UCU mulls industrial action as USS sponsors reject benefits modelling

As Pensions Expert has previously reported, USS has been in a protracted battle between its trustee, the employer group Universities UK and the UCU over the assumptions underlying its 2020 valuation.

The results of its latest valuation saw the scheme’s deficit quadrupling to more than £14bn, requiring that contributions be raised to between 30.7 per cent and 42.1 per cent of payroll under the most favourable scenarios. However, unless employers agree to a series of conditions, the rates could be increased to as much as 56.2 per cent of payroll.

UUK has been consulting on alternative proposals, which include stronger covenant support measures and a 20-year moratorium on scheme exits, that it hopes will produce a more favourable outcome than the hiked contribution rates that employers and unions have branded “unaffordable”.

In the coming days our members will formally decide how we fight UUK’s threat to slash guaranteed benefits. We then meet with UUK at the joint negotiating committee on June 14. As we have already made clear, industrial action is on the table if USS and UUK refuse to work with us

Jo Grady, UCU

UUK accused of failing to ‘come clean’ over proposals’ impact

The UCU has previously expressed its antipathy toward the USS trustees and its dissatisfaction with UUK’s approach and counterproposals, mooting the prospect of industrial action unless UUK took a firmer line.

On Friday, the union released a benefits calculator, which it claimed shows the true impact of the USS proposals. It argued they would “devastate” the finances of university staff, especially workers at the start of their careers, and even risk “collapsing the scheme entirely”.

For a typical USS member, the UCU modeller, developed by First Actuarial, showed a cut of more than two-thirds (35 per cent) to the benefits that the individual would accrue if UUK’s counter-proposals were enacted.

To avoid hiking the current contribution rates, 9.6 per cent for members and 21.6 per cent for employers, UUK proposed changing the accrual rate, which is the proportion of salary a member receives annually as a pension in retirement, to 1/85 from 1/75. 

It also proposed capping future annual inflation rises at 2.5 per cent and lowering the salary threshold where defined benefit accrual stops to £40,000 from £59,883.65.

UCU argued this would “drastically reduce the guaranteed retirement income of members of USS, hitting those at the beginning of their careers hardest, who are more likely to be on casualised contracts, on lower pay, have substantial student debt, and have fewer assets”.

UCU general secretary Jo Grady said: “UUK is trying to hoodwink staff into signing up to pension proposals which fall apart at the first sign of scrutiny. Reducing the level and the security of benefits will pull the rug from under people’s retirement and threaten the viability of the entire scheme as people question why they should remain a part of it.”

“The answer to concerns about the scheme’s affordability is for vice-chancellors to show the same faith in higher education that their staff do, and to listen to the experts who say the scheme is sustainable,” she continued.

“Increased guarantees from employers on staying within the scheme must be matched with a concerted effort to push back on bogus claims that defined benefits are unaffordable.”

UUK strikes back

UUK has hit back, arguing that the UCU “should be honest” with members about the cost of the scheme, rather than promoting a model that “only tells part of the story”.

It estimated that, for a university staff member earning £40,000 a year, its counterproposals would lead to a reduction of around 12 per cent in future pension benefits, while under the lowest-cost scenario presented by the USS trustee there would be a reduction of around 25 per cent. 

A typical USS member would have to pay in at least £1,660 under the lowest-cost scenario presented by the USS trustee. The default employer/member cost-sharing scenario would see members fronting 13.6 per cent and employers 28.5 per cent of the increased cost, which has been deemed far too high for employers.

“Employers would be very willing to consider alternative, feasible and affordable proposals from the UCU to tackle the scheme’s financial challenges — so far the union hasn’t put forward any possible solution. Unfortunately, no change is not a viable option,” a UUK spokesperson said.

“The modeller does not allow scheme members to compare possible benefit changes against the cost of maintaining current benefits through higher salary contributions. Staff need to decide if they want to pay much more — tens of thousands of pounds over a lifetime — to maintain benefits or continue to pay the same rate and accept moderate benefit change, which UUK has proposed.” 

“UCU should also be honest with USS members about the severe implications — including job losses — of employers paying much higher contributions.”

Decision on strike ‘in the coming days’

Responding to these points, Grady told Pensions Expert that the UCU has already said it is “willing to explore changes to the scheme, including progressive contribution structures that reduce the number of members opting out, and conditional benefit arrangements — but only on terms acceptable to members”.

“The whole package must continue to provide a good pension with a high level of security that ends the cuts which have taken place at every valuation since 2011. This would be achievable if UUK and USS worked with us to implement more of the recommendations of the joint expert panel, which UUK set up with UCU to help resolve the 2018 dispute,” she continued.

“Sadly, UUK has failed to be honest with pension scheme members about the damage its proposals would do to retirement benefits, leaving UCU with no choice but to spell it out using a modeller. Our members are today finding out exactly how much they stand to lose and are rightly unhappy.”

She argued that employers should be willing to provide stronger commitments to support and stay in the scheme, but also that USS takes into account “the recovery of the scheme’s assets since the valuation date of March 31 2020, when markets were crashing due to the pandemic and the future of the global economy was extremely uncertain”.

“In the coming days, our members will formally decide how we fight UUK’s threat to slash guaranteed benefits. We then meet with UUK at the joint negotiating committee on June 14. As we have already made clear, industrial action is on the table if USS and UUK refuse to work with us.”

A USS spokesperson told Pensions Expert: “The valuable pension promise offered by USS — a set inflation-linked income for life in retirement, regardless of what happens to the economy in future — is much more expensive today than in the past.

“We have looked to mitigate these rising costs by strengthening the financial support and commitments offered to the scheme by our sponsoring employers. But the funding challenges facing USS will ultimately require a broader, holistic solution and we are committed to supporting UUK and UCU’s discussions to this end.”