It’s not nothing, you know

Those who know me know that I get itchy about generalisations, including around the USS pensions modeller. I know that it’s about clear communication and that it’s important to have a message that is accurate and that is clearly understandable. But it still gets to me, so I thought I would work through a concrete example of the (more or less — I’m rounding figures up or down to the nearest thousand) practical impact on someone like me of these changes which my employer thinks are fair.

Who is someone like me?

1. I have been paying into USS for 22.5 years and hope to retire in 15 years time. I’m over half way through. These changes will have some impact on me, don’t get me wrong,but not nearly as much as on those 10 years behind me, those starting out now or those yet to come. Bear that in mind.
2. I am paid well — spinal point 49, which is top of G9 on the Leeds scale. This is significantly higher than many of our ARPS colleagues in particular, with their limited access to promotion, are likely to reach, and thus they accrue fewer benefits. Many academics younger than me are promoted higher and are better paid, but at this point it doesn’t make much difference. Basically, this is as good as it gets.
3. I started paying into USS at the age of 29, after 3 years as a graduate teaching assistant and one year hourly paid. I spent 2 years on a fixed term contract, which was when I started paying into USS, and then got a permanent contract. I lived on a pretty low income over some of that time, and didn’t buy a house until I was 38, but had no dependents. I have never taken parental leave or long term sick leave. I had minimal student debt which I paid off quickly. Nowadays, the wait to get a permanent contract, combined with the impact of student debt, is such that colleagues cannot afford to start paying into USS until much later, and thus they accrue fewer benefits.
4. I am fortunate in that, barring disaster, I will have paid off my mortgage by the time I retire so will not have housing costs.
5. I have no other source of income; no family money, no trusts, no additional pension, no partner bringing anything in. This pension is it.

So, here’s my numbers;

A. Guaranteed annual income. So far I have accrued enough to pay a guaranteed annual income of just over 15k. That is banked. If the scheme does not change, I would accrue a further 11k by retirement. That makes a guaranteed annual income of 26k. Which isn’t as much as I make now by a long way, but with no mortgage costs, no national insurance, and the addition of the state pension, will be fine

However, under the changes that UUK want to impose, I will keep the 15k, but the 11k will drop to 6k (taking rounding into account it’s a cut of just over 4.5k per year). I make that a loss of 18% of my current guaranteed annual income in retirement. 18% for someone who is on the lucky side — imagine people 10, 20 years behind me, with less banked and more future accrual to be impacted. 21k per year in retirement, plus lump sums (see below) and state pension is still OK. I should be able to afford to retire. But it is a cut in retirement income of just under 400 pounds a month, which, unless you are very rich, is not nothing. And I come from a frequently long lived family. I could have 20 or 30 years of retirement. Imagine I am retired for 25 years — that is an overall loss of 112K. Not nothing.

B Guaranteed lump sum But there’s more. The pension also gives a guaranteed lump sum, which can be invested or frittered away. So far I have accrued enough for a guaranteed lump sum of 46k. If the scheme does not change, I could add to that 33k — that makes 79k, either to invest for a bit more income (which would be sensible) or spend on travel until it, or I, run out (which would be a different sort of sensible).

If the scheme changes, that 33k goes down to 19k — a loss of 14k (again, about 18%). If I am retired for 25 years, this brings my overall loss to 126k.

C The Investment Builder. That is the bit that is not guaranteed — a further lump sum that can be invested to provide income. This is supposed to compensate for the other loss. At the moment, I have a princely sum of about £200 in the Investment builder. This is because it’s new and because it only kicks in at the moment at a certain salary point. On the current scheme, by the time I retire, I would have about 19k in addition to my guaranteed lump sum. I

f the scheme changes that goes up to 84k. That looks great. It certainly makes up for the decline of my guaranteed lump sum, although, if I am retired for 25 years, there’s still an overall loss when you add in my annual income. (I’m ignoring tax here because it makes my head hurt, but these lump sums are taxed in part).

But the Investment Builder is not guaranteed. It could be 84k, it could be more, it could be less. I don’t know and I won’t be able to plan. And for those younger than me, a much greater proportion of their retirement income will come from this less guaranteed pot. If you are a high earner then the uncertainty might not bother you, and if you have other sources of income it doesn’t matter much. But when you are looking at the kinds of retirement incomes that most university staff are looking at, the variation can make the difference between a fulfilled and dignified retirement and a constantly cash-strapped one. And that’s without thinking about things like care costs. If I get promoted, which I suppose is still possible, then that will add more to my Investment Builder but not to anything else.

And of course, this won’t be the last time they come after our pensions. They have been after them for over 10 years, and they won’t stop. It will get worse. This is not nothing. This is not fair, or just. This is classic example of the wealthy and powerful pushing through changes that won’t impact them, and gaslighting us into thinking their actions are reasonable. Resist