Amid the continuing universities/USS strike I thought I should write a few reflections on what is going on to help you understand what this is all about, and why it is that some of us have sacrificed 6 days pay so far – with more to come. This is money which goes into UCL’s hardship fund.
These are, in case you’re wondering, personal views and I may be wrong about things so by all means post corrections in the comments section.
Pensions are something that most of us don’t think about. After all, old age is a long way away, and we have much more important things to spend our money on now, especially given the price of housing, transport and everything else. What is more, if you read the press there is a sense that pensions are a kind of unaffordable perk that only extravagant employers can afford to give to employees who should be grateful for anything they get.
So let me start by telling you some of the history of pensions from a chemical perspective. Back in the 19th century a young physicist Karl Abbé was hired by the microscope maker Karl Zeiss to advise him about how to improve his optics. Spurred on by this, Abbé developed the mathematical treatment of how polychromatic light travels through transparent materials; he worked out that the ultimate limit to resolution was the wavelength of the light, and the mathematics of refractive index and dispersion (how the refractive index varies with wavelength – what Newton and Bunsen/Kirchoff relied on for spectra – but a disaster if what you want is to make a microscope or binoculars). His work leads straight to modern super-resolution microscopy today.
His contribution was so huge that Zeiss took him on as an equal partner. Abbé came from a very humble background – his family was dirt poor and he had somehow managed to get to university at a time when there was no system of grants or loans to support a student of limited (or no) means. Abbé introduced a system to make sure that his workers were treated fairly. He provided sick leave, paid holidays, and introduced pensions for when workers were too old to work. In other words he made a contract with his employees that they would work for the company, but that the company would look after them, and treat them fairly. Otto Bismarck, the iron chancellor who unified Germany helped spread these ideas by passing laws to protect workers against predatory employers.
The Zeiss company became the world’s leading microscope and lens maker, especialy after Abbé was joined by Otto Schott, a glassmaker who developed the crucial glass formulations needed to make the lenses that Abbé had dreamed of. Both Zeiss and Schott are, today, wholly owned by the Karl Zeiss Foundation. The foundation does not have shareholders and they fund a lot of science. You can read the stories of Abbé and Schott in Classic Kit.
At the heart of the idea of a pension is that an employee pays their employee in two parts. They pay them a monthly wage. But they also pay into into a communal pot – the pension plan or superannuation scheme. That deal is something the employee and the company sign up to when the person is hired. The pension is not a perk. It is deferred pay – this is the important part- and the employee too agrees to put part of their wages aside into the pot. What it means is that although you take home, say, £30,000 a year, you as an employee, set aside £3k into the pension and your employee puts in something else, say £3k. It’s important to realise what this means. You pay packet is not £30k. It’s £33k, with the £3k deferred for when the person reaches a certain age (and matched by the government through a tax credit). That means that this money can be invested and grow into a fund that will pay for their old age. By pooling with other employees everyone shares the risk of dying young (so your partner/kids are supported) or of living a long time. Typically the employer also agrees to support the pension pot if things don’t go right.
Pensions are crucial. All of us are likely to live into our 90’s and many of us beyond that. Chances are we’ll retire around age 67 or 70. Maybe we’ll do some odd jobs after that but eventually there will come a point where we won’t or can’t work. We still need to eat, still need to heat our home, and pay the rent or the upkeep, and eventually get help when we can’t do things for ourselves. Let’s not kid ourselves. it’s fashionable, when you’re in your 20’s, to say that you’ll live fast and die young, but that’s just talk. All of us can be pretty confident of living into old age. There is a less than 1/1000 chance of your dying in any given year until you get to your late 50’s (see the Office for National Statistics web page on Life Tables for more information).
