No 6464
Wednesday 10 May 2017
Vol cxlvii No 30
pp. 505–521
A Discussion was held in the Senate-House. Deputy Vice-Chancellor Professor Dame Carol Black was presiding, with the Registrary’s deputy, the Senior Proctor, the Senior Pro-Proctor, and five other persons present.
The following Reports were discussed:
Dr S. J. Cowley (University Council, and Faculty of Mathematics):
Deputy Vice-Chancellor, I am a member of the Council and the Human Resources Committee but I speak in a personal capacity.
I am in two minds about this proposal. On the one hand, there is a need to be competitive with major peer institutions, since the University is in a market, and remuneration offers need to be competitive. However, there is a tendency for those running the University to concentrate on the select few at the top end of the market (as this proposal does), and not take as seriously those at the lower end and middle parts of the market (and as someone in that position, I declare an interest).
The University’s core values (approved by Grace) include ‘recognition and reward of the University’s staff as its greatest asset’. Further, the Vice-Chancellor’s objectives for this academical year include the sentence:
The Vice-Chancellor’s conviction is that its people are the University’s most important asset in pursuit of this ambition.
While as a member of the Council I occasionally see acknowledgement of these values and convictions, which at face value apply to all staff, I see relatively less action. Whenever pay or pensions come up, there is almost a knee-jerk reaction that the University is short of resource. Of course there is not a bottomless pit, and there have to be priorities. Yet, as I have observed before, the money seems to be there for capital expenditure, or for overruns, or for market pay, or for other aspects of expenditure, e.g. between July 2002 and July 2015 the total headcount of staff increased from 8,420 to 10,845, i.e. by 29%, while the headcount of academic-related staff increased from 967 to 1,843, i.e. 91%.
As a result of this lack of money for pay and pensions, many staff have suffered an inflation adjusted cut in salaries, e.g. since 2009 RPI has increased by 23% while HE pay settlements have delivered 7% (which may explain the increasing use by the University of market pay, indeed routinely for certain institutions). In addition, there have been two rounds where USS pensions have been significantly reduced. Based on USS’s own calculations, the last change resulted in a reduction of almost £5 billion in the pensions members receive in exchange for contributions many feel that they had already made. Yet the £5 billion was available if the sector had prioritized staff over capital expenditure, since as UUK’s USS – the need for reform noted
the sector is planning to invest over £15 billion in infrastructure projects during the four years from 2013/14, which is nearly 50 per cent higher than in the previous four years;
that 50% increase almost exactly matched the reduction in members’ pensions.
When I joined the University as a member of staff in 1990, there was a greater sense of collegiality, and this was one of the defining features of the University that made it an attractive place to work (at least compared with Imperial, which was my previous employer). However, when the pension cuts went through I predicted that staff at the top end of the salary range would be more likely to receive special treatment. This proposal is but one example. Moreover, this proposal was not originally even going to be Discussed or Graced. At its meeting on 21 November 2016 (a meeting before I re-joined the Council), the Council agreed to the proposal, with the Minutes recording:
After a short discussion and a vote, it was agreed that whilst some measures involving a salary supplement might be controversial and require the publication of a Grace for the approval of the Regent House, this was not necessary in this case. The Council approved the introduction of the salary supplement in lieu of pension
Further, while there was a potential conflict of interest for some members of the Council, none was declared, and it was also proposed that
A low key communication strategy developed given the nature and circumstances of the benefit.
Indeed, the communication strategy was so low-key that a proposed Notice had not been published within thirty days of the decision. The thirty days is important, since to make a representation under Statute A IX 1 that a decision is ultra vires, one has to do so within thirty days after the doing of the act. By chance I found out about this proposal informally soon after 5 p.m. on the thirtieth day after 21 November 2016. I was hampered by the fact that I had no access to the relevant Council papers, and no Report, Notice, or Grace had appeared in the Reporter. My representation that it was necessary to Grace this proposal was submitted with less than two hours to spare. While my representation seems to have had an effect, this whole procedure, including the wording, is not conducive to good governance and leaves a rather unpleasant smell. At the very least there are lessons to be learnt about transparency and the inadequacy of the thirty day restriction in Statute A IX 1.
