We write in response to your inaccurate and highly misleading message to staff (see below) which we are concerned to note was not distributed to all USS scheme members.
The £7.5 billion USS deficit to which you refer is a projected deficit. The projection is based on a valuation methodology that has been heavily criticised by mathematicians, actuaries and pensions experts. The key test, Test 1, takes no account of the multi-employer nature of the scheme.
It is empirically unreliable as a guide to action. The level of uncertainty around this worst-case projection is such that only three months ago, the stated deficit was around £5.6 billion. Either the assumptions of the model were changed, or the model is vulnerable to tiny fluctuations in initial conditions (it is 'chaotic').
Before making any steps to change the USS scheme a competent analysis of the source of the "deficit" and its model must be shared with scheme members.
Furthermore, as First Actuarial have demonstrated, USS can currently meet its commitments from income alone, will be able to do so for the foreseeable future, and has an excellent record on investment performance. Therefore, as we wrote to the Provost last term, it follows that there is no urgent need for change.
The UUK proposals
What is the impact of the employers’ current proposals on staff?
Taking like for like, the proposal to end guaranteed pension payments would mean a loss of more than £200,000 over the course of a retirement for a typical member of staff. UCU comment:
While it is impossible to be precise about the impact because your pension would be subject to the performance of the stock market, the independent analysis produced for UCU uses the market predictions made by USS itself. It shows substantial losses for all fourteen different staff profiles tested, mostly in the range of between 20 and 40%.
The analysis of the employers proposals produced by Aon headlines that for current members, retirement income losses will range between 10 and 20%. However, their analysis includes the state pension and this has the effect of superficially reducing the impact. The analysis also does not use the USS market predictions, preferring a more upbeat assessment from Aon and this also superficially reduces the loss. Even on this very favourable (to the employers) basis, it is worth noting that for a typical new starter there would be a 25% reduction in the estimated annual benefits provided by USS.
You neglect to mention that UUK is currently consulting employers on a range of alternative proposals to the one that you outline below (amongst which is a proposal that maintains a defined benefit scheme).
The forerunner of the UCU (the AUT) created USS in partnership with university employers, and jointly governs the scheme. We request that we be given equal presentation time at the proposed 'Town Hall' meetings, so that we can explain our position on the current proposals to all staff.
On behalf of UCL UCU Executive Committee.
Message from UCL HR Director Fiona Ryland dated 8 January 2017
Subject: Pension Town Hall - Important forum on the proposed changes to USS
Changes to your Universities Superannuation Scheme (USS) pension
As many of you will already be aware, the USS pension fund is currently undergoing a regular valuation. This will assess the fund’s assets and liabilities, to ensure it has sufficient funds to pay eligible pensions now, and cover the future cost of benefits.
The 2017 valuation has identified that the USS deficit has risen to around £7.5 billion and the future cost of providing the current benefits has risen by over a third. In this context, it’s clear that the scheme cannot continue as it is.
At present, as an employee you make a contribution of 8% of your salary which is matched by UCL, your employer, with a contribution of 18%. Universities UK (UUK) undertook a consultation and as a result, it was confirmed that this is the maximum contribution employers are in a position to pay towards USS.
UUK have put forward a proposal to reform the future benefits structure, which would include the following:
- A move to offering ‘Defined Contribution’ (DC) scheme to all employees. In this type of scheme, funds are built up over time, through regular contributions which can be used to provide an income in retirement. The amount of income depends on the performance of the fund.
- Freeze the ‘Defined Benefits’ (DB) scheme, so that this type of scheme could be reintroduced if scheme funding improves. This type of scheme promises a specific income in retirement.
- Death and incapacity benefits would remain as Defined Benefits
- Any benefits, accrued before any change is introduced, would remain unaffected
AON has completed some initial modelling of UUK’s proposed benefit changes through an agreed seven example member scenarios. The AON document containing the scenario outcomes is available here.
This proposal is under discussion by the Joint Negotiating Committee (JNC) who will meet again on 23 January 2018. If it is decided that a reform is necessary, there will be a formal consultation process. It is likely that this would take place from March 2018.
We are aware that this is a significant change to the scheme and your retirement income, so we are keen to provide you with additional information and support. We are hosting a Pensions Town Hall on 24 January 2018 which we hope you will be able to attend. We anticipate that there will be a high demand to attend and would recommend booking now. A second Pensions Town Hall is planned for February 2018 if you are not able to attend the first.
- Wednesday 24 January 2018 – 12:30pm-14:00pm - Archaeology G6 LT – [sold out]
Information on the USS Valuation is available here.
We hope this information is useful and I look forward to the first session in January where we can answer your questions more fully. Please rest assured that we will keep you updated throughout the process.
UCL Human Resources