CPI hits 5.2 % in zero hour of pension changes.
Vice Chancellors and University managers of HE institutions participating in the USS pension scheme will be delighted to have read the news yesterday that the Consumer Price Index broke through the 5 % mark, so soon after they had set a cap on pensions increases at 5%. Perhaps you can hear the distant sound of corks popping. Whilst some VCs confess to not understanding the damaging changes they have supported to the hilt, they cannot fail to see that USS members will have the inflation proofing of their pensions diminished doubly in real terms, now, in month zero of the imposed pension changes. Not only has the USS scheme unnecessarily adopted the meaner measure of inflation (CPI rather than RPI), our employers pushed through caps on this measure.
Now, pensions in real value are, on payments after 1 October 2011, lifted in line with inflation (using CPI) only up to 5 %. This cap at 5% is part of the new changes to your pension scheme. Any inflation above 5% sees only a 50% increase in the pension, up to an overall ceiling of 10% per annum, when CPI increases by 15%. That means that many USS members will be having the value of their contributions cut now that CPI has hit 5.2 %. So when you get your pay slip and see that the money going into your bank account is less than usual, but the money going to USS is higher, you can be confident that this is so that you can get less when (if allowed to) you retire. Possibly tens of thousands less. This is no longer a theoretical threat – it’s a pay cut in action (pension is deferred pay).
But why are the VCs rubbing their hands? Well there is now more of your and my money going in to USS than necessary, we argue, and already we can see that the commitments to future pensions is falling in CPI terms (we would use the term “real” but for CPI that appears not to be the case). And from the off, there are savings being made by removing pension from pensioners. We hear that the USS pensions fund is virtually fully funded. We will get an up to date notice of its health in November. You should recall that the employers pushed through their measures by threatening legal action if they were stopped from doing so – despite 96.3% of USS members who voted voting against their proposals – by using an ‘assumption’ that it was 98% funded, itself a pretty healthy figure. Find us another pension scheme so well funded, and tell us what their trustees were told to do by a negotiating team who were threatened with legal action, and we’ll make a comparison. So what will VCs do when their draconian changes lead to the pension fund being 110%, 120% or 130% funded – that is to say taking more money from us than they really needed to? They will of course argue that they can afford to decrease their contributions to your pension. You heard it here first.