UUK proposes USS governance reform, 20-year moratorium on exits

USS remains in the middle of a protracted battle between its trustee, UUK, and the University and College Union over the assumptions underlying its 2020 valuation. The results of the 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.

The answer to newer members being priced out of the scheme is for UUK to ask for bigger concessions from USS in return for increased covenant support, not to move lower-paid staff on to an inferior pension

Jo Grady, UCU

Pledging additional covenant support, such as a moratorium on exits, is seen as one area that might allow for the trustee to revisit the proposed contribution hikes, albeit there is dissatisfaction among both employers and unions about the trustee’s poor rating of existing covenant support measures.

In a question-and-answer session on its consultation, UUK explained that the USS trustee appears to have been inordinately concerned by the exit of Cambridge in 2018.

“For reasons that we do not understand, the USS trustee has placed considerable weight on this one employer leaving the scheme, although we know of no other employer looking to exit the scheme,” the Q&A document stated.

It continued that in practice, the “vast majority of employers”, including all of the largest universities, could not afford to buy out of the scheme “because the costs of exit are so high”.

Though USS has not explained to UUK’s satisfaction why it has placed such an emphasis on the risk of employer exits, or why it has placed “such a poor value on the covenant support package previously illustrated by UUK”, UUK is nonetheless consulting with employers on “going even further”, proposing its 20-year moratorium “to demonstrate even further our wish to find a solution”.

“If this package of measures is acceptable to employers, there should be no reason why the 2020 valuation cannot be concluded on the basis of a strong covenant with resultant lowering of contribution requirements (and a reduction in the level of benefit reform required),” the Q&A document stated.

Governance reform

Pensions Expert has reported previously on dissatisfaction with UUK’s own approach to the consultation and the calls for it to take a stronger line in its negotiations with USS.

In its Q&A document, UUK argued that it “continues to apply significant pressure on USS in public and in private and in regular meetings”, citing the publication of its request that USS and the Pensions Regulator revisit the assumptions behind the 2020 valuation “and seeking much clearer justification for the higher level of contributions proposed”.

“We are still digesting the formal response from the USS trustee dated March 29 2021. However, the most important thing is that constructive dialogue continues to try to reach an acceptable solution.”

Jo Grady, UCU general secretary, has previously warned that “it is increasingly difficult to see a resolution to this valuation that does not involve profound change in the way USS is governed”, something UUK has itself hinted at.

In its Q&A, it confirmed that it is consulting with employers about a review of USS governance. Meanwhile, on the valuation point specifically, UUK said it “will consider all governance options to ensure that the USS trustee applies fair assumptions to the valuation”.

Asked to comment, a USS spokesperson directed Pensions Expert to USS chair Dame Kate Barker’s comments in the scheme’s March trustee update, where she said: “We fully recognise the scale of the challenge facing the scheme and sympathise with our employers and members in light of the difficult decisions that lie ahead.

“I believe everyone involved with USS wants to find a way forward, consistent with our legal and regulatory duties, that provides valuable and secure pensions, and that puts the scheme on a sustainable footing. We are committed to being as collaborative and constructive as we can in supporting UUK and UCU’s discussions to this end.”

In a March letter to UUK, Barker welcomed UUK’s attempts at constructive dialogue. “We wish to work with stakeholders to make sure that the optimal position can be reached on covenant support, the contribution rate and benefit structure to deliver against this objective,” she said.

“We hope that the next stage of the valuation process will allow us to examine these issues in concert.”

On questions of governance, the spokesperson told Pensions Expert: “The trustee company’s role is to administer the scheme in line with the rules given to it.” 

UCU will not settle for ‘half-baked proposals’

Grady told Pensions Expert that a number of outstanding issues preclude an agreement, not least the proposed cuts to the defined benefit part of the scheme.

As previously reported, the cuts would be part of a package that includes the creation of a defined contribution option aimed at lower-paid staff.

In a press briefing announcing the launch of UUK’s consultation into the 2020 valuation, UUK president Julia Buckingham explained that this “optional, lower-cost flexible pension payment could be introduced to help people at different stages of their lives”.

“It would allow colleagues to choose to pay less for a period, but still benefit from valuable employer contributions,” she said.

“This wouldn’t be a replacement for the main USS scheme, it would be an optional, short-term alternative for those who are currently priced out, often those at the very beginning of their careers and those on lower pay grades as a way of starting to address the intergenerational unfairness in the scheme.”

But Grady criticised the proposed reforms as “completely unacceptable to university staff”, pointing out that they are “very similar to the offer which staff rejected midway through our industrial action in 2018”. 

“The answer to newer members being priced out of the scheme is for UUK to ask for bigger concessions from USS in return for increased covenant support, not to move lower-paid staff on to an inferior pension,” she said.

“Everyone deserves the same level of security, and moving lower-paid staff out of the main pension scheme is likely to undermine the scheme as a whole.”

However, Grady welcomed the fact that employers “seem finally to have accepted that USS needs governance reform”.

“We would welcome UUK working with us to achieve this, rather than putting forward half-baked proposals to slash benefits,” she said.