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TheCountOfNowhere

17bn deficit in academia pension fund

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Let's face it...pension funds for most ain't gonna pay out.

 

BBC talking about rising tuition fees no mention of cuts in pay, higher contributions or scrapping pensions.

 

Public sector, including the BBC, living on another planet.

 

It seems their pension fund investments have not paid off..what they been doing, buying london pwopatee?

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Google is your friend

https://www.ft.com/content/914d9cba-7232-11e7-aca6-c6bd07df1a3c

'The Universities Superannuation Scheme — which provides pensions for academics and has more than 390,000 members — recorded retirement liabilities of £77.5bn at March 31, dwarfing its assets of £60bn. '

 

oh dear!

Edited by Sancho Panza

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Millennials paying for the defined benefit pensions which they themselves are never likely to get opportunity to take part in.

What a time to be alive.

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2 minutes ago, Sancho Panza said:

Google is your friend

https://www.ft.com/content/914d9cba-7232-11e7-aca6-c6bd07df1a3c

'The Universities Superannuation Scheme — which provides pensions for academics and has more than 390,000 members — recorded retirement liabilities of £77.5bn at March 31, dwarfing its assets of £60bn. '

 

oh dear!

A lot of that scheme will be invested in bonds.Probably the worst asset class to be invested in for the next 10 years.Inflation hitting 10% with 3% coupon Gilts and inflation linked increases to pensioners.Hmmm.

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4 minutes ago, durhamborn said:

A lot of that scheme will be invested in bonds.Probably the worst asset class to be invested in for the next 10 years.Inflation hitting 10% with 3% coupon Gilts and inflation linked increases to pensioners.Hmmm.

Pertinent point.

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I have an idea. Transfer all the pension fund assets to Scottish universities, so Scottish lecturers get their full unabated pensions, and tell lecturers in English universities that the fund is now empty so they can retire at 68 with a normal state pension. Then they will have parity with the students. 

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Two options -

1. Raise tuition fee thresholds - to buy more bonds, bunds or gilts.

2. Raise interest rates thresholds - to buy less bonds, bunds, gilts

Another 1998 Labour initiative to generate a mass spending spree.  

 

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1 hour ago, ingermany said:

I have an idea. Transfer all the pension fund assets to Scottish universities, so Scottish lecturers get their full unabated pensions, and tell lecturers in English universities that the fund is now empty so they can retire at 68 with a normal state pension. Then they will have parity with the students. 

Got my vote

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14 hours ago, Drummer said:

Millennials paying for the defined benefit pensions which they themselves are never likely to get opportunity to take part in.

What a time to be alive.

University Pensions deficits equals a cost to be paid by future generations

Student loans to millennials equals a cost to be paid by future generations.

The SLC is an accounting wheeze to keep the cost of HE temporarily off the public books but as most student loans are unlikely to be repaid in full the portion not funded is going  to be handed to taxpayers in future post millennial generations. In that respect SLC are an underfunded liability just like the USS pension schemes where income from the assets is not going to match liabilities. According to the IFS the estimated net cost of student loan to taxpayers is £1.5 billion a year

https://www.ifs.org.uk/publications/9217

In fact a University lecturer on £30000 paying 8% of his salary to his scheme is currently paying more in contributions to fund his pension liability  than someone with a student loan and earning £30000 who currently has to pay £91 per month off for the cost of their HE.

https://www.uss.co.uk/members/members-home/the-uss-scheme

http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678490&_dad=portal

The main difference is that as a funded DB scheme potentially the USS could be wound up tomorrow with deferred pensioners taking the whole write down on their pensions but the taxpayer is going to be stuck with the cost of funding the current student fees for the 40% plus of millenials currently going to University for decades.

Edited by stormymonday_2011

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4 hours ago, ingermany said:

I have an idea. Transfer all the pension fund assets to Scottish universities, so Scottish lecturers get their full unabated pensions, and tell lecturers in English universities that the fund is now empty so they can retire at 68 with a normal state pension. Then they will have parity with the students. 

Nope.

Just default on them and wind up the fund.

People under 40 should not be bailing out unfunded pension promises from the 70s/80s.

 

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Looking at the figures the ballooning of the USS  Pension Deficit is in some respects a reflection of the massive expansion of the HE sector and student numbers so I don't think all the potential funding shortfall can be attributed to pension promises made decades ago. Some of the liabilities that have been occurred are much more recent.

