What's happened so far?
Universities Superannuation Scheme (USS) completes a check every three years to ensure that it can afford to pay its members’ pensions and other benefits such as ill-health when due. This formal valuation is carried out by the USS trustee with the support of the scheme actuary, an appointed specialist who reports to the board, as legally required.
The valuation which was completed in 2017 identified that the USS deficit had risen to around £7.5 billion and the future cost of providing the current benefits had risen by over a third.
Proposed changes – Jan 2018
With the chair’s casting vote, agreement on proposed reform was reached by the Joint Negotiating Committee (JNC) on 23 January 2018. If accepted, this would have reduced the scheme deficit to £6.1 billion and a formal consultation with USS members was announced to begin in March 2018. However, industrial action in response to the proposed changes took place in February and March 2018.
University and College Union (UCU) disputes the valuation and the consequent need to move from a defined benefit pension scheme to a defined contribution scheme – in which pension payments would depend on investment performance.
ACAS-mediated joint negotiations – March 2018
ACAS-mediated joint negotiations took place between UUK and UCU. On 12 March, following six days of talks with ACAS negotiators both UCU and UUK agreed to a proposal consisting of:
- current pension benefits being built up until 31 March 2019
- a revised level of defined benefit pension build-up from 1 April 2019 for three years
- contributions increasing to 19.3% for employers and 8.7% for members from 1 April 2019 for three years
- a joint expert panel being set up to review the valuation methodology and assumptions of the USS trustee
- continuation of meaningful discussions, taking into account the findings of the Joint Expert Panel, to explore risk sharing alternatives for future pension build-up from 2020.
The first three proposals arising from the ACAS agreement were rejected by the UCU membership but there was an agreement to set up the Joint Expert Panel.
Cost sharing rule and the USS consultation 2018
The USS trustee has an obligation to complete the current valuation process as set out under the scheme rules. In the absence of an agreement from employers (UUK) and members (UCU), USS trustees reverted to the cost sharing process under scheme rule 76.4-8. Cost sharing is a process under the USS rules that takes a view of the amount needed to restore the financial health of USS where there is no other agreed way forward and shares the increase in cost between employers (two thirds) and staff (one third). The scheme rule was first introduced in 2011 and updated in 2016.
A formal consultation on the proposed changes ran from 3 September to 2 November 2018.
Joint Expert Panel (JEP)
The Joint Expert Panel was set up to review the methodology and assumptions in the current valuation, and consider the questions raised about the valuation by some scheme members and employers, with the aim of building confidence, trust and increasing transparency in the valuation process.
The Joint Expert Panel reported back in September with the following recommendations:
- A re-evaluation of the USS employer attitude to risk.
- Adopting a greater consistency of approach between the 2014 and 2017 valuations, which affects the scale and timing of deficit recovery contributions.
- Ensuring fairness and equality between generations of scheme members by smoothing future service contributions.
- Ensuring the valuation uses the most recently available information which means taking account of recent market improvements, new investment considerations and the latest data on mortality for example.
UUK employer consultation
Universities UK (UUK) conducted a consultation with USS pension scheme employers on the Joint Expert Panel's recommendations. The consultation closed on 30 October, and received responses from 127 employers – accounting for 94% of the active membership of USS. UUK has published detailed analysis of the results of the consultation with scheme employers on USS's website.
UCL’s response to the UUK employer consultation
UUK asked UCL to respond to three specific questions. The responses were considered and approved by UCL’s Council on 10 October 2018.
- Would your institution support the JEP recommendations regarding the 2017 valuation, in overall terms, subject to the acceptance of such a position from the USS trustee (and TPR as appropriate)?
Yes. UCL believes that the JEP has made a valuable contribution to the consideration of the USS valuation and that this should form the basis of an agreement to conclude this valuation. We urge the trustee and TPR to accept the findings and recommendations of the JEP report.
- What further information would you need to provide a final view for question 1?
We would like to understand in greater detail the implications for UCL of accepting a greater level of risk. We are inclined to agree to accept more risk, as we believe that is appropriate, for UCL and for the scheme as a whole, but will need to understand in detail the implications of doing so.
- Employers currently pay 18% towards the USS scheme, and the mandate agreed immediately following the Acas discussions was 19.3%. If the recommendations of the JEP were accepted in full by all parties, the outcome would be that existing benefits – minus the employer match of 1% – could be provided at an indicative employer contribution of 20.1% of salary (with a member contribution of 9.1%). (a) Would you accept employer contributions at that level? (b) If not, what balance of additional risk, higher contributions and/or benefit change would you prefer to see as an outcome?
We are prepared to accept an employer contribution of 20.1% for the maintenance of existing benefits.
- UCL also provided additional comments
We are encouraged that the JEP has worked so successfully and produced a unanimously agreed report. We urge the JEP to continue its work and to engage with the principal stakeholders to help ensure that future valuations do not result in damaging disputes. We are unconvinced that USS needs to shift its investment strategy toward a lower risk stance, either in practice or as an assumption that underpins the valuation. The strength of the sector covenant should underpin an ability to continue to take an appropriate degree of risk. We would like to see attention being paid to the particular impact of changes on early-career staff and options being developed to ensure they do not opt out of retirement saving. We would encourage that steps are taken to ensure that in future the conduct of valuations and, in general, management of the scheme, is open and transparent with information shared with all stakeholders. In the event of a pension holiday created by future fund revaluations, the benefits should be shared 65/35 between the employers and employees.
UUK’s feedback to the USS trustee (14 November 2018)
UUK wrote to USS' Chief Executive, Bill Galvin, to confirm that employers support the recommendations of the Joint Expert Panel, subject to acceptance from the USS trustee and The Pensions Regulator, and the need for further information for employers on risk and its implications. UUK also confirmed that they supported the trustee’s suggested approach of commencing a new 2018 valuation, to allow for the most recent data and for any developments on risk as envisaged by the JEP report to be addressed.
USS - 2018 valuation (22 November 2018)
The USS Trustee confirmed plans to carry out a new valuation of USS as at 31 March 2018.
Who is involved in changes to the USS pension scheme?
The Universities Superannuation Scheme (USS) pension is used by 350 employers nationally and it is the scheme that staff grade 6b and above are eligible to join. It is the second largest private pension scheme in the UK by fund size. The legal obligation on USS trustees is to ensure that the pension fund is financially stable in accordance with rules set by the Pensions Regulator.
- The Pensions Regulator
The Pensions Regulator is a public body, sponsored by the Department for Work and Pensions, set up to protect people’s savings in workplace pensions. One of the Regulator’s key priorities is to reduce the risk that pension schemes will require taxpayer support to meet their obligations.
- Universities UK (UUK)
Universities UK (UUK) represents 350 employers (not all of them universities) in the pension scheme.
University and College Union (UCU) represents over 110,000 members of staff working in universities, colleges, prisons, adult education and training organisations across the UK.
- Joint Negotiating Committee
No individual institution can negotiate independently or have control over what is decided. The USS reform was discussed during national negotiations through the Joint Negotiating Committee (JNC) which is made up of 10 nominated members, five from UCU, five from Universities UK, and an independent chair. The scheme trustee establishes how much money needs to be paid to maintain the current level of benefits in the scheme. The JNC must decide on how the cost of the increase can be met. This could result in a change to future benefits, future contributions, or both.