JNC decision on package of reforms to conclude the 2020 USS valuation

This webpage was updated on 23 February 2022 to retract a note to editors.

The Universities Superannuation Scheme (USS) Joint Negotiating Committee (JNC) has today formally voted to implement a package of reforms to conclude the 2020 valuation of the scheme.

Employer and member contributions will be 9.8% of salary for members and 21.6% of salary for employers from 1 April 2022 – with guaranteed defined benefits remaining at the heart of the scheme. This represents an increase of 0.5% of salary in employer contributions, and 0.2% of salary in members’ contributions from the 2018 valuation.

These necessary reforms provide an affordable and sustainable solution to the 2020 valuation which allows stakeholders to focus on the scheme’s future by exploring lower cost flexible options, alternative scheme designs, and carrying out a review of scheme governance.

Under the reforms passed by the JNC:

• Scheme members earning up to £40,000 per annum will see their guaranteed defined benefits (DB) build up more slowly – with a reduction in the accrual rate from 1/75 to 1/85. This is necessary in light of the increasing costs associated with DB pension provision.
• The salary threshold up to which guaranteed defined benefits are built up will reduce from c£60,000 per annum to £40,000 per annum. Members earning above the threshold will receive a 20% contribution into their individual pension pot (defined contributions) – something which staff who earn more than £60k per annum will already be familiar with.

Following consultation feedback from members which identified the proposed 2.5% cap on future inflationary increases as an issue of great concern, employers have agreed to pay an additional 0.2% of salary in contributions (on top of the 0.3% of salary increase which has applied from 1 October 2021) to defer the application of the cap until at least the next valuation. By then it is hoped that possible mitigations could be in place which could further delay or prevent the imposition of the cap.

Commenting on the JNC’s decision, a Universities UK spokesperson on behalf of all 340 USS employers said:

“The Joint Negotiating Committee’s (JNC) decision secures an affordable solution to the 2020 valuation and provides a more sustainable platform on which the scheme’s longer-term future can be built. This settlement ensures the continuation of a valuable Defined Benefit element to the pensions offer while sparing both members and employers from the damaging consequences of much higher contributions from April.

“Employers would rather the scheme was in a financial position where benefit reform was not necessary. However, without these reforms costs would have risen to unaffordable levels for employers, while the increased costs for members would have seen more people leave the scheme and miss out on a valuable employer contribution towards their retirement.

“Today’s decision brings a considerable period of uncertainty to an end and gives stakeholders an opportunity to break the cycle of disagreement and dispute ahead of the next valuation. Our focus can now return to working collaboratively on alternative scheme designs, a review of the scheme’s governance, and developing lower-cost options and flexibility to give members more choice in their retirement saving.

“Too many members of staff are currently choosing not to participate in USS because the contribution rate is too high, or the scheme benefits are not considered suitable. With these reforms enacted, we have a chance to identify improvements and restore all members’ confidence in their pension arrangements at an affordable price.” 

Notes to editors

1. The USS Trustee says scheme changes need to be decided by the end of February – to avoid the start of the punishing and unaffordable cost escalator in April which would see the already high member and employer contribution rates almost double over the next three years.
2. To make the proposal decided on by the JNC viable, employers have already agreed to make significant financial commitments to the scheme, known as covenant support, equivalent to an additional £1.3 billion per annum.
3. 93 out of 97 employers – representing over 92% of the active membership of the scheme and over 98% of those responding by weighting – did not support the UCU proposal to conclude the 2020 valuation when consulted. Three employers indicated conditional support for the UCU proposal, and just one employer provided support.
4. The proposed employer contribution rate of 21.6% of salary is over two and half times the average non-matched employer pension contribution in FTSE 100 companies (8.3% of salary), based on the FTSE 350 DC Pension Scheme Survey.
5. It will be important for the USS Trustee to continue to perform well in investment markets with the aim that the new flexible DC funds members will build up above the salary threshold provide as far as possible similar value and flexibility to the previous benefits, as well as provide guidance and support to members whose benefits are set to change.
6. Feedback from employers given to the Universities and Colleges Employers Association (UCEA) shows that the impact from February’s industrial action has so far been low, with little impact on students.
7. Although the latest funding update provided by the USS Trustee shows that the scheme’s technical provisions deficit has decreased since March 2020, the Trustee has stated that without the planned reforms, the deficit would be higher, and that it is very difficult to reach any definitive conclusions as to the true direction of travel based on the last few months alone.