Those trolls are wrong. This is data from the FT in December based on data from the Pension Protection Fund that shows there has been a long-term and decided shift in defined benefit investing away from equity towards bonds
The evidence is very clear: around 70% of these funds are invested in bonds.
You could, of course, argue that these funds are working their way out and have a preponderance of older and even retired members, but that’s by no means wholly true so the shift cannot be explained by that alone.
But that is the reason. From the pensions regulator:
Scheme status and memberships
Scheme status in this release is split between:open schemes, where new members can join the DB section of the scheme and accrue benefits
schemes closed to new members (CTNM), in which existing members continue to accrue benefits
schemes closed to future accruals (CTFA), where existing members can no longer accrue new years of service and no new members can join
schemes that are in the process of winding up
Where schemes provide both DB and DC benefits, it is often the case that it is no longer possible to join as a member accruing defined benefits. In these cases, we have adjusted the status to CTNM. 68 schemes had their status changed in this way, encompassing around 518,000 memberships.Where schemes have no active DB accruing memberships, the status is adjusted to CTFA. 156 schemes had their status adjusted in this way, which in total comprised around 972,000 memberships.
In all other cases, statuses are taken to be as submitted by the scheme.
Sigh.
As to the title of his piece:
Pension funds want bonds so why won’t the government supply them?
Bank of England’s got £850 billion of ’em. But he won’t let them sell those for some reason.
I divide Murphy’s nonsense into two categories. (i) Stuff I’d have known to be nonsense at about age 15. (ii) Everything else.
This stuff is in category (ii) because I knew nothing about pensions at age 15. But he’s old enough to know better. On the other hand he is, in all probability, off his rocker.
What are those 10% of Defined Benefit pension schemes that are still open to new members? The mind boggles. Is it the universities superannuation scheme?
“What are those 10% of Defined Benefit pension schemes that are still open to new members? The mind boggles. Is it the universities superannuation scheme?”
I think the Nationwide BS still has a DB pension scheme. I’ve got friends who work for them, they rave about the pension scheme.
The USS is (as far as I know) still open to new members but they have a cap on how much salary you can base DB benefits on. Above that limit it’s DC. Moreover the DB pension is no longer based on final salary. Instead it’s a career-averaged arrangement. The pension age has been raised. The accrual rate has been reduced.
The employee contribution rate to the DB section has increased in recent years which is one reason for sporadic strikes. Because the buggers abandoned their students during the covid hysteria I have as much sympathy for them as I have for the schoolteachers who abandoned their pupils and the nurses and doctors who abandoned their patients.
For years I used to tell my colleagues that USS was in the soup. I added that if enough went wrong the whole USS scheme would end up as an inverted pyramid of debt balanced on the assets of Trinity College Cambridge. “Oh do lay off”, they cried. “Surely not”, they said. Eyes were rolled. And yet in 2019 the penny had dropped for Trinity and it grasped the nettle and baled out.
I broadly approve of the changes made, bar one. I thought this rule was nastily retroactive: “The final-salary pension scheme available to members who had joined before the 2011 changes was closed. Benefits previously accrued were protected, but frozen at a level relating to an employee’s salary as of March 2016 (uprated annually by inflation).” In other words you had made your pension contributions on the promise that they’d buy a pension based on your final salary. Suddenly they would instead get you a pension based on your salary in March 2016. Tough luck if you got promotion after March 2016: it would not influence the final salary part of your pension. Oof! I must admit that I was rather surprised that that was legal but evidently it was. They must have been desperate.
and the nurses and doctors who abandoned their patients.
Bit harsh, dearieme. Those brave, hard working doctors and nurses found they suddenly had a full work schedule. Those choreographed tik tok dance videos don’t make themselves, you know…
@dearieme.
The USS scheme isn’t quite how you’ve set out:
1) although the accrual rate is ‘only’ 1/85ths, there is an additional 3/85ths lump sum benefit too.
2) although the scheme is a career average schemes rather than final salary, pension benefits are increased with CPI (although contributions are not), so unless members are receiving above inflation pay increases year-on-year. Thus is actually much more generous than a final salary scheme
3) the increase in normal retirement age simply aligns it with everyone in the private sector
By any credible metric, this is still a massively attractive scheme, requiring significant ‘employer’ subsidy.
On nurses abandoning their patients:
Friends of mine have a severely disabled kid and thus have been regulars at their local hospital for years. The kid needed emergency treatment on the day of the strike, so they were worried when they had to take him in. They found every nurse they knew was in the hospital working, but in different wards. They were technically on strike so didn’t work in their normal wards, but they didn’t want to leave patients untended so they all “volunteered” to work unpaid in other wards, covering for each other and ensuring patients weren’t abandoned. As their kid was being treated his usual case nurse turned up to talk to them and give advice. Her final comments were “I can’t enter this into his records now as I’m technically on strike and as a volunteer I’m not allowed to enter records, but I’ve written it in my diary and will enter it when the strike ends in a few hours”.
I don’t know whether this happened elsewhere but from my experience of nurses I’d regard it as highly likely.
“The USS scheme isn’t quite how you’ve set out:”
You say ” the accrual rate is ‘only’ 1/85ths, there is an additional 3/85ths lump sum benefit too.” You omit the fact that that is worse than the 1/80th rate that applied for decades.