Let me also declare that the ‘low key communication strategy’, when I found out about it, was a red rag to a bull. It is not just pensions where a few favoured individuals seem to be benefitting. There is something of a merry-go-round where the favoured few are regraded or given multiple increments.
In 2002, there was transparency and the stipends of University Officers were published in the Statutes and Ordinances. From perusal, I estimate that the number of academic-related staff then on the Professorial, ‘grade 12’, scale was of the order of ten, now I gather that there are of the order of fifty. For assistant and academic-related (grades 1–11) staff, every year about 6% receive a contribution increment through the Contribution Reward Scheme (CRS), while for those on grade 12 about 20% receive a contribution increment biennially, so that is about 10% a year. Moreover, a higher proportion of two and three increment awards are made under the grade 12 scheme compared to the CRS, where the majority of awards are for one increment.
There is little question that many of these favoured few are working long hours in support of the University, but so do very many others in the collegiate University. The going rate for CTOs at one College seems to be £35,000, while in my Faculty I regularly get emails at all hours from members of staff who are being paid little more than a pittance. Yet many/most of these have to be content with pay increases of less than RPI, and possibly do not know that two and three increment awards are made. It does seem to be true that ‘whoever has will be given more, and they will have an abundance’; I just hope that the second half of the quote is not implemented more effectively.
By the nature of how the University works, those in the leadership meet more regularly with the others in the leadership, and those that support them. They are decent human beings, and I can understand why they want to reward those that help them directly. But there are many others in the University working as hard, or possibly even harder. Many are not in a position to benefit from market pay, and are also not benefitting from as many contribution increments as the better paid. Maybe unconscious bias does not just apply to gender, or other aspects of diversity.
As another example, consider the statement in the Report that
The CPS does not contain an enhanced opt-out option to enable employees to retain death in-service and incapacity benefits, and accordingly eligible staff would need to consider this before deciding whether to accept a salary supplement in lieu of participation in the pension scheme.
Surely the answer to that, for the sake of fairness, is to introduce an enhanced opt-out option, yet I have heard of no proposal. The rules of the Cambridge University Assistants’ Contributory Pension Scheme do not need the agreement of other universities to be amended, so why not implement it?
My experience of the pensions’ debates is one where many members of the USS care deeply, and where the University has, in some respects, dropped the ball. I have been a member of various University Pensions Advisory Groups (PAGs) since October 2010. There has often been serious discussion at these meetings, yet the output of the PAGs has only been advisory, and the Pensions Working Group (PWG) has often watered down, or ignored, the PAG output. In the worst case, the PAG came to a conclusion, yet the decision of the group when circulated for approval for forwarding to the PWG had been ‘adjusted’. For once the inner workings of the University were exposed, since ‘tracked changes’ were on, and the author of the watering down was clear; it was the then Registrary, who had not attended the PAG meeting.
The papers I have seen recently suggest that, despite the significant cuts in benefits, USS is now in dire straits again; partly this is because of the damage to gilt yields caused by Brexit (we have not heard much about that from the ‘leavers’). Hence, the PAG has recently been reformed and I am again a member. However, in the light of previous experience I do not hold out much hope that it will have much effect. Pensions are just not seen as a sufficient priority for those at the top, and if/when there are cuts, then those at the top are in a much better position to argue for compensatory pay increases, while those further down just have to grin and bear it.
