Pensions: is the value of this benefit understood by staff?
By Richard Paul, Senior Pensions Technical Adviser, UCEA
4 July 2024
In my UCEA blog, ‘Challenging common pensions misconceptions in a sector that offers great options’ at the end of 2020 the closing paragraph included the following:’…at a time when many HEIs are feeling financial pressures when it comes to the remuneration and reward of their employees, now more than ever it seems important for HEIs to remind their staff of the quality of the pension arrangements they offer, the generous contributions they pay and the importance for scheme members of maintaining their pension saving where possible during these difficult times’.
Three and a half years on and while the world is in a very different place to the end of 2020 when the UK was about to enter a second Covid lockdown, HEIs continue to feel financial pressures as do many of their staff. During recent HRD Insights meetings held by UCEA there have been various suggestions about the growing need to highlight the fact that employer pension contributions in the HE sector tend to be significantly higher than those in the private sector and that this needs to be better communicated when discussing remuneration and reward with staff.
A picture tells a thousand (pension) words
In our updated Benefits of Working in HE infographics we have illustrated this important point by setting out in both percentage and monetary values the employer contributions paid into four of the sector’s pension schemes, including USS, TPS, LGPS and SAUL based on the median academic and professional service staff salary (1) and compared these to the contributions paid to a worker earning the median salary at a FTSE350 company (2).
The infographic illustrates that in monetary terms HEIs can be paying employer contributions that are between 50% and 120% higher than their private sector counterparts. The starkest example relates to the TPS (E&W) where post-92 HEIs contribute just under a third of a members’ salary as a pension contribution. This is really important information for staff to understand when it comes to discussions on pay uplifts and remuneration in general though admittedly this can be difficult and sensitive to explain hence where our infographic can be useful.
Focussing on the employer contribution rate is just one way of looking at how valuable a benefit HE pensions scheme are. Members of UCEA’s HE Pension Managers Group (3) have discussed how institutions can demonstrate the value of a pension scheme to staff who often don’t see the point of retirement saving, particularly when they are young and have other savings priorities, don’t understand how a pension scheme works or unfortunately are struggling to afford the member contributions. It is not just HEIs that are considering this issue.
The benefit of understanding pension scheme benefits
At UCEA’s Annual Pensions Conference held in May 2024 delegates heard that USS is undertaking a new project to consider how better to explain the value of USS scheme benefits to members.
Using USS (4), TPS, LGPS and SAUL (5) from our infographic we can see that each provide their respective members with a guaranteed pension at retirement which increases annually in line with inflation (6). Members also have options of taking a tax-free lump sum. Furthermore, retirement benefits are payable to a partner on death in retirement. It is often overlooked that additional benefits of being a member of one of these schemes include life cover and ill-health protection. This ensures that in the unfortunate event of serious illness (7) or death-in-service (8) that benefits will be paid out from these schemes to loved ones.
UCEA, who takes over as the new employer representative for USS with effect from 1 August 2024, will be involved in the aforementioned project aimed at better explaining the value of USS scheme benefits, alongside other individual HEIs. We also intend to produce further infographics to help institutions in illustrating the value of the different pension schemes they offer, both DB and DC and the importance of saving for retirement.
The flexibility of DC
While the HE sector has traditionally offered DB pension schemes, HEIs have increasingly turned to DC schemes to provide staff with an affordable and flexible pension offering that compares favourably to the DC schemes offered to staff working at FTSE350 companies (9). These arrangements have helped to address issues where HE staff have opted-out of retirement saving due to the cost of employee contributions in the sector’s DB schemes where they are not in receipt of an employer pension contribution – an important element of their overall remuneration – as well as ceasing to build up any future retirement benefits and no longer being covered for death-in-service.
DC pension arrangements have now become a very important additional element of a HEI’s reward offering and their flexibility and portability in particular are valued greatly by HE staff, even if the concept of compound interest and how it amplifies the growth of their individual retirement savings pot is less well understood!
As an interesting aside to all of this, the last American Civil War pension ceased being paid in May 2020 to the child of a man who fought in the war which ended in 1865. While the circumstances of this case are extreme, the man’s daughter who was born in 1930 ultimately qualified to inherit her father’s pension as a “helpless child of a veteran” and this benefit was paid until 2020. This albeit unique example shows how paying into a pension scheme today can have substantial long-term financial benefits not just for the individual concerned but their family too, years and even decades into the future.
It’s tough not to paraphrase a previously used closing blog paragraph but communicating to staff the quality of the pension arrangements HEIs offer, the generous contributions they pay and the importance for scheme members in paying into a pension is as significant today as it has ever been!
Footnotes
(1) www.ucea.ac.uk/member-resources/collective-pay-negotiations/Current-New-JNCHES-pay-spine/
(2) https://highpaycentre.org/high-pay-centre-analysis-of-ftse-350-pay-ratios/
(3) HEPM group is for staff responsible for the day to day pensions function at their HEI. If you are not already a member and would like to join please email Richard Paul
(4) Members accrue a career average pension on salary up to £70,296 after which they build up a separate DC pot
(5) New members in SAUL join a DC section ‘SAUL Start’ for the first three years of service
(6) While scheme rules vary these schemes increase pensions in payment in line with the Consumer Price Index
(7) Scheme rules vary on and access to an ill health pension is subject to meeting certain criteria and agreement by the respective trustee board
(8) Death benefits may also be payable to deferred members
(9) UCEA Members can access our Survey report on defined contribution schemes in the HE sector
