University pensions black hole 'even worse than thought'

Union members have walked out at universities across England

A massive shortfall in a pensions scheme used by UK university staff is even worse than thought, analysis for the BBC's Newsnight has suggested.

In its status report this month the Universities Superannuation Scheme (USS) put its fund deficit at £7.9bn.

But the analysis methods that private companies use put it at £10.5bn.

There are concerns that such a significant hole in what is the biggest pension fund in the country could lead to a rise in tuition fees for students.

The Universities Superannuation Scheme, with 303,000 members, has assets of £37.9bn - more than three times what taxpayers spend every year on higher education.

By its own official estimate to members this month, that is £7.9bn short of what it needs to pay pensions.

Those numbers are disputed by the fund's critics who say that working it out on the formula private companies use - known as FRS17 - would put it at £2.6bn higher.

'Degree of denial'

Analysis for Newsnight by pensions consultant John Ralfe, former finance director of Boots, showed that to make good that deficit over 20 years would require a nearly doubling of contributions to £1.8bn. That equates to a rise in tuition fees of up to £1,000 a year.

Mr Ralfe said: "There is a whole degree of denial. USS is in denial about its real financial situation. Universities are in denial.

"We have seen private member schemes closing to new members and existing members wholesale over the last few years.

"There will be repercussions for the university sector. All we're doing is bequeathing a very real problem to our children."

Higher Education Minister David Willetts told Newsnight it would be wrong to pass on the cost of higher pensions to students.

"Universities are independent autonomous bodies and they know one of their financial responsibilities is to stand behind their pensions and tackle their deficits," he said.

"It would be wrong to expect students to bail out pension deficits to support pension schemes that are far more generous than students are likely to enjoy when they're older."

Nicola Dandridge, chief executive of the umbrella body Universities UK, said there was no question that tuition fees would be used to address the pension fund shortfall.

"Employers have already taken significant steps to address the fund deficit and will continue to work on long term solutions to ensure that USS remains sustainable and affordable.

"The range of challenges facing the fund are not exclusive to USS and impact on all pension schemes.

"There is no suggestion that tuition fees will be increased to plug the USS funding shortfalls. This will not feature in any of the considered options to deal with this deficit."

Higher contributions

Prof Craig Calhoun, director of the London School of Economics, said the size of the scheme's black hole concerned him.

"It's very worrying now and it looks even more worrying for the future," he said.

"It would be an added cost that we would have to cover either from tuition fees or some other source, either philanthropy or earnings from consulting or other enterprises."

Bill Galvin, chief executive of USS, told the Newsnight programme that higher contributions or cuts to benefits had to be considered.

He said: "It's been done in 2008. It's been done in 2011. We're looking at it again now."

A USS spokeswoman added: "USS has been entirely transparent about the deficit figures and provides comprehensive estimates to institutions on an annual basis.

"USS has made changes to both benefits and contribution levels in recent years to deal with historic deficits and will continue to work with employers and members' representatives to agree a recovery plan which is commensurate with the long-term nature of the scheme.

"The employers have made it clear there is no suggestion that tuition fees will be increased to provide additional funding for the scheme."

The likelihood of higher tuition fees runs alongside the prospect of university staff having to pay more for their pensions.

Under a landmark agreement with universities, university staff have to share any large increases in costs with their employers.

They are already in militant mood, with strikes planned next week over pay.