Geoffrey Talbot examines the pros and cons of opting out of occupational pension schemes. When your vice chancellor chooses to opt out into a personal pension, start worrying. Presently, managers and employees are effectively covered by the same rules, which is probably why pensions negotiations are civilised and sometimes fruitful compared to salary negotiations.
With a regular and guaranteed career pattern those fortunate enough to be regularly employed have little need to know much of the mechanics of pensions, so long as they can trust those organising their pension schemes.
The late press magnate, Robert Maxwell, demonstrated that not all pension scheme trustees could be trusted and the university world is no longer one offering steady and guaranteed employment.
There has been important pensions legislation and also an initial outcome of part-time pensions cases brought as a result of the judgments of the European Court of Justice. Almost none of these is yet in operation but the likely outcomes are well known.
So far as the Pensions Act is concerned the scheme run by the Teachers Pensions Agency is largely exempt. It has no trustees and has no real funds. While the results of the 1991 actuarial valuation are eagerly awaited the only significant change likely is the transfer of administration to private hands.
The Universities Superannuation Scheme is not a scheme governed by statute and has to face greater administrative upheaval. It is likely that employers may propose to continue with the present structure of the USS trustee company, save that one presently coopted member may be replaced by a pensioner member nominated by the Association of University Teachers. This will not bring the proportion of member-nominated trustees to the one third level proposed by the Act, but this is only because a number of coopted members with special expert knowledge are recruited from outside the universities, normally to assist with financial and investment matters. If scheme members object, 10,000 objectors would be sufficient, but the AUT does not propose to organise such a revolt.
Both university schemes could choose, under new arrangements that need to be decided next year, to contract back into the state earnings related pension scheme (SERPS). Both schemes guarantee to provide benefits at least as good as those in SERPS, which is the current criterion for contracting out. This means that the employers and employees in both schemes pay reduced rates of national insurance contributions.
The Government proposes to alter the national insurance rebate rates and to change radically the rules for contracting out of SERPS. The guaranteed minimum pension arrangements will soon be abolished although all present rights will be preserved and the administrative effort needed to maintain records will not decrease. The new proposal is that an occupational scheme can contract out if its actuaries certify that it provides broadly comparable benefits to a model scheme, and it is evident that both the teachers and universities schemes can easily pass this test.
The trade unions concerned will certainly not be keen for the schemes to contract back into SERPS except in the unlikely event of being allowed to retain full scheme benefits. Some employers may be attracted by contracting back in and restructuring schemes to provide present scheme benefits less future SERPS entitlements. The losers would be the employees who would pay significantly increased national insurance charges for little or no gain. Anyone proposing this can expect fierce resistance.
The European court rulings have had different effects in the two university systems. The teachers scheme had rules preventing certain part-time staff from membership. In a scheme with predominantly female members, it was always likely that such a rule would be found to have a disproportionate effect on women and thus be indirectly sex discriminatory. The Government moved very rapidly to alter the rules and it is now not forbidden to offer scheme membership to staff whose contracts are vestigial in extent and permanency. There never has been such a rule in USS. Where discrimination may have occurred, it is the responsibility of individual institutions.
The Employment Appeal Tribunal has confirmed that (subject to further appeals, if affordable) claims for backdated admission to schemes by part-timers are subject to time and compensation limits as set down in equal pay legislation. This would mean that many claims presently lodged will be ruled out as presented out of time and the limit on backdating of two years will greatly reduce the costs of employers eventually found guilty of indirect discrimination by tribunals. This will come as a particular relief to the Open University, which faced claims for backdated benefits going back to 1976.
It is ironic that legislation designed to combat sex discrimination should be the only means of ensuring fair pension treatment for part-timers. There is no general legal right for employees, whether full or part-time, to have occupational pensions.
Some claims, if restricted to a maximum of two years' retrospection, will amount to very little even if successful. Why bother then to support them? As people live longer, the proportion of one's life likely to be spent in retirement increases. University staff are not likely to have access to a pension scheme till about age 25 and even if permanently employed can qualify for maximum benefits only after 40 years. The hope of building an adequate income to survive 15 or more years of retirement is much diminished as job security is reduced and with more part-time and limited term appointments at all academic and related grades. Meanwhile the number of old people in the population increases and state benefits become ever less affordable.
SERPS benefits begin to decrease from the year 2000 and no one can realistically assume that a change of government will bring pension increases back into line with average wage rises.
The outlook for state pension provision is gloomy. So picking up trivial pension rights over a series of fragmentary contracts is better than nothing.
Any arrangement where an employer makes a cash contribution to an employee benefit fund is likely to be good value for the employee. The legal right to opt out of an occupational pension scheme must, for academic and related university staff, be one of the most questionable decisions ever taken in the name of choice. While the option is there it is overwhelmingly to the advantage of staff to join any reasonable occupational scheme open to them where the employer is also contributing.
There may be some temptation for employers to suggest that the cost of administering defined benefit schemes will escalate from ever increasing legislative pressure. This could lead to some institutions opting out of the present schemes and offering money-purchase insurance-based schemes instead.
However, the cost of administration does not go away and here is likely to be deducted from members' assets through set up and commission charges. Where such money-purchase arrangements are done on a group basis, there are cost savings. When done on an individual basis as personal pensions, the adverse effects are magnified - one of the reasons why employees in higher education are unable or unwilling in most cases to offer any subsidy for personal pension plans.
Geoffrey Talbot is assistant general secretary at the Association of University Teachers.