In 1970 there were just over 600,000 people in HE and proportional numbers of staff employed . By  2015-16 there were 2,28 million students studying in UK HE institutions. The the sector employed 410130 people (201380 academics and 208750 admin staff) many of whom worked in the pre 1992 Universities covered by USS.

http://www.universitiesuk.ac.uk/facts-and-stats/Pages/higher-education-data.aspx

To put that in perspective as many people now work in HE as in the entire UK Civil Service. Moreoever unlike the Civil service numbers in HE employment have been rising not falling so potentially increasing future Pension liabilities

http://www.civilservant.org.uk/information-numbers.html

This has the advantage that there are more USS members to fund current pension costs than for example  in the ex British Steel pension fund where there are far fewer  workers paying in now than there are pensioners claiming. However, that presents its own issues as the pension liabilities have expanded with the growth in the HE sector  and extend much farther into the future whereas the British Steel fund cost are likely to start declining rapidly as the large number of current pensioners die to be replaced by far smaller numbers in the future.  Moreover, in the unfunded public sector pension system employers can reduce potential future pension liabilities by cutting staff numbers which is what HMG have done in the Civil Service since 2010. That is not quite such an easy option for USS as its fund needs member contributions to help meet both future and current liabilities. This make the fund management quite tricky. 

I think the rush by governments to expand HE has lots of hidden costs for the future with the USS pension scheme being the one visible now but Student Loans being potentially much bigger in the future particularly as it seems likely that a portion of the latter will eventually simply have to be writen off whether through the implementation of political party manifesto promises or simply because todays students will never earn enough to repay them in full.

Edited by stormymonday_2011

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It's not just the university bubble, its public sector pensions as a whole.

I've lost count of the number of ex public sector pensioners creaming it off pension schemes hugely in deficit and loudly proclaiming they're only getting out what they paid in.

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7 hours ago, ingermany said:

I have an idea. Transfer all the pension fund assets to Scottish universities, so Scottish lecturers get their full unabated pensions, and tell lecturers in English universities that the fund is now empty so they can retire at 68 with a normal state pension. Then they will have parity with the students. 

:D

What state pension ?

None left by then ..

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I wonder how many other pension funds fundamentally have the same problem but is hidden by accounting jargon, and the implementation of auto enrollment was to help their cash flow as the boomers retire.....

 

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If you guys think the university pension scheme funding deficit is bad, remember this: unlike the universities pensions, the defined benefit pension schemes for the NHS, the police, teachers etc have far greater liabilities and are completely unfunded. Absolutely nothing has been set aside for the last 40 years to pay the pension of a doctor or a teacher who is retiring today.

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6 hours ago, stormymonday_2011 said:

Looking at the figures the ballooning of the USS  Pension Deficit is in some respects a reflection of the massive expansion of the HE sector and student numbers so I don't think all the potential funding shortfall can be attributed to pension promises made decades ago. Some of the liabilities that have been occurred are much more recent.

In 1970 there were just over 600,000 people in HE and proportional numbers of staff employed . By  2015-16 there were 2,28 million students studying in UK HE institutions. The the sector employed 410130 people (201380 academics and 208750 admin staff) many of whom worked in the pre 1992 Universities covered by USS.

http://www.universitiesuk.ac.uk/facts-and-stats/Pages/higher-education-data.aspx

To put that in perspective as many people now work in HE as in the entire UK Civil Service. Moreoever unlike the Civil service numbers in HE employment have been rising not falling so potentially increasing future Pension liabilities

http://www.civilservant.org.uk/information-numbers.html

This has the advantage that there are more USS members to fund current pension costs than for example  in the ex British Steel pension fund where there are far fewer  workers paying in now than there are pensioners claiming. However, that presents its own issues as the pension liabilities have expanded with the growth in the HE sector  and extend much farther into the future whereas the British Steel fund cost are likely to start declining rapidly as the large number of current pensioners die to be replaced by far smaller numbers in the future.  Moreover, in the unfunded public sector pension system employers can reduce potential future pension liabilities by cutting staff numbers which is what HMG have done in the Civil Service since 2010. That is not quite such an easy option for USS as its fund needs member contributions to help meet both future and current liabilities. This make the fund management quite tricky. 

I think the rush by governments to expand HE has lots of hidden costs for the future with the USS pension scheme being the one visible now but Student Loans being potentially much bigger in the future particularly as it seems likely that a portion of the latter will eventually simply have to be writen off whether through the implementation of political party manifesto promises or simply because todays students will never earn enough to repay them in full.

Wow, that's an incredibly good commentary on the situation. Hats off.

The bad news stories coming out of UK HE seem to be multiplying by the week. The size of student loan debt; reports of huge grade inflation; corrupt senior management sitting on remuneration committees to dramatically inflate their salaries; and now massive problems with the pension system.

In the early 2000s, the UK had a decent HE sector. It's been trashed, innit?

