Commenting on today’s decision by the Joint Negotiating Committee (JNC) to progress the employers’ proposal for changing the Universities Superannuation Scheme (USS) pension scheme to consultation with affected members and representative bodies, a spokesperson for USS employers said:
“Today’s decision by the USS Joint Negotiating Committee provides a viable and implementable solution to the 2020 valuation. The employers’ proposal sees a significant element of defined benefit retained while preventing unaffordable contribution levels. The additional backing offered by employers is unprecedented among UK pension schemes, with the USS Trustee valuing their additional covenant support at around £1.3 billion per year, which has the impact of limiting the benefit reforms needed.
“In partnership with the University and College Union (UCU), we look forward to progressing a major governance review of USS, jointly exploring future options for scheme design including Conditional Indexation, and shaping a lower-cost option so staff on lower salaries are no longer priced out of retirement saving.
“USS’s formal assessment of the scale of the deficit means that no change is not a viable option. We understand that the benefit changes passed by the JNC will be unwelcome for scheme members, but the huge increases in contributions required to keep benefits the same are unaffordable for most members and employers. The valuation methodology adopted by the USS Trustee and the position of The Pensions Regulator meant that no change was not an option. Faced with total contributions that would equate to 56% of salaries, the proposals accepted by the JNC represent the least bad compromise possible.
“The employers’ proposal for reforms is an alternative to the USS Trustee’s proposed unaffordable contribution rates for scheme members and employers, which would have caused considerable disruption for members and risks forcing more people to leave the scheme. UUK’s package of reforms averts damage to the student experience, and job losses and recruitment freezes because additional money from teaching and research budgets would have to go towards even higher pension costs.
Commenting further on the reforms passed today by the USS JNC, a spokesperson for USS employers said:
“We have had helpful and constructive discussions at the JNC on many areas of reform. We are keen to continue this engagement with UCU and other unions over the coming weeks and also seek further views from members of USS, through the forthcoming 60-day scheme member consultation on the proposals.
“Employers have consistently said that they would be happy to explore viable alternative proposals for reform from the University and College Union (UCU). While the reform package passed by the JNC today proposes a particular set of changes to the future pensions earned from USS’s defined benefit and defined contribution sections, the upcoming consultation is important and open – and could lead to these proposals being amended. Employers remain open to considering alternative benefit structures and formulations, provided they are viable, affordable and implementable.
“Benefits which members have already earned within USS are protected by law and secure, and the employers' package, and in particular the unprecedented additional covenant support measures provided by employers, further strengthens that protection.”
Notes to editors
- The JNC is a separate body, made up of five representatives from UCU, five representatives from UUK, and an independent chair. The JNC’s responsibilities include feeding in views to the USS Trustee on behalf of both the scheme members and employers and deciding on any recommendations for changing the scheme. The USS Trustee is responsible for setting the contribution rate required in order to deliver the scheme benefits, and the JNC has the responsibility to decide how increases (or decreases) in costs to the scheme should be met. Today’s JNC decision on the UUK proposal was passed by the casting vote of the JNC Chair, Judith Fish, after UCU decided not to put a counter proposal to the vote. Assuming the JNC’s recommendation is formally accepted by the USS Trustee, as required under the rules, a 60-day (minimum) consultation on the proposals will follow with scheme members.
- Without changes to the scheme, members and employers would be facing ruinous contribution payments, which the USS Trustee has said it would be required to implement – members would be asked to pay 18.6% of salary (currently 9.6%) and employers pay 37.6% (21.1% at present) potentially from as soon as April 2022.
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Without reform to the scheme, contribution rates imposed by the USS Trustee will hit the pockets of staff in USS through an initial 15% rise in October 2021. This means a scheme member earning £40,000 will have to pay an additional £47 each month to maintain pension benefits and will likely increase again, possibly by a further 24% in April 2022 – £133 more per month for the same benefits – compared to current levels.
- The scheme’s active payroll as at 31 March 2020 was £8.962 billion. The total monetary contribution to pensions by USS employers is therefore currently £1.89 billion per annum, meaning each additional 1% contribution to USS equates to an extra £89.6m per annum, equivalent to approximately 2,000 individual members of USS employed in USS institutions (based on an active membership of 200,355 and average USS member salary levels, as detailed in the rule 76 report presented by USS to the Joint Negotiating Committee.)
- The impact of the UUK proposal and the risk of taking no action to resolve the scheme’s financial challenges are clearly stated on the USS employers website and published modelling gives examples of how benefits could change for people on different salary levels: USS Employers back changes to the pension scheme, 15 June 2021Employers respond to UCU's benefits modeller, 28 May 2021, USS valuation: Aon comments on March 2021 materials, 9 April 2021.
- A full consultation with members and representative bodies will now follow on the proposed solution to the 2020 valuation with clear and detailed information on what the proposal passed today would mean in terms of contribution costs and benefits to members – and to reassure them that their pension benefits built up to the date are unaffected and secure.
- The value of the overall covenant support package already agreed to by employers is worth the difference between 56.2% and 42.1% of contributions to the scheme, equivalent to c.£1.3 billion per year. For more information see: http://www.ussemployers.org.uk/news/employers-pledge-even-greater-levels-support-uss-pensions
- This covenant support can be considered in a similar way to increasing contributions – indeed that’s how USS Trustee has valued it, saying that contribution levels would need to increase by 80% without it. This commitment to covenant support is in addition to the increase of more than 50% in the rate of employer contributions to USS from 14% of salary in 2009 to 21.1% from 2019.
- Conditional Indexation (CI) involves annual increases to pension benefits – above any statutory minimum increases – may be dependent on scheme investment returns and not guaranteed. (This may be considered, for future benefits, by stakeholders after the 2020 valuation.)