section will increase to 7.5 per cent, with future increases to be split 65:35 between employers and employees. This contrasts with the current system, in which employers are expected to cover all increases.

The USS has assets worth about £30 billion and 130,000 active members.

The UCU had proposed keeping final-salary pensions for all while increasing member contributions. The union said the employers should now “brace themselves for serious industrial disruption”.

The employers’ plans must still be approved by USS trustees and go to consultation with all members before a proposed implementation date of 1 April 2011.

The employers and the UCU had negotiated for about 18 months to address cost pressures on the scheme, such as increasing longevity, but could not reach an agreement.

“It goes without saying that I had earnestly hoped not to be put in the position of using my casting vote,” Sir Andrew said.

He added that he believed the employers’ proposals would “introduce changes that are in the best long-term interests of the scheme as a whole”.

Sally Hunt, UCU general secretary, said the employers were “determined to create a two-tier pension system that would damage recruitment and retention of university staff and lead, inevitably, to further attempts to reduce benefits for existing staff to the lowest common denominator”.

She called for a ballot of all USS members on both sides’ proposals.

Sir Bill Wakeham, chair of the Employers Pension Forum, said the changes meant that universities in the USS “can continue to offer a good defined-benefit scheme while containing cost pressures from a range of factors including increasing longevity”.

john.morgan@tsleducation.com