USS Pension: UUK proposal

The 2017 USS valuation process is moving forward. At JNC on 13 November, a proposal was put forward by UUK on behalf of higher education sector employers, including the University of Leeds.

Every three years, USS is obliged to carry out an actuarial valuation – comparing the size of the assets and liabilities of the pension scheme and providing detailed analysis of the factors that influence the scheme’s funding position. USS is required by law to undertake a valuation as at 31 March 2017.

Recently, USS consulted with Universities UK (UUK, on behalf of sector employers) and University and College Union (UCU, on behalf of employees) on the 2017 valuation. Then, on 13 November, the USS Joint Negotiating Committee (JNC) – made up of five UUK members, five UCU members and an independent chair – met for its initial negotiation meeting.

Any potential changes to future member benefits or contributions are negotiated within the JNC, and once decided upon in JNC, are subject to full consultation with affected employees. Please note, members’ accrued pensions (those built up prior to any future changes in USS pension provision) are protected under law and will not be affected by any future change.

Further meetings between UUK and UCU are planned throughout November and December, in order to progress negotiations on the next steps for the USS scheme.

UUK proposal on behalf of employers

At JNC on 13 November, a proposal was put forward by UUK on behalf of higher education sector employers, including the University of Leeds.

UUK’s proposal is designed to manage USS risk, whilst simultaneously offering high quality benefits to employees, both past and future. The proposal is to move to a system of market-leading defined contribution saving (through the USS Investment Builder) for all employees, on all of their salary. However, the proposal is to not close the defined benefits (DB) structure entirely; the proposal has been constructed in order to offer a range of options (including the possible reintroduction of DB benefits) if scheme funding improves at future valuations.

Furthermore, UUK proposes maintaining the provision of death and incapacity benefits on a defined basis so that employers continue to carry the risk in the most difficult of circumstances.

Rationale for the UUK proposal

  • The economic position at the 2017 valuation is much more difficult than expected, with the greatest challenge related to the significant rise in the cost of future service benefits (i.e. benefits not yet accrued), which has risen by over a third since the last valuation. (Remember, accrued benefits are protected under law and will not be affected by any future change.)
  • The Pensions Regulator (tPR), the public body that protects workplace pensions in the UK, has already written to USS Trustees to express concerns. Subsequently, the USS funding deficit has now increased to approx. £7.5bn.
  • Currently, employers pay 18% of salaries towards USS and members pay 8%. If the current level of defined benefits continued to be available, this would constitute an additional cost equivalent to at least 11% of salaries, which would need to be shared between employers and members. The current employer contribution of 18% is already high, reflecting a clear and continued commitment to offering high quality retirement benefits, but most employers are not in a positon to increase their contribution further. It is clear that many employees would find an increase in their contribution of 8% challenging too.
  • The reason universities collectively can’t afford to pay more is that it would require diverting money from other key areas, such as teaching, research or campus investments, thereby reducing universities’ positive impact in areas core to their mission.
  • The USS trustee requires the increased cost in future service benefits to be addressed at this valuation and it and tPR will also need to agree a credible plan to address the deficit. Employers believe that benefit reform is necessary to ensure the scheme is on a stable and sustainable footing for the long term.

At the University of Leeds, we fully appreciate that the prospect of pension reform will concern colleagues, however, we do support the UUK position that reform is necessary now to ensure the sustainability of the scheme and to continue to offer valuable retirement benefits to current and future employees.

You can view questions and answers collated by UUK here and in the related links here.

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