University Pensions 'Black Hole' Worse Than Thought

There is a huge shortfall in a pensions scheme that is used by UK university staff. In fact a recent report by BBC's Newsnight suggests it's worse than previously thought.

In its status report for October 2013 the Universities Superannuation Scheme (USS) quoted its fund deficit at just shy of £8bn, however the analysis methods that private companies use put it at around £10.5bn.

The obvious concern is that such a significant hole in what is the biggest pension fund in the country could lead to a rise in tuition fees for students.

The Universities Superannuation Scheme (which has 303,000 members) has assets of £37.9bn - more than three times what taxpayers spend every year on higher education. By its own official estimate to members this month, that is almost £8bn short of what it requires to pay pensions.

Those numbers are disputed by the fund's critics who say that working it out on the formula private companies use (which is known as FRS17) - would put it at £2.5bn higher.

An analysis for Newsnight by pensions consultant John Ralfe, former finance director of Boots, showed that to make good that deficit over 20 years would require a nearly doubling of contributions to £1.8bn. This would equate to a rise in tuition fees of up to £1,000 a year per student.

Mr Ralfe stated:

"There is a whole degree of denial. The Universities Superannuation Scheme is in denial about its real financial situation. Universities are in denial."

"We have seen private member schemes closing to new members and existing members wholesale over the last few years."

"There will be repercussions for the university sector. All we're doing is bequeathing a very real problem to our children."

Higher Education Minister David Willetts told Newsnight that it would be wrong to pass on the cost of higher pensions to students. He said:

"Universities are independent autonomous bodies and they know one of their financial responsibilities is to stand behind their pensions and tackle their deficits."

"It would be wrong to expect students to bail out pension deficits to support pension schemes that are far more generous than students are likely to enjoy when they're older."

Nicola Dandridge, chief executive of the umbrella body Universities UK, claimed that there was no question that tuition fees would be used to address the pension fund shortfall.

"Employers have already taken significant steps to address the fund deficit and will continue to work on long term solutions to ensure that USS remains sustainable and affordable. The range of challenges facing the fund are not exclusive to USS and impact on all pension schemes."

"There is no suggestion that tuition fees will be increased to plug the USS funding shortfalls. This will not feature in any of the considered options to deal with this deficit."

Whether you choose to believe this or not it's a worrying trend that could well have knock on effects for future higher education students.