USS: Universities UK questions and answers
Universities UK (UUK) has published a Q&A relating to the latest USS pension developments.
What do you say about the UUK proposal leaving staff ‘one third worse off’?
For a university staff member earning under the salary threshold of £40,000 per annum, the UUK proposal would lead to a headline reduction of about 12% in future pension benefits (benefits earned prior to any change are secure and unaffected), assuming inflation remains below 2.5%. Members earning over the salary threshold would also receive a generous (by market standards) 20% DC contribution above the threshold. Under the USS Trustee’s scenarios, members would be paying between 13.6% and 18.6% of salary (compared with 9.6% now) – this would leave all members much worse off in terms of take-home pay, and many members would be priced out of the scheme. The UUK proposal also contains a commitment to quickly developing flexible and lower cost options for members, but we are yet to determine the detail of these – and indeed we hope to work with UCU to shape options that best meet the needs of members.
At the JNC did UCU table its own proposal for changing the scheme?
We have not received an alternative formal proposal from UCU for decision by the JNC. The JNC decision on the UUK proposal was passed by the casting vote of the JNC Chair, after UCU decided not to table its own formal proposal. We repeatedly said to UCU during the JNC process that UUK would be willing to put any UCU suggestions to employers to seek their views and that offer still stands. Up until this point, UUK has not been allowed to even discuss the union’s suggestions for benefit reform publicly – indeed, it remains unclear if the UCU suggestions have the support of its members. The upcoming member consultation on the UUK package is important and open – and could lead to these proposals being amended. Employers will still consider alternative benefit structures and formulations, provided they are viable, affordable and implementable.
Why did employers not agree to a further one-month extension of the JNC discussions, as proposed by the UCU?
UCU did not ask for a one-month delay to the JNC timetable as they claim. Over the last 18 months of discussions, the USS Trustee has made it clear throughout that without a solution to the 2020 valuation emerging from the JNC, both employers and members would be forced to pay much higher contributions than at present from October 2021. The JNC has already formally had four-and-a-half months to discuss the valuation outcome (already extended by six weeks) in addition to the time prior to that. Given the lack of a UCU formal proposal to the JNC, it was not apparent that any further time would be productive and a further month of JNC deliberations would almost certainly have led to the imposition of these higher costs by the USS Trustee – starting with member rates rising to 11% from October 2021, with employer rates due to increase too if decisions were further delayed. This would damage the student experience and cost jobs, as employers would be forced to move money from other budgets to pay more into pensions, and priced even more members out of the scheme leaving them without pension savings.
What do you think about claims that UUK’s proposal for changing the scheme poses a ‘serious risk’ to members’ pensions?
The UUK proposal provides a viable and implementable solution to the 2020 valuation, which retains a significant element of defined benefit within the future pensions earned by members at close to current contribution levels. The UUK proposal also commits employers to even stronger levels of support for the scheme, which further protects the valuable benefits which have already been built up by members. The UUK package of reforms also includes a commitment to explore what might be better long-term pension designs, such as Conditional Indexation (which can provide increased benefits when investment returns do well, as we expect they will do in the longer-term), the development of a lower-cost option for members to help address the opt-out rate, and to immediately begin work on a governance review of USS. The UUK proposal is an alternative to the USS Trustee’s proposed unaffordable contribution rates for scheme members and employers, which would have caused considerable angst for members. Damage to the student experience and job losses would have followed had universities had to move money from teaching and research budgets to pay even higher pension costs.
How have employers moved during discussions over the valuation?
Employers have gone the extra mile to protect the scheme and secured much lower costs through their additional covenant support. Without such additional commitments from employers, valued by the USS Trustee at £1.3 billion per year, scheme members and employers would be looking at overall salary contribution rates 80% higher at 56%, instead of around 31%, and the closure of the defined benefits part of the scheme. This level of covenant support will be forthcoming despite it hampering the ability of many institutions to borrow money, invest and improve their services to students and staff. Throughout this valuation, UUK has repeatedly made the case to the USS Trustee and The Pensions Regulator to take a less cautious approach to the valuation, which has led to the USS Trustee modifying its approach to the valuation and lowering costs in the scheme.Posted in: University newsHigher education newsUSS Pension