Employers representing 95 per cent of the Universities Superannuation Scheme membership have backed measures proposed by Universities UK, including enhanced employer covenant provision, in a bid to end the impasse over the scheme’s 2020 valuation.
As Pensions Expert has reported several times, USS, employer representative UUK and the University and College Union have been locked in protracted negotiations over the 2020 valuation results, which saw the hybrid scheme’s deficit quadrupling to more than £14bn, requiring that contributions be raised to between 30.7 per cent and 42.1 per cent of payroll under the most favourable scenarios.
However, unless employers agree to a series of conditions, the rates could be increased to as much as 56.2 per cent of payroll.
This prompted the UCU to warn that it “cannot rule anything out” in opposing the USS proposals.
There is a strong desire for changes to the scheme, some of which will take time to fully explore including governance reform and conditional indexation, which requires legal changes and significant work to get right
Universities UK
UUK said: “Without changes to the scheme, employers and scheme members face escalating contribution rates: for employers, from the current level – 21.1 per cent of salary – to 23.7 per cent in October 2021 and at least 28.5 per cent next year.
“Similarly, members would see their payments rise from 9.6 per cent of salary, to 11 per cent in October 2021 and reach at least 13.6 per cent next year – and risk pricing more and more members out of pensions saving.”
UUK put its proposed alternative reform package to a consultation, and received 141 responses in support of measures including a moratorium on scheme exits, debt monitoring, and “ensuring that pension promises are even more secure through protecting the USS trustee’s status as a creditor”.
In exchange for this, it is hoped that there will be no increase in either member or employer contributions, while a “major new review” of the scheme’s governance will be carried out.
The proposals backed by the employers also include work to begin immediately exploring a move to a conditional indexation model, “which pegs a part of annual pension provision to the performance of scheme funds”.
Employers back low contribution option
The establishment of a joint working group was suggested, including scheme members, UCU, employers and USS representatives, “to collaboratively design a proposal”.
UUK members also backed the controversial proposal to address the high dropout rate among younger scheme members in particular by giving them a new, lower contribution option.
Finally, employers have supported a commitment “that should the scheme’s financial situation get better, then improvements to benefits can be considered rather than reducing contribution rates”.
The proposals will now be discussed “over the coming weeks” with UCU, UUK and USS at the Joint Negotiating Committee, which is responsible for approving changes to scheme rules.
Commenting on the outcome of the consultation, a spokesperson for USS employers said: “There is a strong desire for changes to the scheme, some of which will take time to fully explore, including governance reform and conditional indexation, which require legal changes and significant work to get right.
“This still leaves employers and scheme members with an immediate challenge. Action is needed to avoid unpalatable contribution increases for both employers and members, or the number of staff leaving the scheme will become a stampede and there will be cuts to teaching, research and jobs at many institutions as employers would be forced to pay extraordinarily high pension costs,” they added.
Negotiations to continue
USS employers will “continue to press” USS and the Pensions Regulator to “achieve a fair price for the demanding additional support measures employers are offering to keep the hybrid alive and maintain a good level of defined benefits in the scheme”, the spokesperson continued.
Russell Group universities propose USS compromise
Russell Group has backed the Universities Superannuation Scheme trustee’s suggested “lower-cost, more flexible” alternative to the existing scheme structure.
“The USS trustee’s initial response to the UUK proposal, which has received the backing of employers in this consultation, is that it is willing to adjust its assumptions to lower scheme costs, but not far enough to be able to offer the level of defined benefits for the contributions and covenant support proposed by UUK.
“Further consultation is therefore planned with employers to see if they can give stronger assurances on covenant, and then with the USS trustee to see how any final gap can be bridged.”
UCU has previously threatened industrial action should UUK press ahead with proposals it deems inadequate, but the employers’ spokesperson said: “We hope the union will work with us and suggest ways of tackling these immediate financial challenges to avoid ruinous contribution increases, and to explore longer-term changes, including a governance review, a flexible option for members and conditional indexation.”
