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USS valuation FAQs

Who is involved in changes to the USS pension scheme?

USS

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 the 137 higher education employers in discussions on the future of USS.

UCU

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.


FAQs

What is the role of the USS Trustee in the valuation process? 

The primary objective of the USS Trustee is to ensure that member benefits that have already been built up can be paid. The USS Trustee is responsible for determining the valuation methodology,  assumptions and the overall contribution level required to ensure that the scheme remains sustainable. They are advised by their independent scheme actuary and are required to consult with Universities UK.

What is the USS Employer Covenant? 

The USS Employer Covenant is comprised of all participating employers. It's obligation both legal and financial is to support the Scheme now and in the future. When the Scheme takes risk it is reliant on the covenant for support if, for example, investment returns are lower than expected.

What is the timeline for the 2020 Valuation?

The total contribution rate was set by the USS Trustee on 2 March 2021. In response, the Joint Negotiating Committee will now meet and propose changes to either the scheme contribution rate or the scheme benefits from a future date. In late March 2021, there will be a further UUK consultation with employers concerning high opt-out rates, deficit and covenant support measures and affordable benefit structures. This will be followed by a consultation with scheme members on any proposed changes to the scheme. The statutory deadline to conclude the valuation is 30 June 2021 but it is foreseeable that this deadline will not be met.

What is the current rate of opt outs of USS?

The current rate of employees deciding not to join or to opt-out of  USS exceeds 10% of the overall scheme membership. It is foreseeable that the rate of withdrawal will increase further if contributions were to increase again. This is a concerning development for UCL and other employers as we want to offer an affordable and sustainable pension scheme for our academic community.

Can UCL withdraw from USS and what alternative pension or salary arrangements would replace the scheme?

The USS exclusivity rule prevents UCL, and the rest of the sector, from offering any alternate pension arrangements, while they continue to operate the USS scheme. UCL could elect to withdraw from USS on a buy-out basis but this would currently be a very expensive proposition.

Could existing and prospective members of USS change to SAUL?

The USS exclusivity rule requires that anyone employed on a USS applicable grade  (6b or above) is entered into USS. From April 2016 and in relation to the outcome of the 2014 valuation, USS relaxed the exclusivity rule to allow existing SAUL members with continuous UCL employment  to remain in the scheme or to join USS if they were regraded to a USS applicable grade. The choice was not available to employees prior to April 2016.

How does the investment performance of USS compare with SAUL?

The investment performance for both USS and SAUL has been good over a long period of time, with both schemes regularly beating relevant benchmarks. The key difference is that SAUL took the decision several years ago to shift to a low risk approach and to substantial hedge risks such as inflation and currency movement. This generally reduces the returns but limits volatility. USS investments remain substantially invested in return-seeking assets (typically equities) which generally out-perform other asset classes but are inherently more vulnerable to market movements.

What proportion of pensions benefits is covered by the Pension Protection Fund (PPF)?

The Pension Protection Fund (PPF) pays compensation to members of eligible defined pension schemes where there is a insolvency event in relation to an employer and where there are insufficient assets in a pension scheme. Payments from the PPF amount to 90% of an amount up to an age related cap. This is an unlikely outcome for USS members as it would require the whole of the Higher Education Sector to financially collapse.

If there is an increase in USS contributions, how could the Joint Negotiating Committee (JNC) address intergenerational fairness?

As benefit accrual within USS is protected then any change to contributions or benefits has an intergeneration impact. This can be mitigated by applying future changes to all members and not just new joiners. Consideration could also be given to apportioning deficit recovery costs linked to age or earnings.

Would Universities UK seek financial support from the Government to address the Deficit position?

This has been explored in the past, though not recently. The Government's view previously was that it would not offer support. There are risks in seeking government support, firstly it would give them more ability to direct how universities operate, and secondly they may insist on a switch to a lower-risk benefit structure (eg defined contributions).

What recommendations by the Joint Expert Panel (JNC) were adopted by the USS Trustee?

USS have accepted a number of the Joint Expert Panel (JEP) recommendations, including a dual discount rate, the removal of Test 1 and exposure to more risk in its investment strategy. USS viewed that adopting all of the Joint Expert Panel (JEP) recommendations would involve an unacceptable degree of risk for both the Trustee and the Pension Regulator.

What are the main reasons for the deficit in 2020 and why has the final figure not been reported yet?

In the view of USS, the principal reason is the continued fall in interest rates and the depressed expectation for future investment returns. These factors combine to reduce the discount rate used to value liabilities and therefore increase the current value of those liabilities. This is a problem all open defined benefit schemes face. The 2020 deficit will be confirmed and reported when the valuation process is concluded.

With this development, how  is UCL planning to keep Academia an attractive employment option?

The effect is on the sector and, to an extent, requires a sector wide response. There are many benefits of working in HE in comparison with other sectors. For example annual leave, sick leave, family related leave, relocation and house loan provision (for certain groups of staff) are all very competitive benefits less commonly found in the wider economy. UCL also offer many of the other benefits that are commonly used elsewhere- cycle scheme, a nursery and season ticket loans etc. Additional support for childcare is currently being considered but, we aim to do more, and will review the current benefit provision to see what could be added. Please contact Oscar Lopez if you have ideas for any specific benefits you would like to see at UCL.

Where can I get Independent Financial Advice on my USS pension benefits?

UCL has signed contracts with a range of Independent Financial Advisors (IFA's) who are able to assist in reviewing your options: https://www.ucl.ac.uk/human-resources/pay-benefits/pension-services/independent-financial-advice 

Would UCL consider offering an independent death in service facility outside of the USS scheme?

This is a useful suggestion and UCL will consider this as part of its review of benefits.

Will any future changes impact on the benefits I have secured to date?

The benefits that you have secured to date are safe and would not be subject to changes.