As a result of their negotitations on the future of UK university pensions, which I have written about previously, the University and College Union (UCU) and employers represented by Universities UK (UUK) announced an agreement on 12 March 2018. The main points of the agreement are:
- Change the accrual rate from 1/75 to 1/85 per year of service
- Increase employee contributions from 8% to 8.7%
- Cap the increases of accrued pensions at CPI up to 2.5% p.a.
While the effect of the first two changes on the value of future pensions is relatively straightforward to analyse, the effect of the inflation cap is not obvious. In the first attempt to model the effect of this proposal that I am aware of, Richard Wilkinson finds a substantial real-terms loss to pensions if inflation history exactly repeats the last 40 years. The figure below shows the annual inflation rate since 1976, the year after the University Superannuation Scheme (USS) was founded, and the proposed inflation cap at 2.5%. Continue reading