So what’s the problem with pensions? The first thing is that people are living longer. So when individuals and companies set money aside back in the 1960’s and 70’s, they assumed that most people would die in their seventies and eighties. As people started to live longer things no longer looked so rosy. But many pensions continued to pay out pretty generously. After all, pensions were an issue for old people. Denial was everywhere. What then started to happen was the companies started to panic as they realised that they had enormous sums to pay out because they’d not done their arithmetic right – many pensions were underfunded i.e. there wasn’t enough money in the pot to keep paying pensions at the expected rate. In some cases, the money had never been put in the pot at all. It had all been used to pay the pensions of older, retired workers. This is the case for teachers and quite a few parts of the public sector. These pay-as-you-go pension schemes rely on having more young workers than pensioners. But the pensioners were living longer… You immediately see what’s going on: younger people end up transferring some of their earnings to support the elderly, and nowadays one might not be so confident that there are enough of the younger members.
In other cases, there was a pension pot but it just wasn’t big enough. How could you fund it? By asking current workers to put more money in… (similar story) or by getting the company to contribute more. But shareholders have consistently refused to do this. Why should “their” money, “their” profits be reduced to pay for pensioners? The answer is that one after another company pension plans were trimmed down and scaled back.
Two things happened at the same time.
First of all, pensions started to be referred to as a perk. Some companies started telling employees that they would get this extra “gift”. Others didn’t offer anything at all. And the government also came up with forms of employment where a company didn’t have to offer any of the “perks” that made employing people so expensive. No sick pay. No holiday pay. No pension. Sounds familiar? That’s what the zero hours contracts are all about. It’s about an employer washing their hands of their responsibility for you as a person. To them you are a “human resource”. In other words the old idea that there was a mutual bond formed between you and your employer was whittled away. This has been spun as “flexibility”. You can change your job whenever you want. Equally, they can change you for someone else. And their responsibility ends at the end of each month.
The other thing that happened was to change the terms of pensions. This is the old style scheme: If you work for us for x years, together we will contribute enough to the pot to give you, say, x/80 of your salary after you retire. This is called “Defined Benefit” – you, the employee, know what you’re going to get. But for employers it looks risky because if the pot isn’t full, they’re in the frame. So they came up with “Defined Contribution” – what you and the employer have put into the pot and when you retire you’ll see how much is there, and then you can use that sum to buy yourself a pension. Notice the crucial difference. While the first scheme makes the employer responsible for making sure that the fund is hunky dory, in the second, the employer doesn’t care. Because you’re the one who, at age 70, finds out what you’ve got.
This is a classic place where you see the difference between “the left” and “the right”. The left says that there should be a joint responsiblity between society/the employer/the individual to think through a lifetime of pay. The right says that it’s your responsibility to look after yourself, and you should have freedom to choose how you invest and what you do with your money. And if things don’t work out, well, tough. Maybe you’ll learn something…
So now to the USS strike. What is this all about? The universities are big employers and a very long time ago they set up a communal system where everyone who was on an academic contract – lecturers, librarians, postdocs, research associates etc – could join USS, a common pension scheme. It is huge because it covers many many institutions across the country. This is important because the bigger you are, the lower the costs of running such a scheme. But at the same time by sharing in a pot you also reduce the risk. If UCL went belly up it would be a minor hit to the fund because UCL employs much fewer than 1% of the total number of people in the scheme. The scheme is also pretty well funded. The pot is very substantial so it’s not like the teachers fund. What we have contributed over the years goes to pay for our retirement as we had planned.
So what’s the problem? The first thing is that back in the 1980’s the stock market was doing so well that many employers including the universities took “pension holidays” where they cut the amount they were putting into the pot. When the stock market took a hit in the 90’s they panicked and moved their contributions back up to almost (but not quite) the contributions they’d made previously. But because of this, they spent £7 bn that should have gone into the pot on other stuff; now there is talk of there not being quite enough money in the pot. Whether this is true is very strongly disputed by unviersity academics with expertise in statistics and pensions. It’s complicated and it requires you to make a number of assumptions. You can find lots of information about this here and here.