This leads me back to this Report. One of the surprises for me in the papers supporting the Report was that the University’s deficit recovery contribution to USS is only 2.1%. This seems much lower than the numbers being bandied around when it was being argued that members of the USS had to take a £5 billion hit. In searching around for the figures, I came across Proposed Changes to USS – Myths, Misconceptions, and Misunderstandings, published by the Employers Pensions Forum (EPF). In that it is stated that the reason why only 12% of the University’s 18% contribution above the salary threshold would be paid into the defined contribution scheme was because the
balance of the employer contribution will pay for future benefits in the career revalued benefits section and will be required to address the scheme’s funding deficit in respect of past service benefits.
I naïvely thought that most of the 6% was needed for the deficit, given that the figures in the USS 2014 Actuarial Valuation consultation on the proposed assumption for the old scheme’s technical provisions and recovery plan, gave the deficit contribution rate as 9.8%. When I asked around a few months ago, I was not alone in this misconception, but it turns out it was ‘just’ 2.1%.
So if only 2.1% of the 6% is going to pay off the deficit, where is the other 3.9% going? From the above employers’ quote it is going to ‘pay for future benefits in the career revalued benefits section’. Whose future benefits? The career revalued benefits section is for that portion of one’s salary up to the salary threshold, yet it seems that for USS not to end up with an increasing deficit on that part of the scheme, 3.9% of the employer contribution above the threshold of those earning more than the threshold is needed. I conclude that if all those earning above the threshold withdrew from the scheme, the scheme would have an increasing deficit. Hence to my mind, the University should not be paying 12% to those who withdraw from the scheme, but 8.1% to the employee with the other 3.9% paid to the USS, if necessary voluntarily, for future benefits in the career revalued benefits section of us all.
Now my sums in the previous paragraph might be flawed, but if they are I would like a detailed explanation in the Council response.
Professor R. J. Anderson (University Council, Computer Laboratory, and Churchill College), read by Dr Cowley:
Deputy Vice-Chancellor, I cannot support this measure. It rewards a senior professor on £120k who opts out of pension payments to avoid paying tax, but fails to reward a research associate on £30k who opts out of pension payments because she needs the money to pay her rent, or because she plans to return home after her postdoc. We should treat all staff equally.
Professor M. R. E. Proctor (University Council, and Provost of King’s College), read by the Senior Proctor:
Deputy Vice-Chancellor, I wish to support the conclusions of this Report. I am a member of Council and signed the Report. My personal views fully coincide with the conclusions expressed and the actions proposed.
I am in fact one of those persons whose University pension may be subject to Pension Tax when I retire from my Chair in September. However I have no personal interest in the Report’s recommendations as I have continued to make full pension contributions and will not be in a position to seek an uplift of salary if the provisions are approved.
It is an unfortunate but inescapable fact that all Universities are in competition for outstanding leadership in research and governance, and Cambridge must have the flexibility to be able to offer appropriate terms to those it wishes to attract and to retain. The proposals in the Report enhance that flexibility, at no cost to the University.
The proposals will of course also benefit a number of senior academics and administrative staff who are not involved in any pay negotiation. I have heard these described as ‘fat cats’, and concern has been expressed that this is a benefit only available to the higher paid, though it must be remembered that these are the same people who have had their projected pensions progressively reduced by the government’s Pension Tax changes. The salary uplifts that they would receive under the scheme would be subject to higher rate tax and this of course reduces the benefit provided to them.
The Report is reassuring concerning employees not immediately able to make use of the proposed scheme since it makes clear that there will be further consultation on the possibility of extending the provisions to those not subject to Pension Tax. I personally hope that the conclusion of the consultation will be that, so far as the law and the pension providers’ rules allow, some discretion will be allowed to all employees who wish – in full knowledge of the implications – to give up their pension benefits. This would give a similar role to personal choice as has been allowed in the recent relaxation of Government rules on pension commutation.
In conclusion, this Report is timely. It involves no additional University expenditure, or loss of income to anyone, and it enhances the University’s position in the marketplace. Further extension to a wider range of employees is under discussion. I hope that the Regent House will give it its full support.
