USS conditional indexation interim report, June 2025

As part of this work, USS has just published an Interim Report on this work and you can find the Report on the USS website or download it here. You can also click here for information on the UCEA website.

The SWG is encouraging you to read this report but we would want to highlight a number of concerns. While SWG had input into the report and it is greatly improved from its first draft, we did seek other changes that are not included. Concerns about neutral language, intergenerational fairness and modelling to name a few have been omitted.

Now that this report has been published, the SWG believes this is a good time to begin an intensive round of engagement with Pension Officers, Reps and Officials, UCU members and the wider USS membership. We will be holding an online webinar in the second half of July to begin our engagement and further information on this will be circulated shortly. We are also considering other options to improve communication and engagement with members on this topic and will write shortly on these.

So what is Conditional Indexation and what has SWG been doing about it?

Background

Universities Superannuation Scheme (USS) members currently receive an inflationary increase in their pensions each year based upon what is called the 'soft cap'. Where inflation is below 5%, members will receive the full inflationary increase. Where inflation is above 5%, members will receive half of that above 5%. An example is that if inflation was 10%, members could get the full first 5% while also getting half of the second 5% - that is 7.5% overall. This soft cap has applied twice: once in 2023, when CPI was 10.1% (capped at 7.6%) and then in 2024 when CPI was 6.7% (capped at 5.9%).

Conditional Indexation is a different way of indexing USS pensions where this inflationary increase is dependent on the performance of the scheme, meaning members may not get any increase or only receive a part-increase when the scheme is under-performing.

Introducing CI would likely see a significant benefit to employers as there would be a transfer of risk from them to all scheme members, not just active members. This risk could impact on the build-up of future benefits and so could increase over time. To offset this transfer of risk, employers argue that scheme members could get improved member benefits when the scheme is performing well. However, UCU remains sceptical, nothing has been agreed and CI is unproven in the UK for such a large pension scheme.

UCU Policy

At the 2023 UCU Higher Education Sector Conference, members passed motion 16 calling on USS JNC Negotiators to work towards 'more detailed analysis and consultation in the medium-term on models of CI, with no pre-condition of ultimate acceptance'.

And at the 2025 UCU Higher Education Sector Conference, members passed motion HE17, Recommendation 2 calling on USS JNC Negotiators to 'explore and take a sceptical view to CI through its involvement in the CI Working Group and Stability Working Group'.

Work to Date

A Stability Working Group was established in February 2024 and this included a commitment to work to improve valuation methodology that UCU has lead on as well a commitment to investigate Conditional Indexation. In September 2024, the USS Joint Negotiating Committee agreed the terms of reference that would allow USS to allocate the necessary resources to explore CI further, given the additional work needed. In January 2025, UCU agreed to the establishment of a CI Sub-Group to further explore and investigate and decide whether CI, if introduced, would benefit scheme members and employers. Throughout this period, there have been regular meetings between UCU, UCEA and USS.

SWG Position on the Interim Report

While union policy is to explore and investigate conditional indexation, SWG reps leading negotiations remain sceptical of the potential benefits of introducing CI and are concerned about the transfer of risk from employers to scheme members. We also believe that wider issues need to be addressed before any proposals for CI are considered, some of these areas include of valuation methodology, decision making, trust, governance and transparency.

Employers argue that CI will introduce stability into USS, protect contribution rates and improve intergenerational fairness. SWG reps remain to be convinced about these claims and are sceptical of CI in its totality. Firm evidence of any benefits still needs to be produced, understood and verified.

Much work still needs to be done through the CI Sub-Group and SWG reps are committed to doing this work. If you have any questions, please contact a member of the UCU SWG committee or email UCU Pensions Official (USS) Dooley Harte. But we would ask you to read the report and attend our webinar to learn more. Please also ensure your branch has representation through their pensions officer or other branch officer on the UCU pensions email list, where we will discuss the report in more detail.

Dooley Harte
UCU Pensions Official (USS)