The second problem is more subtle, but also very interesting. And it’s where you come in, as a student. As you know the universities are currently enjoying something of a bonanza of money. Everywhere you look universities are building and repairing gleaming new buildings. It’s exciting and all of us love the swish of big glass door and the comfort of a well-padded seat in a lecture theatre. The thinking is that we have to compete on the world market and we need to invest, right? Where is the money coming from? Well a good chunk is coming from the government which passes to us the money that make up your fees – that you will repay later. In addition, universities have also been allowed to expand – student numbers are much much higher than they’ve ever been. That means we need more buildings. They cost money. So there’s something of a financial wheeze here – the fees are off balance sheet because they’re loans. Someone will have to pay out eventually and this is an increasingly, and rightly, becoming a contentious issue.
Meanwhile the universities have gradually turned into businesses. UCL has a Chief Financial Officer now, just like a company does. He is not an academic. He and many of the people who run the institution see the university as a business and a business that has to grow and increase market share. If we expand we need buildings. How do we pay for them? It’s not just fees and government money. The interesting new development is loans. While you guys get into hock with your fees and living expenses, universities are, for the first time, taking on serious debt. UCL has taken on almost £300M in loans to pay for UCL East. The result is that because interest rates are low, UCL has got itself in hock to the banks in order to build the shiny new buildings that it needs.
So now we come back to pensions. As UCL has taken on loans it has realised that bankers want to know what the business is worth if things go wrong. Clearly, if UCL went bankrupt you could sell of the central London site for an absolute fortune. Imagine those Grade 1 listed designer flats under the dome! But it also looks at liabilities – what UCL might owe. Yes, there are the loans already taken (and no one knows what the terms of those loans are, something that is making a lot of UCL academics very angry and worried). But there are also pensions. The lower the risk and the liabilities, the greater the opportunities for a university to get loans to be able to grow and build bigger newer buildings.
So the proposal is to change from Defined Benefit to Defined Contribution for members of the USS, the universities pension scheme. The point is to lower the financial risk to the institution. And that’s done by transferring the risk to the employees. What the universities propose to do is to renege on their contract with their employees. Those of us that joined 10, 20 or 30 years ago did so with the knowledge that we had a good pension deal. And for the universities to turn round and say “tough luck, things have changed” is what makes us so angry. And the impact on younger lecturers is a LOT greater because those of us who have been here for longer have some of our pension “locked in”. I’ve got skin in the game, but academics in their early 30’s risk losing a whole lot more.
To compound this, there is a pretty strong body of evidence to suggest that there is more money going into the scheme than there is going out and that many of the assumptions underlying the arguments that our Provost and others are presenting to make these changes are at best disingenuous, or at worst, wrong. And rather than explaining things clearly and having a discussion, many of the Vice-Chancellors and Provosts have not even tried to rebut the analyses that have been presented. Universities are all about argument and discussion. It’s how we learn. It shows you how disconnected from academia some of these VCs are that they have to hide behind their highly professional finance guys. In the case of UCL, our CFO said that UCL did not have “the risk appetite” for how USS was currently run. As a chemist, I’d like to ask you where you have come across the phrase “risk appetite” when you’re writing a risk assessment? It’s financial bullshit that shows that they are not prepared to engage in a proper intellectual, adult discussion.
Academics don’t get paid that badly, although their salaries at any given level buy a lot less then they did 30 years ago. But in addition to the freedom of being able to do and think about the stuff that we love, the pension structure is something that adds a lot of security to the job. If this change is rammed through, as the universities want, the academic life will be made significantly less attractive. Universities in the UK may not be able to attract the best people – and this is on top of other reasons why this is likely to be more a problem – Brexit, for one. And if you struggle to recruit the best people you start to jeopardise the whole of the UK’s lead in teaching and research, the very things that attracted you to university in general, and to UCL in particular.
But it also represents part of a steady shift away from the idealism of Karl Abbé, and instead giving people the freedom to make bad decisions, decisions that can cost them decades of poverty.
So we’ll be on picket lines for the next few days and, again, next week. Not a day goes past that we don’t regret the fact that we aren’t lecturing, advising students, or doing stuff in the lab. Forget the fact that we are sacrificing pay; it’s that we’re not doing the things that we really love. But there is a lot at stake for us and we hope that we can come to an amicable agreement quickly. Because the alternative doesn’t bear thinking about.