Here is a long post following running the *official* USS pension calculator for
a range of parameters and evaluating the magnitude of the pension cuts.
First let me show the money plot:
What is shown here is the ratio of the per-annum pensions 20 years after retirement for USS with the planned changes vs the current one as a function of your date of birth and salary. A key point here is that I only show the impact on future earned pensions (after Apr 2022), not existing/already earned ones (as that’s already fixed anyway). The attempt to reduce the apparent impact of the cuts by lumping the future pension with already earned one is part of the misleading strategy by UUK/USS. When running the calculation I used the same 4% salary growth assumption (sounds completely unrealistic to me, as this year my salary didn’t grow that much, but lets stick to it for the sake of simplicity). The only change of default options that I did is the change from draw-down option to annuity, as here we are evaluating guaranteed pension equivalent of the USS with proposed changes. This plot was obtained with the inflation of 2.5%
If we now look for the inflation of 3.5% which probably sounds more realistic given the forecast of 4% from here https://www.bloomberg.com/news/articles/2021-10-06/u-k-10-year-inflation-gauge-tops-4-for-first-time-since-2008 the picture looks even grimmer
Here we are essentially seeing the decimation of the pension by a factor of two.
Now, few thoughts.
- I have read the discussion of the USS valuation/deficit by different parties. I certainly have an opinion on that and I am inclined to think that the USS is too conservative, and that the proper analysis of the risk to the scheme needs to run Monte-Carlo of various scenarios (i.e inflation, stock market growth etc) and use that to evaluate probability of failure. I saw some recent analyses doing that (and that seems much better than what USS is doing). But no matter what I can easily believe there is a deficit that needs to be addressed somehow. (but lets not talk about this today)
- If we agree there is a deficit, we need to decide what should be done to address it, and I am okay with some reduction of benefits or increased contributions by employers/employees. What I really hate is to be misled and lied to. And currently that’s what’s happening. UUK, our pension officers and VC (including of my university) are plainly parroting USS’s FALSE figures that make the cuts look less dramatic. Instead, the official calculation (plots above) show basically what should be told to every USS member — that pension that you’ll earn in future from 2022 will be 30-50% less to what you earned previously. This is just infuriating. Imagine that you started working for a company and year later they tell you — sorry your salary from next year will be 40% lower. How would you feel about that ?
I will soon upload here the file with results of running the USS modeler for a large grid of parameters (salary, salary increase, inflation, DOB) so people can make their own analyses/plots.
I also encourage people to maybe contribute to open-source modelling of the future USS benefits and potentially the modelling of how sound the USS scheme is. I have written a simple crude python code https://github.com/segasai/uss_modeling that mimick some features of the USS calculator, but for sure it’s not sophisticated enough (and only matches within a few percents to the official one).
I also encourage people to verify the numbers that I show using their own (official) version of the USS modeler (please remember to subtract the part of the pension that you already earned)