4 March 2018
Many thanks for your response to my letter and apologies for the delay in getting back to you. It has been a busy few weeks. Thanks also for your statement of 28 February in which you appear to welcome new UCU proposals aimed at maintaining the defined benefit element of USS and which will, presumably, feature prominently in the talks due to take place at Acas this week.
UCU members here at Goldsmiths will be relieved to hear about your continuing commitment to principles of mutuality in pension arrangements and encouraged by your public support, along with approximately 20 other vice-chancellors, for a return to negotiations.
Nevertheless we still have some significant concerns.
First, despite your comment that you are ‘not clinging on to any particular valuation’ of the pension fund, you appear still to cling to the belief that the USS faces significant ‘challenges’ that we collectively need to confront. Yet many UCU members are now coming to realise that the most recent valuations are far from a scientific and reliable guide to the health of the scheme but a highly interested reading of necessarily speculative assumptions. In the most recent valuation, the ‘best estimate’ view, in other words, one with a 50% chance ‘that investment forecasts are met or exceeded’, USS had a surplus of £8.3 billion. The problem for most USS members is that the employers have chosen to accept a different figure – one which is modelled on the highly unlikely assumption of widespread university closures and above inflation pay increases – which shows a £5.1 billion deficit.
We also know that only a minority of employers – a group over-represented by Oxbridge institutions – wanted to press ahead with the terms of this valuation which required the drastic (and unnecessary) changes to the scheme that we are now opposing.
Yet if we look at the basics of the scheme, we see that it has some £60 billion in assets (up by more than £10 billion in the last year) and that the £2.1 billion paid into it is comfortably more than the £1.8 billion paid out each year.
Of course pension valuations can never be wholly scientific exercises but many members are rightly concerned that the employers are acting only on what they like to call the most ‘prudent’ assumptions and not the most likely ones – in other words, only those assumptions that justify shredding our pension entitlements.
UCU members would be thrilled, therefore, if you followed up your call for more negotiations with a clear commitment to maintaining the existing defined benefit element of the scheme. This is a little bit different to what you have previously said. For example, in your response to me, you wrote that
Goldsmiths would certainly be supportive of a plan that delivered some element of an affordable defined benefit, if such a scheme and associated valuation assumptions can be mutually agreed.
Given the arguments above, I’m not sure why we would want to accept only ‘some element of an affordable defined benefit’ as we believe the scheme is fundamentally sound and that both employer and employee contributions, as currently constituted, are affordable.
I don’t want to tie this broader debate exclusively to the state of Goldsmiths’ finances (as this is effectively a national and not a local issue), but I do think that many people will contest the notion of what is ‘affordable’ and what is not. While we are not cash-rich like some other institutions, neither are we on the verge of destitution. You point out that staff costs have increased by 74% in the last ten years but then this is not as much as the growth in income overall which has risen by 80%, from £64 million in 2007 to £115 million in 2017.
My second point concerns the attitude of the Senior Management Team to the ongoing industrial action. While SMT has taken the bold step of agreeing to deduct 1/365 of annual salary for all members of staff, including Associate Lecturers, its more recent announcement on ‘partial performance’ is more worrying. The statement on industrial action on Goldmine makes it clear that UCU members engaging in action short of a strike, including refusing to reschedule classes disrupted as a result of strike action, may be deducted 25% of pay each day and that this could rise to 100%. Many members are deeply upset by this.I urge you to rescind this threat and to join those vice-chancellors, such as Sheffield’s Keith Burnett, who have promised not to punish staff twice for engaging in legitimate industrial action.
Thirdly, while I’m sure that you have been very busy behind the scenes, there are some other important things you could do to help bring the dispute to a successful resolution. I would encourage you to join with Stuart Croft, the vice-chancellor of Warwick, in calling on the government to request that the Pensions Regulator relax its statutory deadlines and indeed demand that the government itself step in to underwrite USS, as it does with the Teachers’ Pension Fund. This would help to minimise the ‘risk’ that the employers have argued is at the heart of the proposals to restructure USS. And I would heartily encourage you to have very robust conversations with those vice-chancellors who show no signs of backing down and to attempt to persuade them that there is a very big difference between permanently (and dangerously) ‘de-risking’ USS and simply seeking ongoing valuations of the fund when required to do so. I’d also like to ask that you report back to staff and students on what conversations you’ve had and what steps you’ve taken to lobby for a swift conclusion to the dispute.
Finally, I’m sure that many members would like to see you join our picket lines, just as Loughborough’s VC did, in order to participate in these really important conversations. Now that we are seeing a thaw, perhaps it’s the ideal time to come and talk to us.
With best wishes
(Des Freedman, Vice President Goldsmiths UCU, written in a personal capacity)
21 February 2018
Thank you for your response to my open letter calling for a return to national negotiations on the USS pension scheme.
