What we know:
- Last year, the USS Executive produced a valuation that proposed the pension scheme was in serious deficit and offered the option to change from a Defined Benefit scheme (which gives a guaranteed pension) to a Defined Contribution scheme (which acts as a savings account and requires pension members to take those accumulated pension savings and invest it themselves to try and produce a pension when they retire. This means we would have to generate our own pension income). The university employers, represented by Universities UK (UUK), wanted to take up this option and voted it through on the USS joint negotiating committee.
- Strike action on a huge scale by UCU members in March last year was premised on the belief that our USS pension scheme was not really in deficit, but that its projected deficit was due to a valuation model that was methodologically unsound.
- The nub of the problem in USS’s valuation methodology (at that time supported by UUK) was the use of “de-risking” starting in 10 years time (moving the scheme’s investments from high yield, higher risk shares and investments to very-low yield but stable government bonds and gilts). This produced a “deficit” because assets held by USS in gilts lose value with inflation and because the interest earned would be low -- by choice-- with the result that the scheme is projected to have a higher than acceptable risk of deficit.
- It is worth noting that there is no actual deficit. First, the assets held by USS are currently £64bn; current annual income is £2.2bn against £2bn outflow. There is no urgent problem to ‘fix’. Second, the best estimate (mean) of the valuation projections discussed by USS are positive. It is only by dumping stock in gilts and taking a pessimistic projection of risk (a lower bound on a confidence interval) does a deficit projection appear.
- The strike action forced the employers to agree to a Joint Expert Panel, with actuarial experts on it appointed both by UUK and UCU, to consider whether there was in fact a deficit, and if there was, what strategies could be used to reduce it.
- The JEP’s First Report (agreed by all its members) listed a number of recommendations that accorded with the view of USS. Some small tweaks to the valuation method would simply remove the deficit (a key one was for the model to delay de-risking by 10 years - something USS had planned to do in September 2017). The JEP also said it would produce a second Report looking at the need for de-risking in the methodology altogether.
- The USS Executive and Trustees, however, refused to take up all these key recommendations, and valued the scheme afresh as continuing to have a deficit. This is why members’ contributions are going up. They, for example, refused to delay de-risking (a simple tweak that would practically eliminate the deficit).
- The USS Trustees and Executive (Bill Galvin) have claimed since January that their chosen deficit-producing method is due to the Pensions Regulator (tPR), which is the regulatory body for UK pensions, requiring them to use de-risking in their valuations.
- It has now emerged that tPR had required no such thing from USS. Not only that, but they had been rebuked in an email by tPR for claiming this was the case.
- But the USS Execs and Chair of the Board of Trustees had kept this information from the UCU Trustees on that Board, and from the pension members more widely. All of which amounts to...misleading and information-withholding actions at best and lying to relevant parties at worst. One might say, damned lies, given how often and publicly USS made these claims.
- To pour oil onto this fire, it has also been revealed that one of the UCU-appointed trustees on the Board, Professor Jane Hutton, had raised concerns, and asked to see information from the Executive as to the basis for their claims about de-risking, including communications from tPR. She asked for this in March 2019. She was ignored for 3 months and effectively silenced by the Chair of the Board (David Eastwood). As a result, Prof. Hutton has turned whistleblower, revealing these problems of governance to the Regulator (who is investigating).
- USS has responded to these revelations. It admits it showed tPR’s communication to some relevant parties, but not all. It fails to mention Prof. Hutton only raised the alarm when it was clear the information was being kept from her. It claims the Board has been shown the tPR’s email but omits that Eastwood only released the latter to the members of the Board this May, after Prof. Hutton had sought confirmation from tPR as to when they had sent their correction to USS (USS had the letter from tPR on the 8 January), and after crucial decisions had been made without their seeing it. It is also clear that the email from tPR rebuking USS for misrepresenting their position was shared with UUK but not with the union nominated trustees (and so not with the members of the scheme).
- As Josephine Cumbo puts it in a tweet: “I have twice asked #USS why #TPR’s January email was not shared with the Trustee Board until May. I am yet to get a response.”
- It is worth underlining, tPR’s complaints have been about the methodology for evaluating risk, in USS, saying it did not favour a particular way of assigning risk values. Thus all the claims made about tPR demanding less risk, and this underpinning the need for increased contributions (including contingent contributions) are undermined by this information.
- A further, very disappointing, discovery is that the employers (UUK) appear to have been in on all this, and not discussed it with UCU or our members. They admit knowing about it, and USS says it informed them in January. Yet they did nothing to address the impact of this misinformation on our pension scheme and its future.
Their approach is pretty indefensible (as reported):
If you have a twitter account you can see a quick video summary of all this by USSBriefs.
You can also read some analysis of this, explaining its significance.
