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Answers to frequently asked questions about the USS pension scheme.

Following the publication of the JEP report, Universities UK ran a consultation with employers on the findings, which focused on three specific questions. Further details can be found on USS's website.

We asked for your comments on the report via our anonymous online form. These anonymous submissions were reviewed by the Provost and shared with UCL Council as part of the decision-making process on our institutional response. You can view the minutes of the October meeting on Student and Registry Services' webpages.

With thanks to all those who shared responses, we have compiled an FAQ below which covers the concerns and queries that were received.

FAQs have been grouped into the following themes below:

General

Why is there a problem with the USS pension? 

The cost of providing defined benefits has risen substantially; by around one-third since the 2014 valuation. In addition, the past service deficit has increased due to persistently low long-term interest rates (negative in real terms).

What will happen if there is no agreement on pensions? 

The Trustee’s cost-sharing proposals will take effect, giving rise to substantial increases for employers and members from April 2019 onwards.

What impact has the JEP report had on decision making?  

This will depend on the response from the stakeholders (UCU and UUK), as well as the Trustee, and potentially the Regulator. It is hoped that it will help all parties find an acceptable way forward. 

UCL's position

What was agreed and decided at the UCL Council meeting on 10 October?

Council endorsed the recommended response which is that UCL welcomes and accepts the JEP findings and that it is prepared to pay the higher employer rate of 20.1% which the JEP report indicates would be required if its recommendations were accepted. Council also supported the request for more information about what would be involved in accepting more risk.

Is UCL supporting the UUK position? 

Responses to the consultation indicated substantial support for the JEP recommendations amongst employers and UUK have conveyed this view to USS.

Does UCL support the JEP recommendations?

Yes.

Is UCL prepared to pay the recommended increase in employer contributions? 

Yes (although, to be clear, it’s not a ‘recommended increase’).

Would UCL be willing to take on more risk? 

Yes, though we would need to understand in more detail what this might entail.

Valuation

I have heard that the valuation methodology is flawed, why are we using it?

The valuation methodology is determined by the Trustee Board, on the advice of the Scheme Actuary (Mercer). 

Why was this not picked up in the JEP? 

The JEP report does not conclude that the methodology is flawed. It has, however, identified that some adjustments can be made to assumptions that give a lower future service cost.

Why can’t we carry on with everything as it is/why does the pension have to change at all? 

Even if the JEP recommendations are accepted in full by all parties, the cost will rise – from 26% to 29.2% in the JEP’s estimation – to preserve current benefits (excluding the match).  

Costs / affordability

Why are universities/UCL unable to pay more? 

Some employers have indicated that they have significant affordability constraints and cannot pay more than the current 18%. UCL has indicated that it can pay more and is willing to accept an increase to 20.1%. Every 1% costs UCL approx. £4m every year and this has to be found from diverting expenditure from elsewhere – from existing pay and non-pay costs and from investing in the future.

Will UCL pay back withheld pay for those who participated in Industrial Action? 

No, however after feedback from some staff, salary deductions were spread over a total of seven months with no more than two days deducted in any month.

Why can’t UCL cover the full costs of increased employer and employee contributions? 

USS is a mutual scheme, one aspect of which is that there is a single employer contribution rate. This could only happen if every employer agreed to alter the rules of the scheme which require increases to be shared 65%/35%. This is highly unlikely to happen given the serious affordability challenges faced by some employers.  Finally, it is not what the JEP report proposed, and we support the JEP report.

What’s being done to address inter-generational fairness?

A scheme that has a single benefit structure for all members ensures that future benefits accrue at the same rate as those currently earned. The best way to improve inter-generational fairness is to find a way to eliminate the deficit and therefore avoid future members having to pay to make up the pensions of those that have gone before them.

The proposals to increase costs for staff are not going to be affordable for all impacted by this decision. What can UCL do to support with this? Are there any other options? 

We are concerned about the impact of cost increases for all staff, but particularly for lower earners. They do have the benefit under the current scheme of accruing wholly Defined Benefits but the cost as a % is the same as for higher earners.

Work has taken place to identify ways to support lower earning staff and we are now waiting to see what the final position is with USS before making final decisions on implementation options. Opt out rates will be monitored closely. 

Can adjustments be made to staff salaries if it is not possible to increase the employers’ contribution rate?  

See above – we are looking at options to support lower earing staff. Many of our lower earning staff are not in USS at all – they are in SAUL or have opted out of pension saving.

Did employers benefit from a contribution holiday in the past?

There have been references to historic employer contribution reductions/holidays, implying that the employer should pay for the whole contribution deficit and USS should not employ the cost-sharing rule. USS have confirmed that this is erroneous and there never has been an employer contribution holiday throughout its history.

Support for staff

What is the Provost going to do to help UCL staff with this issue? 

The Provost will continue to press for retention of USS as a predominantly Defined Benefits based scheme.

Why can’t UCL leave USS and support a different pension scheme? UCL is in a very different position to other members of USS and could offer a more favourable option for UCL staff. 

The cost of so doing would be vast – a one-time payment equivalent to our share of the deficit on a buy-out basis would be required (not known but a figure well in excess of £100m). This is just not realistic at the present time. It’s not at all clear that we could make a better offer, as the scheme running costs would be likely to be higher for a smaller scheme, and the investment opportunities would be different. It’s worth noting that most of the universities who have local schemes for professional services staff have closed them to new members, on grounds of affordability.