Joint proposals developed for reform of the USS pension scheme
22 January 2015
The national Joint Negotiating Committee (JNC) for the Universities Superannuation Scheme (USS), which includes representatives from employers as well as the University and College Union (UCU), has developed proposals to address the substantial deficit in the funding of the USS scheme and to ensure that contribution rates do not become unaffordable for both employees and employers.
Why is reform of the USS necessary?
The USS is a private occupational pension scheme and as such falls under the remit of the Pensions Regulator. The USS has to meet certain minimum levels of funding; the indicative results of the most recent triennial valuation in March 2014 show that the scheme deficit was £13 billion.
Accordingly, the USS Trustee Board is required to produce a recovery plan in order to address this substantial scheme deficit over a reasonable period and the plan has to be submitted to the Pensions Regulator. If no reforms are made, the USS Trustee Board will be compelled to impose increased contributions to a level that would be unsustainable for members and employers alike (increasing from the current 6.5-7.5% contribution for employees to around 12% of salary and increasing from the current 16% contribution for employers to around 25%).
At the time of writing, the deficit is now estimated to have risen to more than £20 billion because of adverse market conditions since March 2014.
It is against this backdrop that the USS JNC has developed the joint proposals for reform, as set out below.
Summary of the potential joint JNC proposals
1. The proposed implementation date of the proposed benefit reforms is 1 April 2016.
2. Final salary accruals would cease as at 31 March 2016. Benefits built up before this date would be protected. Their value would be calculated using the existing definition of pensionable salary and service as at 31 March 2016 and from that date accrued benefits would be increased annually in line with CPI, rather than increases in final salary.
3. All members would build up future defined benefits in the Career Revalued Benefits (CRB) section based on an accrual rate of 1/75th of actual pensionable salary. The right to a tax free cash sum of 3 times pension (3/75ths) will also be increased in line with the higher accrual rate.
4. Benefits in the CRB section would also be increased annually in line with CPI.
5. Benefits in the CRB section would be based on the first £55,000 of the member's pensionable salary. Therefore for members earning up to £55,000 their total salary would be pensioned through the CRB scheme. All members would receive this core benefit.
6. The salary threshold would increase each year in line with CPI (subject to the outcome of a review to be completed by the USS Joint Negotiating Committee by 31 March 2020).
7. If the member earns more than £55,000 they would still build up CRB benefits on their salary up to the salary threshold of £55,000, but any pensionable salary over this threshold would instead be pensioned through a new Defined Contribution (DC) section of the scheme. Employers would pay a contribution of 12% of pensionable salary over the threshold into the DC section.
8. Employee contributions would increase to 8% of pensionable salary. If the member earns over the £55,000 salary threshold then their contribution of 8% of their pensionable salary over the threshold will be paid into their DC pot, in addition to the employer's 12% contribution.
9. All members would have the opportunity to choose to pay in an additional 1% of pensionable salary into their personal DC pot, which would be matched by their employer to build up an additional flexible DC fund. This option would be available to those members earning below the £55,000 salary threshold as well as those earning over this amount.
10. Benefits on death in service and on ill health would remain comparable with current provision.
11. Employers would commit to pay contributions of no less than 18 per cent of payroll for the next two valuations. This extends the increased employer contribution rate until the 2020 valuation (i.e. until 31 March 2020). 18% is a blended rate payable by all employers and includes the contributions to the DB and DC sections of the scheme. If the USS funding position as assessed at triennial valuations were to improve, over and above the improvements in funding assumed in the deficit recovery plan, employers would commit to using this to improve member benefits.
12. There also remain a number of detailed specification points which the employers, UCU and USS propose to discuss further.
The proposals are subject to
both employer and employee support at the 29th January JNC meeting. The employer and UCU representatives
on the JNC share common aims in wishing to achieve an agreed solution and have
arrived at the current potential joint proposal after extensive negotiations.
Both parties believe this is as far as they can go towards a negotiated
solution, given the constraints set by the Trustee board, to move the scheme on
to a sustainable footing while still offering an attractive and affordable
scheme for current and future members.
The UCU is currently putting the proposal to a consultative ballot of their members. We encourage all staff who are members of USS to take a look at the potential joint proposal and hope that the UCU members who are being asked for their views will support this as a fair and balanced way forward. The employers' representatives will support the proposal at the JNC if the UCU representatives (following the ballot of their members) also support it. The proposals will then be subject to consideration by the USS Trustee Board and the Pensions Regulator. Subject to the outcome of this consideration, a statutory consultation will be conducted with USS members (and other USS eligible employees who are not scheme members). This consultation is expected to begin in mid-March and must continue for at least 60 days. A range of communications material will be made available for USS members including a dedicated USS website which will incorporate a benefits calculator, in order to help members understand how they will be affected by the proposed changes.
Please note: This article is intended to provide a short summary of the proposed changes. Fuller
details will be provided as part of the statutory consultation with members.
Further details of the proposed changes are available on the pension website at: http://www.ucl.ac.uk/hr/pensions/
Nigel Waugh, Director of Human Resources