In subsequent developments, it now appears that USS (Executive and the Chair of the Board of Trustees) are retaliating against Prof. Hutton for daring to whistleblow their practices.
She had asked for information on the TPR’s position and was stonewalled, leading her to ask the TPR itself, who told her they had sent an email rebuking USS for misrepresenting them in January. She has now been suspended from the board (for not justifiable reason, given she has shown a level of honesty and integrity the USS Exec and Chair of the Board have not). Professor Hutton has described USS’s sidelining of her (and why) on Radio 4’s Today Programme.
In summary: The CEO of USS, Bill Galvin, knew information that was relevant to avoiding increased contributions and securing the scheme, but kept it hidden, the Chair of the Board of Trustees (David Eastwood) knew this and also hidden (and refused to answer Prof. Jane Hutton when she inquired about it), UUK knew about this and did nothing in relation to disclosing it to UCU and UCU trustees - their negotiating partners and their partners in setting up the JEP. They have subsequently tried to play all this down.
Our own institution, in the form of a letter from the Provost (20 June), has supported Option 3 (a rise in contributions plus reviewing the JEP 2nd report in 2 years time - ie kicking the can down the road) an option resulting directly from this flawed and questionable (some would say dishonest) process.
We have been let down.
UCU cannot negotiate with or work with untrustworthy partners. Each of these agents, given these revelations, is not worthy of our trust. Galvin and Eastwood must resign now. The JEP1 recommendations need to be fully implemented, and the scheme properly secured.
The only way to secure it now, however, given the level of bad faith involved is with a credible threat of industrial action to force employers to actually weigh-in to secure it rather than watch passively (or collundingly) as it is undermined.
This all means we must get the vote out for the ballot that will take place in September. It is now the only way to save our pension scheme.
Appendix for Information:
Message from the Provost to UCL staff - 20 June
On 7 June, the Universities and College Union (UCU) wrote to 69 institutions in the USS pension scheme asking them to commit by 19 June to limiting members’ contributions to 8% or meeting the cost of additional contributions. If the institutions did not agree, then UCU would prepare for an industrial action ballot in September.
Yesterday, we wrote back to UCU, and our response is below.
I would like to thank you once more for staying engaged with this process and assure you that we will keep you up to date with further news.
In the meantime, if you have any queries you can contact the UCL Pensions team on firstname.lastname@example.org.
Professor Michael Arthur
President & Provost
Response to UCU letter of 7 June 2019
Thank you for your letter dated 7 June regarding the USS pension scheme. Much common ground has been established between UCU and UCL, and employers generally, particularly since our agreement to form the Joint Expert Panel and we wish to restate our ongoing support for their valuable work.
We have, like you, urged the Trustee to accept in full the recommendations of the Joint Expert Panel's first report. This would, in their estimation, have resulted in a combined contribution rate of under 30% for the preservation of current benefits.
The Trustee has now outlined the three options you have cited to settle the 2018 valuation, all of which require an increase in contributions. We considered these options, with input from our staff and consideration by the UCL Council, and concluded that none is ideal for UCL or for our staff. We reluctantly agreed to offer qualified support for option 3 but only because it provides the best scenario for the JEP to continue its work and deliver a longer-term recommendation for USS. It provides an outcome that is, in Aon's view – UUK's actuarial advisors, "largely in line" with what the JEP recommended.
We believe it is right that employers and individual members share in any necessary contributions increases, and likewise in any reductions. This is for the following reasons:
Employers should pay the majority of any increase, 65% as per the scheme rules
The cost-sharing provisions were agreed with full support from UCU and employers
The JEP's first report recommendations, which were fully supported by UCU and UCL, were designed around any increases being shared 35:65 between members and employers. We remain fully supportive of the JEP.
We are sorry that we cannot responsibly support the UCU request to fund increased USS contributions for individual members of staff. Firstly, it is unaffordable for UCL – we have already very substantially increased employer's contribution for UCL (our current estimate is a figure considerably in excess of £10m). Secondly, this approach doesn't address concerns over intergenerational fairness which is key for many of our staff. Our early career researchers are disproportionately affected by the increased financial burden of these changes. We need to find, and fund, alternatives to better support them.
We have achieved a great deal and UCL has played an active part in pressing the USS Trustee to accept the JEP's recommendations. The Trustees have moderated their position from a requirement for 35.6% under the 2017 valuation to a current proposition for 30.7%. The JEP reported that "there are a number of different paths the USS Trustee could adopt to reduce the contribution rate to below 30%" and we are now very close to that.
The Pensions Regulator's letter makes clear that option 3 would lie at the very limit of acceptability. If we reject all the options then we will incur the significant increases currently scheduled for October and next April that would be damaging for UCL and our staff in the USS pension scheme.
I would encourage you to recognise what we have achieved together and to work with us and the JEP to achieve lasting reform of the scheme.
Professor Michael Arthur
President & Provost