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6 hours ago, stormymonday_2011 said:

In 1970 there were just over 600,000 people in HE and proportional numbers of staff employed .
By  2015-16 there were 2,28 million students studying in UK HE institutions. The the sector employed 410,130 people

Interesting that with just a bit more growth there will be more staff employed in HE than there were students in 1970

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2 hours ago, nightowl said:

I wonder how many other pension funds fundamentally have the same problem but is hidden by accounting jargon, and the implementation of auto enrollment was to help their cash flow as the boomers retire.....

 

About 5800 schemes in £530bn deficit acccording to the FT recently; although you can choose your own deficit number (as long as it's large) because the deficit is the difference between 2 large numbers which each vary wildly according to the assumptions you use.

https://www.ft.com/content/5c19882e-397f-11e7-ac89-b01cc67cfeec

Sad thing is FS would be affordable for a high proportion of the population if we had a functioning economy, but instead of having a chance of this it's been fcked up by pumping up house prices, bailing out banks and Zirping.

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Stormy Monday...you could argue that the USS scheme in in a better position than the British Steel one though, as with increase employment you have an increase and continuation of contributions that can be used in the market over a longer period of time, and do 'Weathering the Storms' and averaging out the peaks and troughs.

As for whether these people 'deserve' their DB pension sums, of course they do. They negotiated it as part of a contract for which they agreed to provide their labour, to do likewise is wrong...imagine if I agreed a price to build a conservatory for some one, we had a contract and then once it was finished they said 'Sorry, I am only going to pay you half of what we agreed'...at lease with this job I can go around and remove the windows and bricks...you can't withdraw what you have taught someone!

Finally, I am beginning to think the whole pension thing is one big scam, whether its Public (state) or a Private pension...what is to stop either from just 'winding up' the scheme and not paying anyone?...Does anyone know how DB or DC pensions are protected?..are they protected like the first £85k savings are?...and with autoenrolement, it looks as though the government is 'in on the scam' with the finance industry!

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1 hour ago, Dorkins said:

If you guys think the university pension scheme funding deficit is bad, remember this: unlike the universities pensions, the defined benefit pension schemes for the NHS, the police, teachers etc have far greater liabilities and are completely unfunded. Absolutely nothing has been set aside for the last 40 years to pay the pension of a doctor or a teacher who is retiring today.

Teachers have lost the defined benefit scheme (osborne). However, the boomers have been protected so those teachers will have it.

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22 hours ago, TheCountOfNowhere said:

Let's face it...pension funds for most ain't gonna pay out.

 

BBC talking about rising tuition fees no mention of cuts in pay, higher contributions or scrapping pensions.

 

Public sector, including the BBC, living on another planet.

 

It seems their pension fund investments have not paid off..what they been doing, buying london pwopatee?

If only an academic pension plan could be managed properly...

Oh wait: https://www.otpp.com

"2016 Annual Report

A 4.2% rate of return increased net assets to a record-high of $175.6 billion."

This fund also owns a significant amount of British assets.

Edited by cashinmattress

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5 minutes ago, satch said:

I suspect most defined benefit schemes will be in trouble as they are not actually fully funded but need additional income to pay the DEFINED benefits when the income amount is UNDEFINED. Somewhat surprisingly we have had ZIRP for nearly 10 years .... could this be an unintended consequence I wonder?

ZIRP or no ZIRP, you only truely know if a scheme is fully funded when the last pensioner, or other beneficiary, dies.  Up until then all you can do is take a snapshot by estimating assets vs liabilities and try to steer in the right direction by increasing or reducing (lol) contributions.  There's no matching asset for pension liabilities pre or post retirement, and never has been, but schemes can pay insurers to take the longevity risk post retirement by buying annuities, at a price of course. Fund managers can take a risk in the hope of greater returns and lower contributions,  pay themselves £500k a year, then ask for more contributions when it all goes wrong as seems to have happened at USS.

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7 minutes ago, satch said:

Don't disagree but all these schemes were very quick to take 'contribution holidays' which implied they had a very accurate handle on outgoings and incomes for the life of the scheme or for at least the time covering when the majority of claiments would be active .... now suddenly it appears there is a shortfall that they had not forseen! and a large shortfall at that when the economy in UK has not really changed in the last ten years (no FTSE crash, no change in interest rates, no property crash etc etc)

No-one has a handle on the income and outgoings of any FS scheme.  It's a function of salary increases, inflation, deaths/leavers pre and post retirement, investment return, timing of contributions received....all over a period of many decades.  Base rate isn't important when funds need to invest for decades. 15 year gilts are favoured by pension schemes as they are the best match available for post retirement income, while equities pre retirement are the closest match available for earnings growth.  Yields have fallen from around 5% (I think) in 2007 to 1.5% now.  The fall in expected annual return over decades has hugely increased the value of accrued and future liabilities, and if you haven't been fully funded, invested in the right assets, and have sufficent contributions to cover future pension accrual, you've been stuffed. But obviously you pay yourself £500k a year anyway. 

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