UCL's formal responses to UUK consultations
- UCL’s response to the UUK consultation with employers on the Schedule of Contributions and Recovery Plan for the 2018 actuarial valuation (September 2019)
UCL has previously given its reluctant and conditional support for option 3 and the associated actions necessary to support the Trustee’s assessment of the strength of the covenant. This support was on the understanding that this option provided the best possible opportunity for the Joint Expert Panel (the “JEP”) to conclude its work and for its recommendations to be implemented in the brought-forward valuation in 2020. The JEP has been moving in a conciliatory and helpful direction and we strongly recommend giving proper weight to its recommendations.
This support applies only until the conclusion of a 2020 valuation based on JEP recommendations and we reserve the right to withhold support for these increased contribution rates if we conclude that the USS and the Trustee do not adequately take account of the recommendations of the JEP.
We therefore support the proposed schedule of contributions and recovery plan on this conditional basis.
- USS’s further consultation on option 3 (July 2019)
- UCL Council is prepared to support the package of proposed measures in principle, subject to a satisfactory outcome to the more detailed consideration of the request for security on a pari passu basis. We would expect, specifically, that this would not apply to project finance, other types of debt secured on cash flows (as is frequently the case with halls of residence) and asset leasing. We would also expect this requirement to be time-limited, perhaps to the end of the 2020 valuation.
- Alternative contribution structures proposed by USS (June 2019)
We wish to restate our strong support for the recommendations of the Joint Expert Panel and continue to urge the Trustee to accept in full the recommendations of the Panel’s first report, including the deferral of de-risking of the investment portfolio. We are disappointed that the USS Trustee has not accepted the views of employers, including UCL, and as advised by Aon, regarding the upper and lower bookends and the proposal for contingent contributions.
Any increase in cost adds risk to future rates of member participation in the scheme and an affordability challenge for both employers and members. Our view is that an enduring solution is required that addresses the valuation and governance issues, as well as meeting the needs of all stakeholders. We therefore welcome the second phase of work of the Joint Expert Panel and look forward to its findings and recommendations.
None of the options presented by the Trustee is attractive as they all involve an increase in cost and are short-term/interim in nature. The high probability of contingent contributions being triggered under option 2 means that option 3 offers the lowest rate of increase before the next valuation. It also brings forward the next valuation, which offers the prospect of implementing the recommendations of the Joint Expert Panel sooner. The ‘conditions’ that attach to this option give us cause for concern. We understand and accept the need for the Trustee to monitor levels of borrowing amongst employers. We would however be unwilling to accept any fettering of our ability to raise debt, or requirements from the Trustee that impair our access to debt or the terms under which that is secured. We would also be reluctant to support a rule change that prevented employers from leaving the scheme, although, for the avoidance of doubt, we have no plans to do so.
We therefore offer reluctant support for option 3 but only because it provides the best option to allow JEP2 to continue its important work, and to deliver a longer-term recommendation for USS. Our view is therefore consistent with the strong support expressed for JEP in our previous responses. Moreover, we explicitly reject the unacceptable increases associated with option 1.
You can read UUK’s submission to the USS Trustee alongside Q&As here.
Find details of the alternative contribution structures from USS.
- 2018 valuation consultation (March 2019)
UCL was asked to respond to three specific questions for the 2018 valuation consultation. These are listed below along with our institutional response which was agreed at the meeting of UCL Council on 13 March 2019.
- Do you have any specific comments on the proposed assumptions for the 2018 valuation, including views on the proposed upper bookend and lower bookend? We remain committed to retaining an attractive and sustainable pension offer for our staff, and to supporting USS over the long term. We wish to see the recommendations of the Joint Expert Panel implemented in full in the 2018 valuation, including the deferral of de-risking of the investment strategy. We are also unconvinced by the rationale for setting deficit recovery contributions at 5% rather than 2.1% at present. We believe therefore that the total cost should not exceed 30% (upper or lower bookend) and even at this level we have serious concerns about the affordability of contributions for both members and for UCL. The impact of this may involve having to re-prioritise and defer investment, and find compensating cost reductions. We are nevertheless prepared to pay the employer’s share of a total contribution cost of up to 30%.
- Do you support UUK putting forward a proposal for a CCs arrangement to the USS Trustee as it requested? If not, would you prefer to pay at the upper bookend level, or what would your preferred response be? We do not believe that contingent contributions are necessary because (1) the covenant of USS employers is sufficiently strong, and (2) the Trustee has adequate existing provisions within the rules to respond to extreme circumstances (as evidenced in its application of rule 76.4 for the 2017 valuation). If, however, the only means of securing a contribution rate of less than 30% in total is to agree to contingent contributions then we support UUK in putting forward a proposal as requested.
- Do you find the proposal for a CCs arrangement set out in the Aon note acceptable, taking all the factors into account? If not, what aspects would you wish to change? We are prepared, reluctantly, to accept the proposal for contingent contributions set out in the Aon note on the basis that this arrangement is only for the period to the next valuation. We do not wish to see this arrangement continuing beyond the next valuation. We wish to see the JEP continue its subsequent phase of work in order to focus on options for the long-term sustainability of the scheme. We hope that this will substantially inform the outcome of the next valuation.
- UUK employer consultation (October 2018)
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.