Employers and academics rail against new USS contribution rate

Through their representative Universities UK, employers responded to the USS 2018 actuarial valuation – which showed a deficit of £3.6bn – by saying they are not convinced that the figure of 33.7 per cent of salary, the upper limit of the range of acceptable contributions proposed by the trustees, is the “correct” price for the current benefits.

On the basis that it is the “least worst” option, most employers support the proposal for contingent contributions with lower contributions of less than 30 per cent of salary.

It is difficult to see how we will avoid balloting for strike action again if USS insists that current proposed contribution increases are necessary and enforce them

Dr Jo Grady, University and College Union

Employers are resting their hopes on the second phase of work by the Joint Expert Panel, a panel of independent experts, for a sustainable longer-term solution. 

Academics join outcry

USS Briefs, a group of academic activists, also dispute the need for a rise in contributions. A USS Briefs spokesperson told Pensions Expert: “The first report of the JEP made several modest recommendations. If applied to the 2018 valuation, these recommendations would result in a funding surplus and a total contribution rate no higher than 26 per cent. However, USS has rejected two of the key proposals out of hand, and insisted that two others can only be implemented if employers offer contingent support.”

They added: “USS employers have repeatedly cut staff pay in real terms over the past decade, while increasing capital spending and in many cases running up massive, unrestricted cash reserves.

“At the very least they should have offered to bear the full cost of the contribution increases, which they have barely tried to prevent.”

“The current valuation cycle appears destined to repeat itself: with the JEP making a rigorous, open-minded, wide-ranging critique of USS, scheme members engaging with it seriously, and employers and USS either paying it lip service or dismissing it altogether.”

A spokesperson for the University and College Union, which represents more than 120,000 academics and lecturers, said: “We do not believe the high levels of contributions due to be imposed by USS are necessary, and want all sides to work towards a sustainable long-term solution for the fund and an agreement ahead of any future increases.”

Potential strikes ahead

Dr Sam March, a lecturer at the University of Sheffield and one of UCU's elected members of USS's Joint Negotiating Committee, agreed: “If USS ploughs ahead with the current course and insists on its 'upper bookend' figure of 33.7 per cent total contributions, then this is likely to throw the higher-education sector into turmoil yet again, something the JEP's report would have avoided.

Meanwhile, Dr Jo Grady, a member of the UCU USS National Dispute Committee, added: “It is difficult to see how we will avoid balloting for strike action again if USS insists that current proposed contribution increases are necessary and enforces them.”

Responding to these criticisms, a spokesperson for USS said: “The trustee’s primary duty is to ensure the very valuable benefits promised to USS members are secure for the long term; this is the key factor that will influence trustee decisions on these matters.

“UUK has the challenging task of distilling a single view from very disparate views across the employer base – the views expressed by UUK have changed radically from previous consultation responses on these issues, and the trustee will need to consider these views and any broader changes to the circumstances of the scheme.”

Contingent support 'egg cup to fill a bath'

Under the scheme’s proposals, employers will be able to lower their contributions if they provide contingent support. But David Spreckley, director at KPMG, doubted how valuable this support would be.

“From the USS’s perspective, the amount that would be collected in a contingent scenario is symbolic – at most around 0.5 per cent of assets over three years – and is a bit like using an egg cup to fill a bath,” he said.

He added: “There is a fundamental difference between how the USS and the JEP view long-term risk. The JEP projected that the USS would shrink relative to the sector, but USS trustees recognise that in pensions, nothing is certain. It’s crucial that these two perspectives are reconciled within the next phase if stakeholders are to move forward constructively.”

Hugh Nolan, director and actuary at Spence and Partners, said employers are “right to be worried” about the long-term cost and sustainability of the scheme.

“The trustees believe that they need a higher level of contributions to fund prudently than the employers are willing to pay – or able to pay in some cases,” he said.

“Although there may be some short-term relief from changing mortality assumptions, there is inexorable pressure towards ever more prudent funding, with the next target of self-sufficiency funding already on the radar for  USS trustees.

“Negotiating a lower level of contributions now will just increase the risk of higher contributions being needed later.”

USS trustees will consider the UUK response to the consultation at a board meeting on March 28.