Universities reject union’s USS valuation solution

Industrial action spread to 68 USS institutions on February 21 as the second round of strikes continued. Forty-four institutions saw walkouts last week over pay and pensions, which the UCU argues is a necessary step to counter employers’ proposals to cut USS benefits.

Employers and the union have been locked in a bitter disagreement over the outcome of the scheme’s 2020 valuation, which saw the deficit quadruple to more than £14bn. The USS trustee announced contribution rates would have to be increased to as much as 56.2 per cent of payroll unless a viable alternative plan was agreed.

USS employers, represented by Universities UK, put forth a compromise solution including greater covenant support measures and a moratorium on scheme exits in exchange for keeping contribution rates at 9.8 per cent for members and 21.4 per cent for employers, but UCU rejected this package, arguing that it entailed a cut of as much as 35 per cent to members’ guaranteed retirement income.

The higher education sector is in robust financial health with an income of over £41bn and reserves of well over £45bn. If these cuts go through, it will go down as one of the biggest robberies in the history of higher education

Jo Grady, UCU

The union put forward its own plan in January which would see member contributions set at 11 per cent and employer contributions at 23.7 per cent from April to October this year, rising thereafter to 11.8 per cent for members and 25.2 per cent for employers from October.

The union also demanded that employers agree to pay a maximum of 25.2 per cent and members a maximum of 9.8 per cent from April 1 2023, “so as to secure current benefits or, if not possible, the best achievable as a result of the call on the USS to issue a moderately prudent, evidence-based valuation”.

These proposals were dismissed as unserious by UUK, though it promised to consult its members on any tenable solution put forward by the UCU. The USS trustee subsequently wrote to the union saying there was “no impediment” to adopting its proposals, and so UUK upheld its promise, putting them to a short consultation.

UCU proposals rejected

The UCU had argued that the strikes would end were its alternative proposals adopted, although UUK warned that the higher contribution rate for employers exceeded the mandate given it by its members.

It also cautioned that the union had yet to set out how its proposals could be “legally and formally achieved”, that there would not be enough time to carry out a new valuation before rate rises kick in on April 1 2023, and that the Pensions Regulator had not signed off on the proposals.

UUK launched a short consultation on February 15, and six days later it announced that its members had roundly rejected the union’s proposals.

More than nine in 10 — 93 out of 97 institutions — did not support the UCU’s alternative solution. Three institutions gave it conditional support, and just one backed the plan.

UUK said it will share further details in the next few days. The various parties have until the end of the month to agree a solution before the USS trustee has to submit a schedule of contributions to the regulators.

Responding to the news, the union said the case for benefits cuts had “evaporated” as the USS deficit has shrunk by around 80 per cent since the 2020 valuation.

UCU general secretary Jo Grady said: “Employers have refused to accept UCU’s compromise proposals, which the trustee confirmed are both viable and implementable. This dispute could end tomorrow, but vice-chancellors seem determined to slash the retirement benefits of staff rather than accept small and affordable increases to contributions.

“The higher education sector is in robust financial health with an income of over £41bn and reserves of well over £45bn. If these cuts go through, it will go down as one of the biggest robberies in the history of higher education.”

She continued: “Serious questions have to be asked about the leaders of our sector who are orchestrating this attack, and the ministers who are allowing it to happen.”

KCL strikes agreement 

King’s College London did strike an agreement with its UCU branch, however. The two parties issued a joint statement in which they called for a contribution rate of 25-30 per cent, saying: “We acknowledge that the current UUK proposal for reform places a greater burden on members with a cut to future defined benefit pension and a reduction in take-home pay due to increased contributions, and that this jeopardises the scheme remaining attractive both to new and current members.

“We acknowledge that the current UCU proposal for reform raises contribution rates, and therefore reduces take-home pay and employer funds, even if this is intended to be temporary pending a new valuation. However, we agree there is no legal requirement to stay within the March 2020 valuation assumption of nearly zero asset growth and that other prudent assumptions may be possible and should be explored.”

The USS trustee has previously acknowledged the scheme’s improved funding position post-2020, with assets recovering to pre-pandemic levels, but has disputed the claim that a new valuation would produce a materially different result as improvements to asset values have been counterbalanced by other rising costs.

KCL and its UCU branch called on UUK and the union to return to negotiations, and to join forces to “create a well-resourced working party to explore the feasibility and promise of alternative approaches that will give long-term stability and viability to the USS pension scheme”. 

“We agree that conditional indexation, or alternative scheme designs, could make it possible for the USS to continue as a collective, mutual, multi-employer scheme with an ability to invest for the long term in growth-seeking assets,” they said.