Dr R. F. Anthony (University Council, and Bursar of Jesus College), read by the Senior Proctor:
Deputy Vice-Chancellor, I am Bursar of Jesus College, an elected member of the University Council, and a member of the Finance Committee’s Business Sub-Committee, although I am making these remarks in a personal capacity.
One of the greatest concerns of the University Council is how to maintain the University’s position as one of the top five global universities. We face intensive competition, not only from within the UK – especially Oxford and London – but also from across the world. A key factor in this is recruiting and retaining the best staff at a time when our resources are becoming more constrained. Effective use of these resources is therefore a necessity if Cambridge is to remain pre-eminent among its peers.
Where we have flexibility, we must use it to its greatest effect, particularly if our competitors are already doing so. How can the University be expected to retain and recruit top academics, when it is prevented from offering a pension that is as attractive as that offered by Oxford, Imperial, and other members of the Russell Group? The payment of a supplement for those who are disadvantaged by the current taxation rules relating to pensions is therefore something that the University must do.
The proposal before you has been brought forward after lengthy debate and consideration in various committees. Pay and pensions are always sensitive issues, and it is important that the University considers these matters carefully and seeks to make provision for all rather than a few. That is why I welcome the work being undertaken by the Remuneration Working Group and the Human Resources Committee to extend the proposals to a wider number of employees. However, this involves complex issues of law and pension regulation, and is not a reason for a delay, while our competitors move ahead of us.
Despite its name, the payment of a salary supplement is not extra pay for certain employees, it is merely replacing what they would have been paid as pension contributions and structuring it in a different way to avoid excess tax charges. There is no additional cost to the University, and it should not be compared to other supplements that have been introduced by the University, such as market pay.
The proposals made in the Joint Report have already taken a considerable amount of time to come before the Regent House, and further delay will only make it more difficult for the University to retain and recruit the most talented employees. I therefore urge the University to follow the example of other British universities and use the excellent pension provision it offers in the most effective and efficient way.
Professor E. V. Ferran (Pro-Vice-Chancellor for Institutional and International Relations, and St Catharine’s College), read by the Senior Pro-Proctor:
Deputy Vice-Chancellor, as the Pro-Vice-Chancellor for Institutional and International Relations I wish to speak on the Joint Report of the Council and the General Board on the payment of a salary supplement for those who for tax reasons opt out of future pension provision.
The University needs to recruit and retain the most talented staff. It needs to be able to offer competitive remuneration packages to do so. Pension provision is a very important part of that package. Historically pension scheme membership has been of benefit to all staff and relatively straightforward in the way benefits accrue. Over recent years however, the increasing complexity of pension scheme structures and benefits combined with significant reductions in pension tax allowances has meant that some employees do not benefit from joining or remaining in the schemes offered.
Recognizing that this is a problem for both recruitment and retention of talented employees, the UK Higher Education sector has developed a cash supplement alternative for those who choose not to join, or to opt out of, pension schemes. Over 50 HEIs in the UK are now offering a supplement, including eleven members of the Russell Group. These universities include Oxford, Imperial, LSE, Edinburgh, Bristol, Exeter, Liverpool, and Glasgow.
Not being in a position to offer the supplement would threaten our competitiveness. Whilst we could make up some ground by using other pay supplement mechanisms, that approach would be less transparent than the dedicated cash supplement alternative and would be likely to operate in a way that is more favourable to new joiners than to existing staff.
The proposed cash supplement is an appropriate and fair approach for dealing with an issue that would otherwise leave staff at a disadvantage. The supplement is not an addition to total remuneration but a substitute for the contribution the University would otherwise have made to a pension scheme on behalf of a staff member. Without a supplement the staff member would, in effect, suffer a reduction in their total remuneration. The supplement is cost neutral for the University. Cost neutrality is an essential feature.
Initially the supplement will be 12% (for members of the USS) but with provision to review that figure to maintain cost neutrality should there be a change in pension scheme contribution rates. Detailed calculations are being undertaken to establish the appropriate figure for those in the Cambridge University Assistants’ Contributory Pension Scheme and other schemes administered by the University.
