USS pension: recent developments
Subject to the necessary consultation exercises, the USS Joint Negotiating Committee (JNC) and USS Trustee have accepted the employers’ proposal for scheme changes.
The USS decision means that scheme members will avoid significant increases in their contributions from the current 9.6% to at least 13.6% of their salary next year, and possibly as high as 18.6%, which the USS Trustee had said it would otherwise need to implement in large increases set for October 2021 and April 2022. Instead, from October 2021, member contributions will increase by just 0.2%, to 9.8%, and employer contributions will increase by 0.3%, to 21.4%. The changes to contribution rates (and other technical questions) are subject to a two-week consultation period* with Universities UK (UUK) representing scheme employers.
The JNC decision also means that the defined benefit (DB) element of pensions will build up at a slower rate from 1 April 2022. Defined contribution benefits will be offered in respect of salary over £40,000 (currently £59,883.65). This element of the proposal will be covered in a separate 60-day consultation on the scheme changes agreed by the JNC, with scheme members and employers, which will be initiated in the autumn.
If the benefit changes are not confirmed after the consultation period, contribution rates would have to rise significantly, reaching 57% by October 2025 (shared under current rules on a 65:35 basis between employers and scheme members respectively).
The JNC decision was passed by the casting vote of its Chair, after the University and College Union (UCU) decided not to put its alternative proposal to the vote of the committee. On Friday, the USS Trustee formally accepted the JNC’s decision.
A spokesperson for USS employers said: “The employers’ proposal for reforms is an alternative to the USS Trustee’s proposed unaffordable contribution rates for scheme members and employers, which would have caused considerable disruption for members and risks forcing more people to leave the scheme.
“The additional backing offered by employers is unprecedented among UK pension schemes, with the USS Trustee valuing their additional covenant support at around £1.3 billion per year, which has the impact of limiting the benefit reforms needed.
“In partnership with UCU, we look forward to progressing a major governance review of USS, jointly exploring future options for scheme design including Conditional Indexation, and shaping a lower-cost option so staff on lower salaries are no longer priced out of retirement saving.”
Details of the changes are:
- minimising member contribution increases to no more than 0.2% of salary, meaning a member contribution increase from 9.6% to no more than 9.8%
- maintaining the scheme’s Defined Benefit (DB)/Defined Contribution (DC) hybrid model, with DB applying up to a new salary threshold of £40,000, and retaining DC at an overall 20% of salary above that threshold
- employers providing further, stronger covenant support measures
- committing that, should the scheme’s financial situation improve, then enhancements to benefits could be considered, rather than reductions in contribution rates
- addressing the high opt-out rate by giving eligible members the choice of a new lower contribution option. Currently, about 20% of members choose not to join the scheme and therefore lose out on the 21.1% employer contribution; and
- a major review of the scheme’s governance, and exploring moves to a Conditional Indexation model, which pegs a part of annual pension provision to the performance of scheme funds. This would be done via a working group of members’ representatives, employers and USS.
Benefits which members have already earned within USS are protected by law and secure. The proposal for changes relate to future pensions benefits yet to be built up.
*Update 13 September: this consulation with employers is due to close on 20 September.