Pension Schemes: Universities - Question

– in the House of Lords at 11:13 am on 7th September 2017.

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Photo of Baroness Falkner of Margravine Baroness Falkner of Margravine Chair, EU Financial Affairs Sub-Committee 11:13 am, 7th September 2017

To ask Her Majesty’s Government what assessment they have made of the affordability and sustainability of United Kingdom university pension schemes.

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

My Lords, universities are subject to regular assessment of their financial sustainability, management and governance. Government set the legislative framework for pension schemes to operate within. It is for the trustee and employer to agree appropriate plans to ensure schemes are adequately funded. This is overseen by the independent Pensions Regulator. Where the Pensions Regulator believes that a scheme’s position warrants its involvement, it considers intervention options, from education through enablement to enforcement.

Photo of Baroness Falkner of Margravine Baroness Falkner of Margravine Chair, EU Financial Affairs Sub-Committee

I need to declare a few interests. I am visiting professor at King’s College London, I am married to an academic who pays into the scheme and I am the parent of a child who is paying university tuition fees: these may well be used to bail out the scheme, so I submit to the House that I may be relatively neutral in this regard.

I accept that the valuations of the scheme are a matter for the Pensions Regulator, and its discussions with Universities UK will be interesting, but the size of the deficit of the United Kingdom’s largest private pension scheme must be of some interest to the Government. I remind the Minister that, rightly, the Government bailed out the banks. It would appear odd, when the public purse pays £105 billion into universities, that they should say that this is a hands-off matter. We know that there are only three ways to plug the gap: to make students pay for it through higher fees; to cut research and teaching budgets; or for the universities themselves to plug the gap, perhaps through cutting senior salaries and remuneration. Which approach do the Government favour?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

The House may not be surprised to hear me say that it does not need reminding about the passage of the Higher Education Act, when there was a strong focus on universities being autonomous institutions responsible for their own finances. While the Government cannot intervene in a higher education institution’s finances, we do set and will continue to set the maximum fee cap.

On pension schemes, the independent Pensions Regulator has powers to protect member benefits under circumstances set out in legislation, and that remains.

Photo of Lord Cormack Lord Cormack Conservative

If the Government cannot interfere in university finances, why are they making statements about how much vice-chancellors should be paid?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

I should just point out to my noble friend that the Government are not making statements about how much they should be paid. My honourable friend in the other place, Jo Johnson, made a speech this morning reiterating his point that universities should exercise great restraint in deciding how much to pay vice-chancellors and other staff and has set out a series of guidance. Furthermore, the Office for Students, which has been set up as part of the Act, will also be given greater powers and encouragement to set a remuneration code.

Photo of Baroness Altmann Baroness Altmann Conservative

My Lords, does my noble friend agree that there seems to have been quite a lot of scaremongering about this particular pension scheme? The assets of the scheme have performed well; it is well governed, has already adjusted its benefits in relation to the deficit that opened up in the 2014 valuation, and is now negotiating with universities and unions as to further adjustments that will be required. However, it is important to stress that student fees are set by the Government, and universities have sources of income that go well beyond the fees they receive from students. Much of the problem is caused by the exceptional policies that the Bank of England faces. This is an open scheme with strong cash flow and strong governance.

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

My noble friend knows more than I do how complex managing pension schemes is. There are lots of variables and issues to consider. She is right that there was a review in 2014. In fact, there is a review of the scheme every three years and a recovery plan is in place. My noble friend is right: the recovery plan, we believe, is robust and will offer a good degree of stability for the next 30 years.

The DWP is publishing a Green Paper in February to build on the ongoing discussions on pension schemes in general. We will publish a response to the consultation in a White Paper this winter.

Photo of Lord Watson of Invergowrie Lord Watson of Invergowrie Shadow Spokesperson (Education)

My Lords, the Question in the name of the noble Baroness, Lady Falkner, mentioned university schemes, although for the reasons she outlined to us, she only referred to the Universities Superannuation Scheme. In fact, there is a two-tier system in pensions provision for academic staff in universities. An academic retiring after 30 years at Oxford University will have a pension pot with the USS scheme worth around £150,000 less than an academic retiring at the same time from Oxford Brookes University in the Teachers’ Pension Scheme. While the Teachers’ Pension Scheme is in good financial health, despite the comments from the noble Baroness, Lady Altmann, the Universities Superannuation Scheme is certainly not. The Universities and Colleges Union has real concerns about the manner in which the scheme’s executives carry out valuations and make investment decisions.

Will the Minister ask the Department for Education to challenge university finance directors over the manner in which the scheme is being run—leaving aside the role of the Pensions Regulator—when academic staff, their representatives and others have made suggestions for a change in direction for the scheme which have so far been ignored?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

I do not agree with the noble Lord’s assessment of the scheme. It has a deficit, but so have many pension schemes. He will know more than I do about how that operates. It is being closely monitored and Universities UK, which oversees the scheme as a representative of employers, has launched a consultation this month which will run until 29 September on the proposed assumptions for the scheme’s technical provisions. A lot is going on to be sure that we monitor the scheme’s progress. Without getting too technical, interest rates, as the House may know, have played a part. These can change, and suddenly the parameters can change.

Photo of Lord Hamilton of Epsom Lord Hamilton of Epsom Conservative

To pick up my noble friend’s final point, does he accept that when the Bank of England eventually starts to raise base rates to more normal levels, a lot of pension funds will be much more fundable and sustainable than they are today?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

I am not an expert in pension schemes, but let us hope that is the case. It is one of many parameters that one has to take account of in managing pension schemes.

Photo of Lord Lexden Lord Lexden Conservative

Does my noble friend agree that several university vice-chancellors should be paid much more than our Prime Minister?

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

I am not going to be drawn into commenting on that. I will only repeat what I said earlier, which is that universities are being strongly encouraged to show restraint in the amount of remuneration they set their staff.