The Universities Superannuation Scheme has rejected a request by Universities UK, the advocacy group representing 340 higher education employers, to revisit the controversial assumptions behind its most recent valuation.
Pensions Expert reported in March on the request by UUK, made due to the dire consequences stemming from the existing assumptions, which would require “unaffordable” contribution rate hikes that, UUK said, were unnecessary.
The last USS valuation showed the deficit quadrupling to more than £14bn, as a consequence of which employers would need to increase their contributions from 30.7 per cent and 42.1 per cent of payroll.
However, if employers do not agree to a series of conditions, the rate hike could be as high as 56.2 per cent. UUK said at the time that the proposed figures were “unaffordable”, while the University and College Union warned it “cannot rule anything out” in terms of reaction to the new rates.
Until an alternative proposal (or set of proposals) is forthcoming, or until new information materialises, we do not have any justifiable basis on which to review the outcomes illustrated to date
Dame Kate Barker, USS
UUK argued that the proposals took little account of responses to the technical provisions consultation that was supposed to feed into the valuation, and that the conclusions of the Valuation Methodology Discussion Forum had been largely ignored.
UUK acknowledged that the status quo was untenable, but warned: “We have not received strong or clear justification for the very high pricing decisions and, as such, employers are very concerned that the scheme is facing an unnecessary and unjustified level of reform.”
It therefore requested that the trustee conduct a formal review of the assumptions underlying the valuation, and the scenarios presented as a result.
However, on Tuesday, USS chair Dame Kate Barker rebuffed that proposal in a letter to UUK, arguing there was no justification for revisiting the 2020 valuation until new information materialises, and no point revisiting its consequences until alternative proposals are submitted.
She said USS would be willing to work with UUK and its members as they construct alternative packages, but warned that “demonstrable progress with the valuation needs to be made, in line with the scheme rules and legislation, to ensure it is completed in a timely manner”.
Barker reiterated that the level of prudence in the valuation assumptions, including the choice of discount rates, reflected the scheme’s poor financial health as of March 2020, but for employers that believe there to be a case for less prudent assumptions, “they have options available that could support a greater level of risk-taking by the trustee”.
“For example, pledging contingent contributions or assets and/or agreeing on conditional benefits. These are steps that could change the trustee’s position and would be one way of addressing the points… raised regarding pricing and intergenerational concerns,” she wrote.
Addressing the criticisms made by UUK regarding the covenant assessment, Barker explained that the position was weaker in each of the three scenarios put forward due to the “significant weakening” of longer-term commitments it had previously assumed would follow.
“We fully understand and are very sympathetic to the issues faced by employers and scheme members in these circumstances – but the scale of the challenge before us has been clear since at least September 2020, when we published the TP consultation document," she said.
In response, a UUK spokesperson said: “We will be keeping up the pressure on the USS trustee to reconsider its approach and are seeking employers’ views on the USS trustee’s response to our concerns, as well as the way forward for this valuation. We are exploring all governance options to achieve movement in the valuation outcome.
“As part of our employer consultation, to be launched next week, we will seek views on alternative paths which would reduce the headline costs put forward by USS and give scheme members the best possible level of benefits for more affordable contributions. These alternative potential paths would require the USS Trustee to evolve their assumptions and employers to offer further covenant support, for affordable benefits which include a defined benefit element.”
