The Universities Superannuation Scheme trustee is to push ahead with a reform package agreed by USS employers, despite threats of strike action from the University and College Union.
As Pensions Expert reported earlier this month, USS employers agreed an alternative package of reforms to that initially proposed by the the scheme’s trustee, which it hoped would stave off “ruinous” contribution rate hikes resulting from its controversial 2020 valuation.
That valuation — which saw the USS deficit quadruple to more than £14bn — led the USS trustee, advised by the Pensions Regulator, to lay out three illustrative scenarios for rate increases, with the most favourable showing a rise in contribution rates to between 30.7 per cent and 42.1 per cent of payroll.
Under the least favourable scenario, that figure would be as high as 56.2 per cent.
The detailed and lengthy analysis underpinning the 2020 valuation has confirmed that the price of such certainty – of a set, inflation-protected income for life in retirement paid no matter what happens to the economy or the [higher education] sector in future – is much more expensive than in the past
Kate Barker, USS
Universities UK, the group representing 340 USS employers, put forward an alternative set of proposals, pledging a 20-year moratorium on scheme exits and greater covenant support measures, themselves bolstered by the announcement of even more generous proposals in July.
Employers agreed to the package earlier this month, and on Friday the USS trustee announced that it would take them forward, heralding the decision as one that would do away with the need for exorbitant rate hikes.
“Employers and scheme members were facing escalating contributions from October – for employers, from 21.1 per cent of salary to 23.7 per cent, while members would have seen their payments rise from 9.6 per cent of salary, to 11 per cent,” UUK said.
“But with the USS trustee board’s approval of the [Joint Negotiating Committee’s] decision to modify benefits, and agreement to proceed with a dual schedule of contributions, new rates of 21.4 per cent for employers, and 9.8 per cent for members will apply instead,” it added.
Employers have agreed to provide an extra £1.3bn of financial backing to the scheme, and the package includes a commitment to explore alternative scheme designs, including conditional indexation, as well as a “major” governance review.
Guarantees are expensive
In an update published on Friday, USS trustee board chair Dame Kate Barker wrote that subject to a two-week consultation with UUK on the schedule of contributions, the reform package will see member contributions increase by 0.2 per cent and employer contributions by 0.3 per cent on current rates.
She continued: “From April 1 2022, the way future benefits are built up are also set to change. Under the JNC’s resolution, the defined benefit pensions promised to members in future will build up at a slower rate. Defined contribution benefits will be offered in respect of salary over £40,000 (currently £59,883.65).
“These changes are subject to a statutory, employer-led consultation with affected employees and their representatives, due to be launched later this year.”
Acknowledging that the decisions facing the JNC, USS employers and scheme members have been “difficult”, and that great value is placed on guaranteed pensions outcomes, Barker said: “The detailed and lengthy analysis underpinning the 2020 valuation has confirmed that the price of such certainty – of a set, inflation-protected income for life in retirement paid no matter what happens to the economy or the [higher education] sector in future – is much more expensive than in the past.
“That is as true for the USS as it is for other DB schemes.”
She added that the employers’ proposals would put the scheme on “a much more sustainable footing for the long term”, and that the USS “would still be among the few private DB pension schemes in the country open to new members, offering valuable guaranteed benefits to its members”.
“We are committed to maintaining the USS’s position as one of the UK’s best private pension schemes. So, looking beyond this valuation, we would welcome the opportunity to work with UUK and UCU to explore flexible options for members, alternative benefit arrangements such as conditional indexation, and how scheme governance can be improved,” she said.
The JNC agreed to the employers’ proposals after UCU representatives declined to formally table their own proposals for reform and “refused repeated requests from employer JNC representatives to share the draft UCU proposals with employers for a view”, according to a press release from UUK.
A UUK spokesperson said: “The USS trustee board’s decision means decent pension benefits can continue being provided for contributions of 31.2 per cent of salaries, which is close to the current contribution rate of 30.7 per cent, and substantially lower than the 34.7 per cent rate the USS trustee previously said would apply in October.
“This decision, in combination with the other reforms, also prevents a further escalation of contributions next year.”
They continued: “Avoiding higher contributions is essential for both employers and scheme members. For employers, higher rates would have consequences for jobs, teaching and the student experience, while unaffordable contributions for members would undoubtedly force many to drop out of the scheme in greater numbers, and miss out on money from their employer towards their future.”
Trouble ahead
The news has not been universally welcomed, however. As Pensions Expert reported on Wednesday, UCU emailed 50,000 of its members in USS institutions inviting them to a mass meeting where discussion around balloting and strike action will be held.
The union criticised employers for agreeing to “a package of cuts” that will see a typical member on a £42,000 a year lecturer’s salary have their guaranteed retirement income cut by 35 per cent.
UCU further accused the USS employers of failing to agree to what it called a “small increase” in their contributions, while refusing to pledge the same level of covenant support to the UCU proposals as they had their own.
The union said its own alternative would have delivered higher benefits in return for lower contribution rates than those proposed by the USS employers, as well as providing for those currently priced out of the scheme, but that its proposals were not properly considered.
Strike action ‘inevitable’ after employers agree USS reforms
The University and College Union is to ballot its members over industrial action, branding strikes “inevitable” after employers agreed to press ahead with reforms of the Universities Superannuation Scheme.
UCU general secretary Jo Grady said the employers’ package “will reduce member benefits, discourage low-paid and insecurely employed staff from joining USS, and threaten the viability of the scheme as a whole”.
“Disappointingly, UUK did not support calls from UCU for a new valuation, despite the overwhelming case for one, and refused to allow for time to consult universities on UCU’s proposals, instead choosing to vote through their cuts,” she said.
Delegates at UCU’s annual conference in June agreed to ballot for industrial action if employers did not rethink their proposals, a measure that has now been triggered.
