Massive increases to the universities final salary pension scheme deficit is leading to concerns that already controversial tuition fees may have to rise.
Over the last year, the deficit on the scheme has risen by £9 billion to a staggering £17.5 billion. This is the largest deficit faced by any pension scheme in the UK and means it needs a further £17.5 billion to fully meet the pension commitments it has made to its 390,000 members.
The scheme must now let the pensions regulator know what it will do to reduce its deficit and safeguard its members’ retirement income.
In an interview with the BBC, independent pensions consultant John Ralfe, said that it was “inconceivable” that “student fees will not have to be diverted into plugging the pension deficit”.
Nathan Long, senior pensions analyst at Hargreaves Lansdown shares his concerns. “Ironically the hole opening up in the university pension scheme may have to be plugged by increasing tuition fees or cost cutting, both of which would impact on students who themselves are unlikely to ever have access to such a generous scheme during their working life.
He adds: “If the trustees do end up turning to the students to fill the hole, we may well see protests and unrest.”
Stephen Cameron, pensions director at Aegon adds that such a move would fly in the face of the government’s desire to increase intergenerational fairness. He says: “The suggestion that universities may need to increase the tuition fees for today’s students to fund the huge pension shortfall takes intergenerational unfairness to a new level. Saddling our future workforce with even greater student debt to make good on pension promises offered to previous generations is a case of ‘robbing grandson Peter to pay grandpa Paul’.
However, not all experts are quite so convinced that tuition fees will rise. Gary Smith, a chartered financial planner at Tilney, says: “I would be surprised to see an increase in tuition fees to fund the deficit in the pension scheme, as there are other, less political, options available. Other options that might be considered would be to reduce their costs through staff rationalisation and restructuring departments, ask members to increase contributions to the scheme or increase retirement ages for new members.”
Mr Long adds that the black hole in the universities pension may not be as dark as it may currently appear. “As always with defined benefit pensions, the current predicament represents a snapshot in time. The growing deficit is actually largely down to a jump in the cost of providing guaranteed income. Should the cost of guaranteed income fall, so too do the liabilities and all of a sudden everyone feels more at ease with the funding levels.”
The universities pension – called the Universities Superannuation Scheme – is also covered by the Pensions Protection Fund, which protects member benefits in the event that their pension scheme collapses.