It has been suggested to me that limiting the scheme to those affected by the pension tax changes could discriminate in favour of older, male staff. I am satisfied that the scheme represents a proportionate means of meeting a legitimate aim which would be permitted under equalities legislation. In any case, I expect the diversity of eligible staff to increase quite quickly, particularly if we are able in due course to extend the scheme beyond staff affected by adverse tax issues.
The proposed cash supplement is a step in the direction of a more flexible approach to remuneration packages. Careful consideration has been given to whether the scope of the proposed scheme and the eligibility should be broadened beyond those affected by the pension tax changes. The University is not in a position to extend the supplement any further at the moment because of considerations relating to USS membership and to the prohibition in the pensions legislation on employers offering inducements to employees to opt out of pension arrangements. However, with detailed and careful work, it may be legally permissible to extend the scheme to other categories of staff. I am fully committed to exploring the possibilities and I have asked the Remuneration Working Group of the Human Resources Committee to investigate further as part of a wider review of the employee benefits package. I will report the findings to the General Board and Council.
In my role as Pro-Vice-Chancellor with strategic responsibility for staff I am critically aware of the importance of having competitive, fair, equitable, and sustainable remuneration policies and practices. The proposed scheme is consistent with that objective and will add to the attractive range of benefits which help to differentiate the University as an employer of choice.
Professor P. M. Allmendinger (General Board, Head of the School of the Humanities and Social Sciences, and Clare College), read by the Senior Pro-Proctor:
Deputy Vice-Chancellor, as Head of the School of the Humanities and Social Sciences I wish to speak on the Joint Report of the Council and the General Board on the payment of a salary supplement for those who for tax reasons opt out of future pension provision.
As the Joint Report makes clear, this proposal has the support of the General Board and Council. It is based upon independent advice, is cost neutral, and is part of a broad review and modernization of rewards and benefits at all levels across the University. What is less clear in the Report are the issues to which it relates, issues that are pressing and critical to the future success of the University.
Within the School of the Humanities and Social Sciences we are increasingly struggling to recruit and retain staff at all levels, particularly international staff. Thus far we have not noticed a ‘Brexit effect’ though the devaluation of the pound has made salaries less competitive at all levels. At the same time housing costs in the city remain relatively high and at a comparable level with London. The main factor behind the recruitment problem is competition in terms of what other institutions – international and domestic – are offering; packages that go beyond salaries to include benefits such as housing support. After salaries, pensions are the issue which I discuss most often regarding recruitment and retention. Within the UK our competitor institutions, including Oxford, are also now offering a salary supplement for those who opt out of pension arrangements for tax purposes. Blocking this proposal will be met with a mixture of surprise and satisfaction at Oxford, LSE, Imperial, King’s, Glasgow, Edinburgh, and elsewhere.
From the discussion at General Board I know that recruitment is a problem that is shared across the University. This proposal will not solve that problem. It is, however, an important part of the solution and without it I fear that the situation will worsen.
Whilst it is a cliché to say that the University exists in an increasingly competitive and global environment, it is nevertheless true. Whilst we do not know the final arrangements for our exit from the EU what we can say is that it is unlikely that staff recruitment will become easier as a result. As such we cannot simply assume that the brightest and the best staff will come to Cambridge or even stay here. There are a wide range of factors that will attract and retain staff such as the availability of affordable homes, excellent schools, and reliable public transport. Not all of these factors are within our direct control. However, we can act and we can make a difference in other areas and this proposal is part of a suite of changes that will help ensure that we remain attractive and an employer of choice at all levels.
The decisions we make as a University over the next couple of years will shape whether we maintain our international position and our relevance to society locally, nationally, and globally. We need to support change across the institution and ensure that we can adapt to uncertain times. Our staff are critical to our future. This is a pragmatic and sensible proposal that will help us remain attractive and recruiting and retaining staff.
No remarks were made on this Report.