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Universities Superannuation Scheme update

John Brady

Update from University's HR Director John Brady on the Universities Superannuation Scheme 

I have reported previously on the establishment of, and subsequent recommendations from, a Joint Expert Panel (JEP) established in May 2018 to review the Universities Superannuation Scheme (USS) 2017 valuation, processes and assumptions.

The University’s response to a Universities UK (UUK) consultation in respect of the JEP recommendations noted the importance of the relevant parties using their best endeavours to adopt the JEP recommendations and minimise the impact of the contribution increases arising from the USS 2017 valuation process.

The 2017 valuation has now concluded and if you are a member of the USS you will have received confirmation of increases to the contribution rates that you and the University will pay starting from April 2019. By way of a reminder, the employer contribution is set to increase to 19.5% from 1 April 2019, 22.5% from 1 October 2019 and 24.9% from 1 April 2020.  The changes in member contributions are 8.8%, 10.4% and 11.7% respectively.  Additionally, the 1% matched additional contribution is set to cease with effect from 1 April 2019.

However, in order to address the JEP recommendations, the USS Trustee has carried out a further scheme valuation, which amongst other things has reported a reduced scheme deficit and identified ways in which the proposed contribution rate increases can be minimised.

Via its 2018 valuation, the USS Trustee has set out a range of proposed new total (employer and member combined) contribution rates. These proposals would see a lower total rate of 29.7% and a higher total rate of 33.7%.  The lower figure compares favourably with the total contribution rate of 36.6% currently scheduled from April 2020.

In responding to the JEP recommendation employers had stated that they would tolerate a higher level of risk in order to avoid the much higher proposed contribution rates. The USS Trustee has now indicated that in order to secure total contribution rates at the lower rate noted above there needs to be a tangible commitment to reflect that. The Trustee’s proposed way forward is through the introduction of “contingent contributions”, i.e. higher contribution rates that can be automatically activated under certain conditions should there be a significant deterioration in scheme funding.

It is likely that such an approach would also satisfy the Pensions Regulator, the public body that has responsibility for protecting workplace pensions in the UK.

The USS Trustee is now consulting employers in respect of the 2018 valuation and particularly the proposal for contingent contributions. Via the UUK, the University Executive Board has signalled its support for the concept but recognising the need for assurances regarding the circumstances that would trigger the need for the additional contributions, the notice period that would be applicable, and for how long any period of additional contributions would apply. Our support for this proposal is contingent on the normal cost-sharing arrangements applying, i.e. employers would meet two-thirds of any required additional contributions, members meeting the remaining third.

So to summarise the April 2019 rises will take place but depending on the outcome of the 2018 scheme valuation the two further rises may not happen.

There is significant further work to follow in order to reach an agreement and hopefully have new arrangements in place prior to the contribution rate increases scheduled for October 2019. I will keep you informed as matters progress.

John Brady

Director of Human Resources

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