Petition for government to act as guarantor to USS – DFE responds

In March, a Government Petition created by members of the Convention for Higher Education was circulated widely and rapidly attracted some 12,000 signatures. The petition wording is below.

Accept a role as guarantor to the USS pension scheme

The USS pension deficit is due to a “self sufficiency in gilts” valuation method that models what would happen if the pre-92 universities went bankrupt. If Government believes this is possible, this would be a national tragedy! They should therefore indemnify USS, until the next valuation at least.

USS is a private pension scheme with 350 member employers. The university dispute rests on a valuation method in which the Government’s Pension Regulator has played a key role. But this method assumes “the employer” goes bankrupt, which in the case of USS means all (or a sizeable proportion of) pre-92 universities. This should be politically unthinkable. We therefore call on Government to indemnify USS and the Trustee Board against employer bankruptcy, for the current valuation cycle at least.

This petition is still open for signatures. Please add your name!

The Government Response

We have now received a response from the Department for Education.

This reads as follows.

The Government has no plans to underwrite the Universities Superannuation Scheme (USS). The USS is the country’s largest Defined Benefit pension scheme. It has nearly 400,000 members, along with sizable assets and liabilities. The cost to the taxpayer of underwriting such a scheme could be significant, and any further Government involvement in supporting the USS would need to be considered very carefully.

The autonomy of higher education providers is explicitly recognised in the Higher Education and Research Act 2017. It is for autonomous providers to ensure appropriate pension provision for their staff, and it is their responsibility to resolve the current dispute through dialogue between Universities UK (UUK) and the University and College Union (UCU).

The Government recognises the concerns of university staff as well as university employers, and has spoken with both UUK and UCU to encourage them to continue to talk to find a resolution that works for universities, students and staff. This is the most appropriate route towards a resolution.

Department for Education

A response to the Government Response

Unfortunately this statement fails to engage with the entire point of the petition. 

The Higher Education Research Act 2017 (‘HE Bill’) was designed to oversee the competitive environment created by the ‘Willets reforms’ for Higher Education begun in 2011.

The background reasoning of the petition was that this process has created the competitive context for the undermining of the basic principle of mutuality of USS, whereby institutions jointly accept risk to help manage the scheme.

The petition sought a simple low-cost commitment from the Government to support this principle of mutuality. This would provide political support for USS and reduce the risk that institutions might opt out and demutualise, causing the scheme to unravel.

The connection between the HERA and the USS crisis has been demonstrated in multiple ways over the last year.

  • Extreme competition between universities for undergraduate student recruitment has been triggered by the increase in the annual tuition fee to £9,000 in 2011 and the removal of limits (caps) on student numbers in 2014. This has triggered a competitive capital spending programme for new buildings and campuses that risks market failure. So far the main victims of this competition has been post-92 institutions.
  • The risk of institutional bankruptcy has been increased by the HERA itself, which permits a rapid so-called ‘institutional exit’ without a requirement to teach students to completion. Instead of planned shutdown and merger, colleges can now fold overnight.
  • As institutions borrow for capital projects, pension liabilities are placed on their books, increasing the cost of borrowing. This creates a considerable motivation for institutions to try to minimise liabilities towards staff pensions (and explains the attraction of ‘Defined Contribution’ schemes).
  • Several universities and colleges amidst the infamous ‘42%’ of USS scheme members (notably, Oxbridge colleges) expressed their concern regarding risk in relation to the risk to them of the market failure of other institutions.
  • Institutions are seeking to forcibly ‘de-risk’ USS’s investment strategy by reducing their ‘line of credit’ loan facility. This amounts to 7% of salary and is offered by subscribing institutions to USS to smooth stock market risk ‘in extremis’.

In short, the government created the ‘crisis’ that is generating deficits in USS.

Secondly, the response confuses institutional autonomy, which is guaranteed by Charter, and government responsibility towards the sector itself. Thus post-92 institutions also have institutional autonomy through their Articles. However the pension scheme in the post-92 sector, the Teachers Pension Scheme, is not simply guaranteed as a last resort but is a state-backed public sector scheme.

Indeed it is common for so-called ‘autonomous’ private providers to operate within nationally-funded and state-backed market contexts. Railtrack was re-nationalised as National Rail to facilitate a market in Train Operating Companies. More generally, the entire HE fees-and-loans market is underwritten by the taxpayer (with only around half of the current student loanbook expected to be repaid).

Thirdly, the petition does not seek direct investment into the pension scheme but rather that the government provided assurances to the Trustees by acting as a guarantor of last resort. At most, support for the line of credit loan facility (a ‘crown guarantee’) might be provided.

Fourthly, inaction could be much more expensive than government support at the present time. Taxpayer income to universities meant for funding education and research will instead be spent on fictive projected deficits. Moreover, were the scheme to unravel and a last-man-standing actual deficit arrived at, the Pension Protection Fund would be triggered. Our argument is that inaction is likely to be both disastrous and inefficient.

Clearly, unless a comparison is made with the potential cost of failing to support the pension fund, a cost-based argument is simply unsupported by evidence. This requires a proper debate in Parliament, with options for the NAO and Public Accounts Committee to review the position of USS.

See also


About Sean

Principal Research Fellow, Survey of English Usage, University College London
This entry was posted in alternative white paper, HE BIll, pensions and tagged , , , , . Bookmark the permalink.

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