Figures released by the scheme Trustee show significant rise in cost of maintaining current benefits
USS recently announced that the cost of preserving the current level of benefits provided by the pension scheme has risen significantly – from 30.7% of salary to between 56% and 42% of salary.
USS is mid-way through its latest triennial valuation, a statutory assessment of the pension scheme’s overall financial health. Members of the scheme currently contribute 9.6% of their salary, while employers contribute 21.1% (30.7% in total).
If the current benefits were to be preserved, USS says that members would need to pay between approximately 13% and 18% of salary, and employers between 28% and 38% of salary.
The difference between the upper and lower end of the proposed contributions is down to additional ‘covenant support’ measures that USS says are necessary to demonstrate the collective financial strength of the participating employers. How these covenant support measures – which include preventing employers leaving USS, more detailed monitoring of employer debt, and guarantees that USS’s position as a creditor of debt across the sector is protected – might be applied has yet to be resolved.
You can read more about the benefits provided by the pension scheme on the USS website.
This valuation has proven particularly challenging, with much discussion between the principal stakeholders (USS, Universities UK, and UCU) about the methodology used to calculate the deficit, and the covenant support measures that are necessary to demonstrate to the Pensions Regulator that the scheme is in good health.
The University and the Colleges have spoken out on a number of these issues, most recently in a letter to USS chief executive Bill Galvin (Raven login required).
UUK, which represents employers in the scheme, has today said in a media statement that “employers and scheme members need a stronger and clearer justification from the USS trustee for the very high pricing decisions”, and that “without this justification, employers and scheme members will be concerned that the scheme is facing an unnecessary level of reform”.
The full UUK statement has been published on the USS Employers website. The latest position from UCU is available on the UCU website.
What happens next?
We appreciate that these latest developments will be concerning to scheme members. The next steps will be for the USS Joint Negotiating Committee (comprising five members from UUK, five members from UCU and an independent chair) to decide how to deal with these increased costs and the scheme’s deficit (calculated to be between £14.9bn and £17.9bn). UUK will also consult with all USS employers on how to address the scheme's deficit, including the role of covenant support measures, potential benefit options and contribution levels.
The contributions are clearly unaffordable for both members and employers, and various options for benefit reform will now inevitably be discussed. We don’t have detail on what these options may be, but will let members know as soon as we are able to. Participating employers are also working quickly to finalise the covenant support measures.
Finally, members should be aware that, under the terms of the 2018 valuation, contributions are scheduled to rise to 34.7% of salary (split 65:35 between employers and members) if the 2020 valuation does not result in agreement on a new contribution rate. This article on the University website explains that situation in more detail.
Communication
The University will arrange an online open meeting to provide members with a more detailed update on the issues described here. We will let you know the date and how to access the meeting shortly.
Further updates will be communicated via the USS bulletin and published on the ‘USS latest’ section of the University website.