Lecturers square up for a fight to hold on to their gold-plated pensions

Agreat perk of being an academic in an "old" university, established before 1992, is that you join a Rolls Royce pension called the Universities Superannuation Scheme. This gives you a comfortable final salary pension when you come to retire. For this reason the scheme is hugely valued by lecturers and seen as a kind of reward for not having been very well paid during their careers.

Sir Andrew Cubie, the clever Scottish lawyer who has been chairing a committee examining the crisis that is hitting the universities' pension pot, goes so far as to say that the USS is a "jewel in the crown" for the University and College Union, which represents 120,000 academic staff.

After two years of talks, however, this committee has been disbanded after failing to reach agreement. The UCU rejected big changes to the pension in what could be the first shot in a long war with 5 million public sector workers over the future of their pensions. In particular, the union has rejected a move by the university employers to switch new entrants to academe in the old universities from a final salary to a career average scheme. Anyone already in the USS scheme would retain their final salary pension.

The union has decided to hold a consultative ballot on the proposed changes, which is taking place at the moment and the result of which will be announced at UCU's annual conference at the end of May. It says it cannot rule out industrial action if the employers try to force through reform that it doesn't like. Although the UCU accepts that some changes are necessary, it maintains that the employers' current proposals to change the scheme are unacceptable and will leave members out of pocket.

"Our members have long seen pension as deferred pay and an important part of their remuneration package," says the union's general secretary Sally Hunt. "We do not accept the argument that because pension schemes have taken a bit of a battering elsewhere that we should join the race to the bottom."

The employers, needless to say, refute her comments, arguing that the reforms are needed to ensure the scheme's viability. They say the reforms are the minimum required to address the financial problems caused by people living longer. Academics, it seems, live longer than other people.

According to the USS, male academics live an average of 22.8 years after retiring at 65 and women live 24.8 years into retirement.

"The biggest threat to all pension schemes is longevity," says Professor Sir Bill Wakeham, chairman of the Employers Pension Forum. "This is the basis of the employers' argument. The ability of the scheme to sustain that ever-increasing burden is much more important than what is happening in the stock markets."

As well as ending the final salary element for new entrants, the employers' package includes higher contributions from employees, raising the pension age to 65 and linking it to the increase in state pension age to 66 by 2026 and 68 by 2046. The Con-Lib coalition wants to bring forward the first of those increases, and, by implication, the later one as well.

The union made a counter-offer that included an increase in contributions but preserved the final salary element, which the employers rejected.

Universities are not only worried about the financial effects of people living so long. They are also deeply concerned about public spending cuts, and the Lib-Con coalition is busy working out where these are going to fall. With £500m of cuts already announced and more in the offing, universities know that pension costs need to be controlled and future risks minimised. "Without these changes, the increasing pension costs will inevitably have an impact on staffing levels and what universities are able to offer their students," says Nicola Dandridge, chief executive of Universities UK.

The USS scheme is privately funded, not taxpayer supported. But, given the state subsidy of universities, a lot of taxpayers' money ends up funding academic pensions. That suggests that the future of the pension scheme is bound to be considered by the independent commission set up by the Con-Lib coalition to examine the long-term affordability of public sector pensions.

In the meantime, the USS joint negotiating committee will meet on 7 July to consider both the employer' and the unions' sets of proposals.

Sir Andrew Cubie will have a casting vote. When asked how he might vote, he declined to comment. But in a speech last year, he made it clear he was prepared to use it.

The employers believe that the issue needs to be resolved urgently, because the USS will be reviewed by the pension regulator in March 2011. If the regulator does not like it sees, it can insist on a recovery plan that would mean more money being put into it by the employers, ie the taxpayer. "Universities are certain they cannot afford that," says Wakeham.

UCU, on the other hand, says that the scheme is not about to collapse, nor is it in dire straits.