Universities Superannuation Scheme employers have rebuffed renewed calls by the University and College Union to restore benefit cuts in response to the scheme’s controversial 2020 valuation, arguing there is “no solid evidence” to make benefit changes before the 2023 valuation.
UCU, which has long been arguing that cuts to pensions were unnecessary and should be reversed, seized upon the scheme’s June financial monitoring report as further evidence that its position is vindicated.
The cuts had been imposed after the 2020 valuation revealed a deficit of more than £14bn, and were part of a package agreed with employers — including covenant support and a moratorium on scheme exits — to stave off “ruinous” contribution rate hikes.
The union argued from the off that the valuation had taken place at a time of acute economic stress, and the outcome had been swayed by the market’s response to Covid-19 lockdowns.
There is no credible argument against returning pension benefits to staff and a commitment to that must be forthcoming. If it isn’t, university staff will deliver the biggest wave of strike action UK higher education has ever seen
Jo Grady, UCU
It has held several rounds of strike action, with more threatened should employers not relent on the cuts, which came into effect in April.
UCU previously pointedto the June monitoring report, which showed the deficit had been completely wiped out, the scheme in fact enjoying a £1.8bn surplus.
The position of Universities UK, the group representing the scheme's employers, and the USS trustee has consistently been that monitoring reports at best provide an indication of performance, but not a sound evidential basis for making interim changes to benefit structures in advance of the 2023 valuation.
UCU reiterated its call to reverse the benefit cuts on October 6, pointing to data from the June report suggesting that restoring the benefits would leave the scheme with a £600mn surplus and require lower contributions rates (27.4 per cent) than are currently set (31.4 per cent).
It also queried why employers and employees continued to pay 6.2 per cent — or about £500mn a year — to service a deficit that no longer exists.
UCU members are being balloted again for strike action, threatening “unprecedented” nationwide walkouts unless employers agree to reverse the cuts and institute a “new evidence-based and moderately prudent valuation of the scheme”.
UCU general secretary Jo Grady said: “University staff were clear from the beginning that pension benefits did not need to be cut and that the USS scheme was strong — today they have been vindicated.
“Not only has the deficit disappeared in six months, but new data is also showing the cuts can be revoked and benefits restored for lower contributions than are currently being paid to deliver cuts. Every vice-chancellor who supported the cuts, against all reliable evidence, should hang their heads in shame.
“There is no credible argument against returning pension benefits to staff and a commitment to that must be forthcoming. If it isn’t, university staff will deliver the biggest wave of strike action UK higher education has ever seen.”
Volatility is a barrier
In a note to employers accompanying the analysis of the June report, USS chief executive Bill Galvin — who announced he is to stand down in 2023 — said it was important to “properly caveat” information about the scheme’s funding level, continuing market volatility meaning the report and subsequent analysis should “continue to be viewed, at best, as a broad indication of the direction of travel – not the destination”.
He explained that the analysis with respect to the pre-April benefit structure provided a range of potential outcomes, with some of the market turmoil having had positive effects.
“The indicative bookends are a future service cost of 27.4 per cent of pay with a surplus of £600mn (based on monitoring alone) and 29.6 per cent of pay with a deficit of up to £3.8bn (depending on the assumptions for expected inflation),” Galvin wrote.
The range of deficit-recovery contributions would be between 0.2 per cent and 6.3 per cent, he added, though he stressed again that the monitoring report figures should not be read as if they were an actuarial valuation.
“There have plainly been some significant, unexpected changes to the global economic landscape since the turn of the year that have helped to improve the funding position (under the monitoring basis), not least the reversal of a decade’s worth of decline in real interest rates in the space of just a few months,” Galvin continued.
“But the sheer volatility we’re seeing does not provide a solid basis for decision-making. Projections for the future path of inflation and interest rates could change materially between now and the date of the valuation.”
He acknowledged, however, that the current position would seem to be “in stark contrast to the backdrop against which we have embarked on all valuations since 2011 and provides a positive platform for our stakeholders and advisers to discuss potential options for the 2023 valuation — and that is very welcome”.
“We look forward to exploring options with stakeholders over the coming months,” he said.
He added that, should the 2023 valuation find that contribution rates could be reduced, the Joint Negotiating Committee will be able to consider such changes, as well as benefit enhancements.
‘No solid evidence’ for interim changes
A UUK spokesperson said: “While it is positive news that the latest monitoring figures from the USS trustee suggest continued improvement in the scheme’s financial health, primarily from rising interest rates, the recent high level of economic volatility makes it hard to judge the extent of the underlying, substantive improvements.
“The USS trustee, which has legal responsibility for the scheme, has made it clear that its monitoring reports should not be considered a likely outcome of an actuarial valuation, and the sheer economic instability since the turn of the year, evidenced most starkly over the past week or so, makes it very difficult to establish a long-term view.”
UCU threatens ‘unprecedented strikes’ as USS reaches surplus
The University and College Union has strongly criticised the decision to cut staff benefits, as the Universities Superannuation Scheme’s June monitoring report reveals a surplus of £1.8bn and universities prepare to embark on billions of pounds in capital expenditure.
They reiterated the USS view that there is “no solid evidence” for interim changes ahead of the 2023 valuation.
“The USS trustee is responsible for determining the timing of the next valuation. We would support any decision to bring this forward, however the USS trustee insists this is not wise because the economic conditions behind the improvements in the funding position are not stable enough after just a few months to make informed and evidenced decisions,” the spokesperson continued.
“If the next valuation allows for improvements to be made in a sustainable and affordable way, then that is something we would want to do. In the meantime, we call on all those involved in the scheme to commit to working collaboratively and expeditiously ahead of and through the next valuation.”