“pension benefits are increased with CPI”: you omit the fact that they used to be increased by RPI.
“the increase in normal retirement age simply aligns it with everyone in the private sector”: perhaps so. But it still means that scheme pension age has gone up from 65 for men and 60 for women.
“pension benefits are increased with CPI (although contributions are not)”: you omit the fact that employee contributions have been increased from 6.35% to 11% (is it?) with the threat of further increase.
“Thus is actually much more generous than a final salary scheme”: I am less clairvoyant than you so I don’t know whether it will prove more or less remunerative. But I’ll bet a dollar to a dime that it was introduced in the fervent hope that it would be less remunerative.
All these omissions of yours tend to hide one explanation of why the younger academics are pissed off. They see themselves as getting a worse deal that their predecessors. And they are. My point is that USS has the same name as it has always had but is a substantially different deal. Needs must, of course: if a scheme is in the soup it will aim to increase contributions and reduce liabilities. And with my one proviso explained above, I approve of that. Given that it’s a necessity I could hardly do otherwise.
My advice to discontented young academics remains what it has always been: if you don’t like it piss off and do something else for a living. Apart from anything else, my sweet young things, all this frantic activity might prove inadequate and USS might fail. Is it large enough to sink the Pension Protection Fund? Dunno. But presumably someone has spent sleepless nights worrying about that risk. On the other hand, it might outlive the United Kingdom. Nobody knows.
“I divide Murphy’s nonsense into two categories. (i) Stuff I’d have known to be nonsense at about age 15. (ii) Everything else.”
Heh. Not just me, then.
@ dearieme
Yes, it’s legal based on the scheme’s definition of “final salary”. The old scheme closed in March 2016 and was replaced by a new scheme with almost the same name. So the final salary for the old scheme was that on the day it closed.
Whether you were cheated (as distinct from “hard done by”) depends on whether you accepted your job based on the expected value of your pension or whether you regarded that as an extra benefit on top of your salary.
I don’t think Trinity could quite manage to bail out the whole of the USS on its own – (although I suspect that it could rescue the Cambridge part of it).
The comments about USS haven’t yet marked the ridiculous amounts of employER contributions… Well over 20% of gross salary per annum.
Given that the £9250 fee cap is being eroded by inflation but pay costs much less so, the affordability of USS becomes more and more questionable.
Folks might not like the 2016 changes but something had to change even then and it probably won’t be anything like enough.
Exactly.
Yes, the scheme has got worse over the years. But (contrary to popular belief) the scheme has also got more valuable for the recipients (i.e, more costly for the employer). This reflects changing economics and changing demographics.
These schemes were withdrawn from the majority of the private sector 20+ years ago for those very reasons – they were simply unaffordable for the sponsor.
Like many public sector workers, USS staff don’t appreciate the value of what they have, and the huge subsidy that is required to fund those benefits.
Some people seem to believe that an employment benefit that was offered at a point in time cannot ever be changed. Once again, it happens all of the time in the private sector. Accrued benefits are not being changed.
If you don’t like the current terms of employment, then look elsewhere, it’s that simple.
By God, Arthur, that does the girls great credit. But wouldn’t it have been simpler all round to vote against the strike?
“I don’t think Trinity could quite manage to bail out the whole of the USS on its own”
John, the problem is that USS is a “last man standing scheme”: if one employer goes bust the outstanding liabilities accrue to the surviving employers. So that increases the likelihood of another employer going bust, and so on. My point was simply that the richest employer (relative to its own liabilities) was Trinity so that, in principle, it would in the end have to meet all the surviving liabilities and would therefore itself go bust.
I started pointing this out to my colleagues in 2004 or 2005. Maybe they assumed I was teasing. Trinity presumably noticed the same risk and, after mulling it over, left the scheme (at a cost, I’ve seen it said, of paying £30 million to the scheme).
I once tried explaining the state of the scheme to a retired academic. She took such fright that thereafter I restricted my remarks to younger people. Not that they paid a blind bit of notice.
Anyway I cannot resist this: USS was launched on April Fool’s Day 1975.
I looked at the Wiki page on USS and it was fun. Trexit appears to have caused a ruckus. I cannot help observing that, in 1997, they started to talk about “responsible” investing and fuss was made about tobacco companies and fossil fuels, but only about 8% of savers went for responsible options.
“In 2021, the scheme made a pledge to pursue an investment strategy that would be consistent with achieving net-zero carbon emissions by 2050” so obviously the admin had decided to go for broke. But obviously the econutters were not appeased as the scheme “continued to attract criticism from Ethics for USS, which was concerned that the plans were too vague and timid”.
However, the admin is a bit schizoid because “At each Shell annual general meeting between 2017 and 2021, USS has voted with the company against shareholder motions calling for emissions targets aligned with the Paris Climate Agreement.”
Much popcorn is called for. Its investment profile is still roughly 70:30 equities to bonds, which makes it an outlier, I suspect, among remaining DB schemes. Does anyone know if it was caught up in the LDI scandal, which all UK media blames on Truss and Kwarteng, while the rest of the world wonders why Bailey is not in gaol
It’s an outlier because it is open to new members and new accrual – the investment policy is therefore very different to the majority of DB schemes which are closed to new members / further accrual.