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Academic Board discusses USS - who speaks for UCL?

2 May 2018

Today's meeting of Academic Board, will, inter alia, discuss the USS Pension Scheme.
Details: UCL Academic Board, 14:05, Wednesday 2 May, Christopher Ingold Auditorium, Chemistry Building, Gordon St WC1 (this meeting is open to all members of Academic Board).

Non Professorial members of AB (NPAB) are meeting ahead of this meeting at 1pm in the Ramsay LT, Chemistry Building.

UCU members have taken an unprecedented 14 days of strike action to defend USS. Our dispute is not over, but action is deferred pending the outcome of the Joint Expert Panel (JEP). An important dimension of the Joint Expert Panel concerns the attitude of the employers towards it.

The AB paper

A paper has been tabled at Academic Board for debate entitled USS Pensions Scheme and Accurately Representing the Position of UCL to Universities UK (AB-5-32).

The paper is helpful, because it reminds colleagues that UCL SMT is not "The University" and that Academic Board is entitled to be consulted over papers and proposals that impact on academic staff terms and conditions, including pensions.

We would encourage all colleagues to support this paper, and the points (a)-(e) within it. The document attempts to hold UCL SMT to account for their statements to Universities UK and other bodies on our behalf.
We also think that it is now urgent for Academic Board to review UCL's entire approach to USS, the JEP and the future of our pensions.

This is what point (e) enables, and below we outline what is at stake.

UCL's submission to UUK

The AB paper concerns UCL's submission to Universities UK (UUK) as part of an employer-side consultation with respect to the valuation last September. In their response, UCL said that they would not support paying a higher contribution to USS than the current 18% of salary.

UCL's response was part of a series of responses which were interpreted by USS as justification for changing the actuarial model used for valuation purposes. The issue turns on so-called "de-risking", which is explained below.

  • In the previous model, called the "September Technical Provisions", no de-risking was anticipated for 10 years, and then de-risking was planned to be carried out over 10 years.
  • In the new model, the "November Technical Provisions", this "de-risking" would be performed over a 20 year period.

The term "de-risking" refers to a process of moving assets from stocks and shares investments to government gilts and bonds. Gilts and bonds are performing with very low yield, and are predicted to do so long-term. The damage to asset values is then due to the effect of compound interest and CPI eroding the value of assets permanently placed in gilts (temporary de-risking is not as damaging).
Both September and November valuation models assume de-risking to differing degrees. The effect of the increased de-risking is approximately equivalent to a five-year income loss from stocks and shares. The impact on the valuation was to increase the projected deficit from £5.1bn to £7.5bn.

"De-risking" increases the risk of default

"De-risking" is a process which trades one risk for another. It reduces the short term risk of assets exposed to losses on the stock market. But it increases the likelihood of pension default and reduces the projected future values of assets (generating a larger deficit). Rather than reducing the employers' exposure to risk, "de-risking" increases it.

The consequence of UCL and others adopting the "risk-averse" stance cited in UCL's position paper is that UCL is now exposed to substantial financial risk - and costs.

On March 12, following ACAS negotiations, an offer was put by UUK to UCU which increased employer contributions by 1.4% of salary, an increase from 18 to 19.4% (+7.77%). This was rejected, but it reveals that despite these protestations to the contrary, as a subscribing member of UUK, UCL would then be committed to pay in excess of 18% of salary into the scheme.

The current position

Last Friday, April 27, the Joint Negotiating Committee of USS was informed that the USS Trustees had invoked USS Rule 76.4. At the same time, UUK formally withdrew the proposal for 100% Defined Contribution.

The default position of USS is now that, in the absence of a decision (i.e. unless a new valuation is agreed and/or a new proposal is tabled), USS estimate the employers will be expected to increase their contributions by 6.9% of salary (a +38.33% increase in contributions). For our part, employees will have to pay in an additional 3.7% of salary (a +46.25% increase). This will provide only for the existing benefit package.

At the same time, UUK and UCU have come to an agreement to set up a Joint Expert Panel (JEP) to review the valuation.

Immediate points for Academic Board to consider

  1. UCL, like all university employers, have a clear financial interest in reducing the size of the stated projected deficit. As academic staff we have no desire to see university resources diverted from research and teaching into USS unless objectively required.
  2. There are multiple assumptions one might alter in a valuation model which would likely reduce the size of the projected deficit. For example, one might adjust assumptions around longevity, CPI or asset performance.
  3. However, we already know by comparison between the September and November valuations that one particular assumption is crucial. "De-risking" increases the size of the projected deficit. Moreover the decision to bring forward "de-risking" proposals was triggered by the employers' responses to UUK. It is a variable in UUK's gift to alter.
  4. Therefore the most straightforward way UCL could effect a reduction in the projected deficit is by arguing in UUK for postponing - or, ideally, abandoning (see below) - plans to "de-risk" USS.
  5. If the projected deficit is not reduced, then costs for staff and universities will be extremely high. Universities will divert funds to USS earmarked for other activities. Staff will face a pay cut of 3.7% which we will naturally seek to reclaim in lost wages. Doing nothing is a recipe for academic damage and industrial strife.

"De-risking" is a bad strategy for USS and should be abandoned

The proposal to "de-risk" USS is recent, being first proposed in 2014. But it has proved to be counterproductive.

Just as the November valuation obtained an increased projected deficit over the September valuation (equivalent to a 5-year loss of stock market earnings estimated by USS actuaries), were USS to abandon the plan to 'de-risk' USS altogether, the scheme would be projected to record a healthy surplus.

There is thus no need to impose costs on employers or staff. Indeed no change would be made to the current benefit package even were the projected deficit reduced to ~£3bn, as existing deficit recovery contributions could cover these costs.

What we are calling for

  1. We therefore call on UCL SMT to rethink their position in the light of clear evidence that it is counterproductive for UCL and for its academic community.
  2. We believe it is essential that UCL advocate for abandoning plans to de-risk USS through its influence within UUK and the Joint Expert Panel.
  3. And we call on UCL to adopt the position of Oxford University, that staff should not face yet another cut in the value of their pension or increases in their contributions:-
" “Council notes the ongoing negotiations between UCU and UUK and will make every reasonable effort to resolve the current dispute within the national framework of USS. Although the outcome of the current negotiations remains unclear, Council will seek to provide pension provision for USS members employed by the University that is of the same standard as currently available, subject to the duties of the Council, as a trustee body, to serve the interests of the University as a whole. Council resolves to treat achieving this objective as an issue of high priority for the University. It will ensure that all members of Council are fully involved in Council’s deliberations on pension provision, and that they will regularly review the delivery of the above objective and report to Congregation in a timely and transparent manner.”

UCL UCU Executive Committee

Links to all AB documents: www.ucl.ac.uk/srs/governance-and-committees/governance/ab/documents/agendas