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Universities Superannuation Scheme update from HR Director John Brady

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You will be hearing a lot about proposed changes to the USS in the coming weeks and months. This note provides some information regarding the context and next steps.

There are many divergent views, and the information available is often deeply technical and complex, but it is important for individual members of the scheme to engage with this and participate in the formal consultation that will follow.

The USS, in common with all other similar pension schemes, must undergo an actuarial valuation at least every three years. This is required to demonstrate, amongst other things, that the scheme has appropriate assets to cover its accrued liabilities and identify the amount of any deficit in the scheme. The latest USS valuation has been carried out as at 31 March 2017, and there is a statutory obligation to report the outcome of this to the Pensions Regulator (the body with statutory powers to ensure the proper administration of work-based pension schemes) by 30 June 2018.

The previous USS valuation, as at 31 March 2014, identified a deficit of £12.3bn in the scheme; subsequent changes reduced this to £5.3bn with an agreed 17-year recovery period to eliminate the deficit over time.

Since the last valuation the outlook for the scheme has worsened, attributed to challenging economic conditions. This has been the starting point for the current discussions about the future of the scheme. It is important to understand the roles played by the participants in these discussions.

Responsibility for the oversight of the scheme rests with the USS Trustee Board. Trustees have significant responsibilities to ensure effective scheme governance, and that members’ benefits are secure.

Universities UK (UUK) is a body comprising Vice-Chancellors (or equivalent) of universities in the UK. They have nominated members on the USS Trustee Board and in this context have a responsibility for representing the views and interests of universities as employers.

The University and College Union (UCU) is a national trade union representing staff across the UK HE and FE sectors. They also have nominated members on the USS Trustee Board, and in this context have a responsibility for representing the views and interests of ordinary members of the scheme.

Each of the bodies above has a legitimate role to play in ensuring the good-running and sustainability of the scheme. They do however have different interests and, inevitably, will not always agree on the best approach to be taken. The current discussions illustrate that amply; it is in your interests to acquaint yourself with the views expressed.

The 2017 valuation points to a deficit that has risen to approximately £7.5bn. This figure has been arrived at in part by the Trustee taking a view that more of the risk can be accommodated by employers – they have suggested that universities collectively can afford to pay more, both upfront and in guaranteeing to off-set future liabilities. USS employers currently pay 18% of salaries towards USS; to maintain the current level of defined benefits in future would require an additional cost equivalent to at least 11% of salaries (a proportion of which would require an increase in employee contributions).

The UCU agree with the Trustee that universities can afford to pay more towards the scheme, but disagree with the Trustee’s approach to determining the level of deficit. They have commissioned their own actuarial analysis of the scheme – this can be found via the UCU website should you wish to know more. Sally Hunt, the UCU General Secretary, has recently written to Vice-Chancellors asking universities to pay their “fair share” and have declared an industrial dispute in respect of the future of the USS.

It should be noted that the Pension Regulator has recently written to the USS Trustee expressing concern with the response to the valuation.

The UUK consulted its membership recently to determine its response to the USS Trustee’s views. A significant majority expressed the consistent view that the Trustee’s proposed approach exceeds what employers can reasonably be expected to pay, and indicating support for further changes to the scheme.

I should be clear at this point that the University fully supports the position taken by UUK. The Trustee’s assertion that universities can afford to pay more is based on an assumption that this would be prioritised over other spending. Locally, every additional 1% of employer pension contributions costs approximately £1m; agreeing to the Trustee assumptions would divert resources away from other priorities, and this is neither desirable nor sustainable. The University recognises the value of the pension scheme to our staff but it cannot be maintained at any cost.

You may see commentary comparing the USS to the Teachers’ Pension Scheme (TPS) which is the main pension scheme used by post-92 universities; it is important to understand that this is a statutory, unfunded scheme backed by the UK taxpayer, whereas the USS is a private sector scheme directly backed by member institutions.

So what has been proposed by UUK? The key points are as follows:

  • To move from the current arrangement to a market-leading defined contribution scheme, with future benefits to be delivered by the USS Investment Builder.
  • To construct the proposal in such a way that allows for a range of options (including the possible re-introduction of defined-benefit arrangements) if scheme funding improves at future valuations.
  • To maintain the provision of death and incapacity benefits on a defined basis so that employers continue to carry the risk in these most difficult of circumstances.

A key point that must be emphasised is that members’ accrued pensions (i.e. those built up prior to any future changes in USS pension provision) are protected under law and will not be affected by any future change.

So what happens next? It is important to bear in mind that the UUK has proposed changes.  UUK has had 21 meetings with UCU since the valuation date in order to progress the negotiations on potential benefit reform. UCU have not yet tabled a proposal.

The tabled proposals are being discussed at the USS Joint Negotiating Committee (JNC) – this body comprises five representatives of Universities UK and five representatives of UCU, together with an independent committee member who acts as Chair. Sir Andrew Cubie has chaired the committee since 1 September 2008.

In recent correspondence the UCU has asked for an extension of the timetable for these discussions, but it is important to remember that the USS Trustee must report outcomes to the Pensions Regulator by 30 June 2018 and any changes proposed require a period of consultation with members.

The anticipated timetable suggests a decision from the JNC before Christmas, and there would follow an employer consultation with scheme members and affected employees that must be of at least 60 days duration.

You may be aware that the UCU has opened a ballot of its members calling for industrial action in response to the proposed changes. Their ballot closes on 19 January 2018 and we will know shortly thereafter whether any action will follow. It is not surprising that UCU have taken this step, but perhaps a little disappointing given that the discussions at the JNC have not yet been concluded.

It should be clear that the discussions regarding USS are a matter of great concern to all parties. I will provide further updates as matters progress.

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