Our correspondence demonstrates the complexity of the matter at hand and the importance of my call for us to work towards a shared understanding of the challenges faced by the USS. My initial letter expressed frustration at the fact that all parties have expended considerable energy in their analyses of the scheme, while leaving many in the sector none the wiser as to the true extent (or otherwise) of the USS’s problems. This is why I called for a clear account to be given of the reasons for such divergent views on the state of the USS. Contrary to the suggestion in your letter, it should be self-evident that I am not clinging on to any particular valuation, but genuinely wish to see clarity and resolution. By extension, that includes challenge of the fundamental assumptions (particularly those covering long term interest rates) if necessary to aid understanding.
I suspect we are in agreement on a number of points. I noted the extract of Professor Latchman’s statement you sent me with interest (although I have not seen the full text) and I have no problem with its conclusion that the “preferred outcome [should be] the retention of a defined benefit scheme in an affordable form”. But the word “affordable” is highly significant in this statement. Goldsmiths would certainly be supportive of a plan that delivered some element of an affordable defined benefit, if such a scheme and associated valuation assumptions can be mutually agreed.
Where we clearly disagree is in the state of Goldsmiths’ finances and our ability to support further significant financial contributions to the USS. I will aim to address your points in turn.
First, you dispute my claim that we run on a broadly break-even basis (i.e. neither making a consistent surplus or deficit). Many readers of this correspondence will be keen and critical scholars of the changing nature of the higher education sector. The idea that an analysis of the College’s finances going back to 2007 could shed light on our current financial predicament does not bear close scrutiny as the external environment has been transformed, and not for the better. I draw my conclusion based on recent financial data and the College’s current forecast, which I summarise in Table 1 of the appendix to this letter. This shows a broadly break-even financial position.
Second, you refer to the small decline in staff costs as a proportion of total income over the last decade (61.8% in 2007 to 60.4% in 2017). Yet, over this time, a reading of our financial statements also shows that staff costs have increased from £39.8 million to £69.4 million (a 74% increase). If your percentages are being presented as evidence that we have under-invested in the staff base, then I would counter that the increase in actual staff costs tells a very different story. In understanding our considerable investment in staff, it is also worth noting that our 2017 figure of 60.4% is still significantly higher than the sector average.
The reason that staff costs have decreased in percentage terms from 61.8% to 60.4% is straightforward. Depreciation and amortisation costs have grown as a share of cost as we have invested in the Estate and IT infrastructure. The problems which gave rise to this investment may not be obvious to newer members of staff, but they were very real and live issues at the time and the investments made have done much to improve the experience of students and staff. The cost of estate improvements, new teaching room audio visual equipment, the Professor Stuart Hall Building and the like are recognised as depreciation and amortisation over the life of the assets acquired. This is summarised in Table 2 in the appendix, which also addresses your question on the percentage of income devoted to non-pay costs in 2007.
Third, you refer to our unrestricted reserves. However, our spend is limited by the amount of cash we have in our bank accounts, so the better figure to focus on is our actual cash position as at 31 July 2017, which was £29.9 million. This is a finite pot of money which, for the reasons explained in my initial letter, is declining year-on-year (for example, cash balances stood at £34.5 million at 31 July 2016 and are currently forecast to be £24 million at 31 July 2018). The notion that a finite (and declining) sum of money can fund a permanent and recurring increase in pension contributions doesn’t make financial sense, not least because it begs the question “what happens when the cash runs out”? There are also a great many potential claims on that cash, of which additional pension contributions would be just one.
The reference to the 5.5% to 7% increase in contributions reflects my understanding of the widely reported proposals tabled at the December round of negotiations between UUK and UCU (with the 5.5% presented as UCU’s proposal for the increase to employer contributions). My “insistence” is born of a simple calculation. Our pensionable payroll for USS is around £40 million, so the UCU’s 5.5% proposal would cost £2.2 million.
Fourth, you raise a point about some of the employers wishing to end the concept of mutuality. This is not, as you state, an attempt to move the burden of the scheme’s risk onto individuals and away from institutions, but rather a move which would see risk transferred from the institutions collectively to the institutions individually. Goldsmiths benefits greatly from the principle of mutuality and we have always sought to defend it as it is clearly in our interests to do so. I hope this offers a degree of reassurance. Your questions as to why other employers may differ in their view of mutuality are probably better addressed to them.
Finally, you note that: “lots of us at Goldsmiths who are fiercely proud of the ‘Goldsmiths way’ would love for you to take a clear public stand in support of your staff in a way that would also not jeopardise our economic viability.” I believe that is exactly what I did in my initial letter, but I also owe it to staff and students (and our wider stakeholders) to explain the constraints of our financial position. My calls for further negotiations to reach a shared understanding of the USS’s problems are precisely because I want to see the correct decisions taken on the scheme’s future, for the benefit of all staff in the scheme.
