Future funding - letter to USS institutions

Dear vice-chancellor/principal

You will recall I wrote to you on 10 July about the future funding of the USS pension scheme.  I have also spoken to many of you .

Now that Universities UK is consulting with institutions on the USS technical provisions I want to update you on UCU's position so you are clear where we stand.

First I hope we all  agree that USS is an important part of the pay and benefits package for staff. With the Teachers' Pension Scheme already offering far superior benefits for academics in Post-92 institutions  (£200,000 more for a young academic over an average retirement) any further reduction in USS benefits is wholly undesirable and will damage your ability to remain competitive and recruit world class staff.

Second, after a difficult few years for staff with respect to both low pay awards and cuts in their pension benefits, a further reduction in USS benefits will be seen as evidence that you do not see their pensions as important especially when as the consultation makes clear "most employers" can afford to increase contributions if this is really necessary.

Third, that there is still time for UCU and UUK to work together to persuade USS against some of  the potentially overly prudent assumptions made in the valuation of the scheme. 

We both know that USS is built on a solid foundation.

A third cut to benefits in five years will not solve the problems created by the methodology currently in use. I believe that we can and should act together to suggest an alternative path for our fund which provides reasonable security for you and for my members.

Specifically, the USS Board has chosen to interpret the Pensions Regulator's call for 'prudence' by using a complex measure termed Test 1. This is expressed in terms of the rate of return on government bonds rather than the rate of return on the scheme's actual mix of assets. 

I have met the Regulator's team on USS and believe that although they do, of course, want a prudent approach they are not committed to the current approach. 

Indeed as many commentators and pension experts have noted, this insistence on tying valuations to historically low gilts yields is creating artificially inflated deficits in many defined benefit pension schemes, not just USS.

UCU has commissioned its own actuarial analysis from First Actuarial, in response to the technical provision document. This shows that future service cost in USS declines and that cash flows should remain positive with an appropriate investment portfolio. 

At the very least, this demonstrates that far from being fixed these issues are highly contested - yet if we are not careful we will end up making decisions which will damage your ability to recruit and retain staff and leave my members facing a poorer retirement.

Given what is at stake, I am asking you to think very hard about  the assumptions behind the technical provisions.

This is now urgent as the scheme is on the cusp of fundamental and wholly unnecessary changes. 

On behalf of UCU members, I am also now asking you give a commitment to pay your share in order to protect current benefits should an increase in contributions be the outcome that the trustee decides despite any protestations that UCU and others may make.

Clearly any successful representation you make will impact substantially on the level of any increase.

Fourth and finally, I hope you would recognise that I have spent a lot of time in recent months trying to find common ground with you as employers on these questions.

I have done so because of my belief that conflict on this issue at a time when the sector has other matters it needs to focus on was and is avoidable.

However events are now moving at such a pace - and the prospect of a reduction in benefits is so real - that now is the right time to consult with UCU members on whether they are prepared to take action to defend their pensions. 

This consultative ballot will begin immediately and continue into October and the result will be announced prior to the JNC that meets on 19 October.

I hope that you can consider these arguments when making your response to the consultation and, as always, I would welcome the opportunity to discuss this further.

Yours sincerely 

Sally Hunt
UCU General Secretary