USS under attack

Further update on USS

13 March 2019 | last updated: 14 March 2019

Please find below the latest update from UCU on developments in the USS dispute. This update seeks to explain as straightforwardly as possible the employers' proposal for contingency contributions and sets out UCU's policy. There is lots going on so we have made this a thirteen rather than the usual ten point briefing.

If you want more background you can read previous updates here and if you have any questions about the issues raised below then, as always, hit reply.

The story so far

  1. In April 2018 UCU members voted to set up a joint expert panel (JEP) to look at the USS valuation. Following this agreement, Universities UK (UUK) formally withdrew its proposal to replace the guaranteed pension with a pension that would have been based on stock market performance. UCU estimated that this proposal, if it were ever implemented, would have cost the average member around £200,000 in lost retirement income.

  2. The JEP reported back in September 2018, and made a number of recommendations for changes to the 2017 USS valuation. JEP estimated that if all of these recommendations were implemented then current benefits could be retained at a combined cost to employers and members of 29.2%. This can be compared to current total contributions of 26% and to USS's calculation, that contributions would need to rise as high as 35.6% by April 2020 to protect benefits.

  3. USS's response to JEP has been to propose a fresh scheme valuation based on data as at March 2018. As part of this process USS have agreed to implement some but not all JEP's recommendations. In a letter in December, the Pensions Regulator (TPR) suggested 'contingent contributions' as an option if employers wanted - as had been indicated in their recent consultation - to take on more risk. Put simply, contingent contributions are further payments from the employers that would be triggered if the position of the fund worsens in line with jointly agreed parameters.

  4. The USS Board's position can be summarised as follows: - the cumulative impact of implementing all the JEP's recommendations would be to create more risk than the TPR would accept; based on their proposed partial implementation of JEP, total contributions would need to be 33.7%; but that they could fall to what is described as a 'lower bookend' contribution rate of 29.7% if the employers were willing to reach agreement on 'contingent contributions'; it is for the employers to come forward with 'contingent contributions' proposals which will then be considered by the USS Board.

UUK's proposal

  1. UUK's position remains that, like UCU, they wish to see the JEP implemented and that 'when considering the particular context within which the scheme operates, it would be reasonable to form the view that a specific contingent contribution arrangement is not necessary.' However they also believe that 'the only credible arrangement to conclude the 2018 valuation in a timely manner would be CCs.'

  2. Therefore at the end of February, in response to the Board's position, UUK made a formal contingent contributions proposal to its members. The stated aim of the proposals is to 'provide for the lower bookend of contributions'. For the purpose of their calculations, this is taken to be 29.2%. Aon also argue that the deficit recovery contributions proposed in the upper bookend are too high and propose an upper bookend of 32.2%.

  3. The UUK proposal is premised on additional 'contingent' payments being required if the deficit, based on the technical provisions, exceeds £10bn for two successive quarters. This would then trigger, following six months' notice, an increase of 1% a year in total contributions up to a maximum of three years.

  4. On the basis that any increase in contributions is cost-shared, acceptance by USS of the employers' proposal would mean an increase in members' contributions compared to the current position of between 1.1 - 1.3% in order to protect existing benefits. The range arises from UUK's view that if a contingency contributions proposal could be agreed total contributions could be as low as 29.2% compared to USS's 'lower bookend' of 29.7%. However it is also important to note in addition to this that UUK have also stated their belief that any further increase in contributions that arise from their contingent contributions proposal should be shared 65%/35% between employers and members.  This would lead to a potential further increase for members of up to 1.1% should the trigger of a £10bn deficit proposed by Aon be reached immediately. UCU's view is that contingency contributions are a matter for the employers not scheme members.

UCU's view

  1. UCU's policy is for 'no detriment' - meaning that benefits should not fall and members' contributions should not rise as a result of the 2018 valuation. This policy that contributions should not rise also includes any increase in contributions that might arise from whatever contingent contributions proposal is adopted.

  2. We are not persuaded by USS's justification for failing to implement ALL of the JEP recommendations which is that, taken cumulatively, the risks created by the recommendations are greater than would be considered acceptable by TPR. We wrote to USSwith regard to their refusal to implement the JEP's proposals for the smoothing of contributions and the postponement of de-risking in December. It is also worth noting the publication of TPR's annual funding statementwhich, contrary to the position previously outlined by USS, reaffirms that 'we do not assess the appropriateness of schemes' TPs or discount rates based on predetermined relationships to gilt yields or other indices'. UCU has written to USS asking them to urgently reconsider their attitude to the JEP recommendations - which, remember, are broadly supported by both the union and the employers.

  3. The UUK consultation with its members has been extended to mid-March. UCU branches are doing an excellent job of raising these issues with their managements - including highlighting our view that the JEP should be implemented in full - and seeking to influence each institution's response to the consultation. Information received so far into HQ from branches is that most employers continue to view the JEP recommendations positively but, given the Trustee's views, see some form of contingency contribution as necessary in order to keep contributions down. The union's USS national dispute committee (NDC) has produced a range of briefing materials and motions relating to UCU's position on these issues which members can view here

  4. Following the previous briefing, a number of members asked what happens next? With USS this is sometimes difficult to predict! However, the employers' consultation will finish in mid-March after which they will report the results into USS. The USS Board will then consider its response at the end of March. In any national negotiations UCU will reiterate our clear position of no detriment in either benefits or contributions and continue to argue for the implementation of all of the JEP's recommendations. If we fall short of this outcome it will ultimately be for members to decide whether further industrial action is required to achieve the union's aims.

  5. Finally, the JEP itself is continuing to meet to discuss the second phase of its work which looks at alternative approaches to future valuations and at how the governance of USS might be improved. Members with expertise in these areas are encouraged to submit their views by 15 March. The formal call for evidence from the JEP is here. 

Thank you for reading this update. If you want to get in touch or ask a question, hit reply.

Paul Bridge
UCU head of higher education

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