18 February 2018
Many thanks for your letter concerning the College’s reaction to the forthcoming UCU strikes in opposition to what we believe are unjustified and unnecessary proposals to change the fundamental nature of USS. In particular, thanks for your call for a return to national negotiations though I fear that your comments in the rest of the letter actually undermine such a call and dilute the impact of your claim that ‘all of our staff have a right to good pensions.’
Your main argument appears to be that the College simply cannot afford the increased employer contributions that are apparently necessary to sustain USS at the present levels. In my view, this misrepresents the situation in some important ways.
First, while you state that ‘unlike many other UK universities, we do not consistently achieve financial surpluses’, this contradicts the fact that, as I understand it, the College has achieved surpluses in every year bar one since 2007.
Second, when you argue that ‘what we receive in fees and grants gets paid out in salaries, overheads and interest costs’, this neglects to mention that staff costs, as a proportion of total income, have declined from 62% in 2007 to 60% in 2017. This decline has occurred at a time when income has enormously increased: from £64.4 million in 2007 to nearly £115 million last year. And I would be really interested to know how much we spent on ‘non-staff costs’ back in 2007 as compared to the 29% of income that is devoted to these costs today.
Third, you insist that the proposed increases in employer contributions to USS of between 5.5% and 7% would cost up to an additional £2.8 million a year. In this scenario, you state that the College’s cash balances ‘could soon be exhausted’ if we ran significant deficits each year. This makes no mention of the £25 million in unrestricted reserves identified in the most recent financial report but, more significantly, it simply accepts at face value the highly contested valuation figures adopted by the Universities UK and opposed by UCU.
You argue that this is a really complex area and that ‘we lack the skills to decode and interpret the problem’. I am far from a qualified actuary but even I know that the idea of a pensions deficit is a pretty fluid thing when, only last week, the Pension Protection Fund revealed that the combined deficits of Britain’s remaining final salary pensions schemes – the kind of scheme that UCU members were told was unaffordable back in 2015 and that we were forced to sacrifice – halved in one month alone, from £104 billion to £51 billion.
Yet so certain are Universities UK about the figures in the November ‘Technical Provisions’ that identified a £7.5 billion deficit (mysteriously up from £5.2 billion in September) that our employers are insisting that we all have to wave goodbye to the guarantees of a defined benefit scheme in favour of a much inferior, individual pension pot. Actually, you’re right: it is a very complicated area but why is it – given the uncertainty of the situation – that the employers are so determined to ‘de-risk’ even when they admit that, in the words of USS, ‘the scheme actually has a significant surplus’? Why are the employers so keen to shed the principle of mutuality that has long underpinned USS to move the burden of risk onto individuals and not institutions? Why do you cling to the current valuation instead of challenging the fundamental assumptions that underpin it?
You wouldn’t be alone in asking some tough questions. Recently, the vice-chancellor of Warwick, Stuart Croft, publicly questioned the ‘need for the change in the valuation assumptions last autumn which gave rise to the scale of this challenge’ and called for a ‘return to active negotiations with a real willingness by all sides to explore every option.’ And you certainly wouldn’t be alone in thinking that this move to ‘de-risk’ speaks more about the desire to foster a competitive market inside higher education than it does to protect conditions for staff and to improve the learning experience for students.
I have a hunch that you’re not at all happy with how things have gone and how the negotiations have been dominated by some of the largest institutions. I’m sure you have seen the figures that show that while 75% of Oxbridge institutions want to take financial control of their liabilities and while 73% want to de-mutualise, only 24% and 14% respectively of other USS universities feel the same way.
I know that lots of us at Goldsmiths who are fiercely proud of the ‘Goldsmiths way’ would love for you to take a clear public stand in support of your staff in a way that would also not jeopardise our economic viability. But then I’m sure that the Master of Birkbeck is just as committed to the economic viability of his own institution except that he publicly called for a return to negotiations on the basis of clear support for the existing defined benefits scheme:
The future of the USS pension scheme is a matter of concern to all of us, and I have made clear in the past that my view is that any changes should be based on meaningful negotiation. Whilst Birkbeck is only one voice, I am now stating publicly that both sides should return to the negotiating table and conduct meaningful negotiations with the preferred outcome being the retention of defined benefit scheme in an affordable form.
This dispute will only be resolved if there are enough individual vice-chancellors prepared to stand up to the ideological intransigence of Universities UK and demand a return to negotiations on the basis that the current proposals exaggerate the scale of the USS’s problems and undermine higher education’s reputation as a desirable and rewarding place to work. I encourage you, once again, publicly to challenge the UUK position and to call for meaningful negotiations on the basis that we need seriously to re-examine the basis for such drastic and unfair proposals.
With best wishes
Des Freedman (Vice President, Goldsmiths UCU), written in a personal capacity