USS expert panel calls for dual discount rate in 2020 valuation
The Universities Superannuation Scheme Joint Expert Panel, set up to review the valuation of the scheme, is calling for a “dual discount rate approach” to the 2020 valuation, aimed at distinguishing between past and future accrual.
This is one of the recommendations to the operation of the £68bn pension fund made by the JEP in its second report, published on Friday.
The panel said it would also “better reflect the demographics of the scheme and automatically evolve as the scheme matures”.
A spokesperson for the Pensions Regulator said the idea was “broadly” aligned with its proposed new funding code for defined benefit schemes, which is set for consultation next year.
We need all parties to now engage with the report in order to secure members’ pension benefits in an affordable way and to ensure the scheme's long-term sustainability
The dual discount rate proposal was one of a number of “interlocking recommendations” from the JEP, which also included setting up joint bodies within USS to increase the involvement of employers and staff in the operation of the scheme.
Calls for Joint Negotiating Committee improvement
The seven-person panel also recommended “the establishment of a new, jointly agreed purpose statement and shared valuation principles”, and called for improvements to the operation of the Joint Negotiating Committee, which comprises representatives of the University and College Union and employer organisation Universities UK.
Other proposals included introducing a new valuation methodology to reflect a joint agreement on the scheme’s purpose and the risk appetites of the trustee board, employers and staff.
The JEP also recommended the “investigation of different approaches to contributions” in order to address the high level of opt outs, particularly among younger and lower-paid workers.
Joanne Segars, chair of the JEP, said: “Our recommendations, which should be considered as a package, are rooted in the belief that the USS is of crucial importance to members, employers and to the health of the higher education sector.
“We propose significant changes to governance and valuation methodology, each of which may be difficult for individual parties to accept. However, as work on the 2020 valuation commences, employers, unions and the trustee [board] must urgently come together through a facilitated process to make them work.”
Ms Segars added that it would be a “failure” for stakeholders and the higher education sector if the JEP’s recommendations were not “seriously considered”.
Professor Julia Buckingham, president of UUK, said the proposals were “helpful” and could act as a “catalyst” for agreements between employers and the UCU. UUK plans to survey its membership for views on the JEP’s proposals ahead of the next valuation date on March 31 2020.
UCU general secretary Jo Grady said: “This report sets out a path which may provide an opportunity for lower contributions than USS has scheduled. We need all parties to now engage with the report in order to secure members’ pension benefits in an affordable way and to ensure the scheme's long-term sustainability.”
Ms Grady also welcomed the JEP’s proposal for more interaction between the stakeholders and TPR in an effort to reach agreements.
The regulator’s view
A spokesperson for TPR said: “The issues involved with USS are complex and the constructive engagement of all parties will be crucial to consider the direction the JEP has set and ultimately protect savers in the scheme.
“The JEP report’s high-level recommendations, including for effective governance and clear communication during the valuation process, align with our views. In particular, we agree with the need to ensure the scheme’s long-term sustainability.
“Work is already underway on the scheme’s 2020 valuation… We look forward to seeing how the trustee and stakeholders will take forward the report’s recommendations.”
“While implementation of the JEP recommendations won’t solve all the issues at stake in the dispute, this report provides a strong starting point for further discussions,” she added.
USS urged to consider expert report
Pensions Expert reported on Monday that UK universities and staff have called for USS to ensure its 2020 valuation process fully considers the JEP report.
This followed an announcement from the USS trustee board setting out a timeline for the next valuation, which will assess the pension fund’s assets and liabilities as of March 31 2020.
Under the scheme’s current recovery plan, based on data from March 31 2018, the combined employer and employee contribution is scheduled to rise to 34.7 per cent of salary from October 2021 from 30.7 per cent, in an effort to tackle the USS’s funding deficit.
However, UCU has consistently argued that employers can shoulder any increase and staff should not be forced to pay more. Its members have staged strikes to protest against the contribution increases, as well as other aspects of their pay and conditions.