Increasing pensions costs 'pose risk to city university'

THE threat posed by rising pension costs is one of the potential risks facing one of Yorkshire's biggest universities, according to its own annual report.

Leeds University's "risk matrix" ranks pensions as a concern – although not as pressing as the impending funding cuts faced by the higher education sector.

In the report the finance director at Leeds, Jane Madeley, warns of "further steep rises" in pension costs – in the Universities Superannuation Scheme (USS), the nationally run academics' fund, and the university's own Pension and Assurance Scheme, (PAS) the pot for other staff.

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Ms Madeley adds: "The impact of recent pay awards, increased life expectancy and the fall in equity values raises a significant cause for concern over the affordability of our final salary pension schemes (USS and PAS) which we cannot ignore and which will need to be explored in due course."

The deficits, and the reasons for them, are similar at the region's other universities.

Meanwhile Hull University accounts for 2008-09 describe the pension fund's "poor return" on its assets – mainly shares and property – while York University's financial statements reveal an 11.1m slump in the pension fund. It blames "poor investment performance and decline in investment yields", as well as the assessment of actuaries, and says the trustees are making changes.

In the business world, however, final salary pension schemes are on their last legs. Six years ago, about 40 per cent of companies still offered them to new employees.

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Today there are just four FTSE 100 firms that do so – Shell, Tesco, Guinness-maker Diageo and Cadbury, which has just been taken over by the cost-cutting American group Kraft.

The chief executive of the TaxPayers Alliance, Matthew Elliott, branded the university schemes "utterly unaffordable".

He said: "At the moment they are almost running on empty, and the only financial plan seems to be to write bigger and bigger IOUs for taxpayers to pick up in the future. The benefits already accrued should be honoured, but we need to move immediately onto a contributions-based pension scheme as soon as possible."

The Liberal Democrats have repeatedly called for another major inquiry, including the whole range of public sector pensions, along the lines of that carried out by Lord Turner five years ago.

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Party work and pensions spokesman Steve Webb said promises made should be honoured but called for an inquiry to look at how much workers and employers are paying into the funds and said the future might involve "hybrid" schemes, which retained some link to salaries.

He said: "These (university] deficits are a warning that we need to get things more in balance although it is not good management to suddenly hike contribution rates or slash benefits. We will be looking at longer working ages and capping the entitlements of top earners."

A Leeds University spokesman said: "The fall in equity values, recent pay awards and an assumption of longer life expectancy have all contributed to the decline of value of the university's pension funds.

"Like any major employer, we keep a close eye on the feasibility of the scheme to ensure the university continues to be able to meet its future liabilities."

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A Leeds Metropolitan University spokesman said: "The major factor for increases in the pension liability is that the value of investments has fallen. Pensions are a long-term investment and, as such, are not causing us undue concern."

How different schemes add up

University staff contribute to a variety of different pensions schemes.

The Universities Superannuation Scheme is a national scheme which is the only fund specifically run for higher education academics. However university lecturers can also pay into the national Teachers Pension Scheme also available to school and further education staff.

Universities which were formerly polytechnics also have staff who contribute to the Local Government Pension Scheme, as they were previously owned by local authorities before being granted university status.

Some universities also operate their own pensions and assurance schemes for non-academic staff.

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