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For staff

Senate House against a blue sky

Formal UCU proposal to be considered by university employers this week.

This message was sent to all Cambridge members of USS on Monday 14 February via the USS bulletin.

Dear all,

You may have seen that UCU have recently submitted to the JNC their first formal proposal for resolving the 2020 valuation. UUK is now consulting with university employers on this proposal, and Cambridge’s response will be considered by the University Council next week. We will share the Council response with you as soon as practicable, but in the meantime, I thought it might be helpful to provide a quick reminder of where we are in this valuation, how we got here, and what the next steps could be, as developments over the next few weeks may be fairly rapid.

The 2020 valuation presented by USS in March 2021 suggested a significant deficit in the scheme, which – according to the figures presented by USS – would have required unsustainably high contribution rates to maintain current benefits.

UUK and UCU had worked jointly prior to that announcement to highlight the lack of clear evidence to justify the trustee’s pricing for future benefits and to argue that USS is an exceptional scheme that merits a different regulatory approach, given it is an open scheme with a strong employer base that can afford to operate over a long time-horizon. The University and Colleges, together with Cambridge UCU, also wrote to the USS Trustee to express their concerns. 

Although the Trustee took some account of these arguments (including those presented through the Valuation Methodology Discussion Forum (VMDF), a key working group which put forward alternative approaches to USS’s valuation methodology), it did not substantially change the assumptions of the 2020 valuation. These assumptions, influenced heavily by the Pensions Regulator and the standard actuarial approach in the pensions sector, made it difficult for the stakeholders to reach a compromise that protected pensions, was compliant with regulation, and avoided damaging consequences on the sector and those working in it.

Since March 2021, UCU and UUK have been trying, through the Joint Negotiating Committee (JNC) of USS, to reach agreement on how to resolve the 2020 valuation. No formal proposals were tabled by UCU during this period. In August 2021, the JNC voted, via the casting vote of the independent chair, for a UUK proposal which had the backing of employers and permitted a resolution of the valuation within the constraints of the 2020 valuation methodology and in a timeframe that would avoid significant contribution increases coming into effect in April 2022.

Cambridge position
As we have said many times – including jointly with the Cambridge UCU branch – this University believes that a combined (member + employer) contribution rate of 25-30% of salary should be enough to provide a high-quality, sustainable pension without a material change to the value of members’ benefits. The fact that it does not is a significant failure of the regulatory approach to pension fund valuation – but one that neither UUK nor UCU can currently overturn given the current approach to valuation methodology.

The University’s position on the UUK proposal was that if this turned out to be the only viable option it should only be implemented for the minimum amount of time while an alternative and better value scheme was put in place. An additional, lower-cost and more portable section of the scheme should also be introduced for those staff who have been priced out by the higher cost of the main section. 

The University called for work to begin immediately on a redesigned scheme, using conditional indexation (or another risk and reward sharing option), and for the new design to be implemented within the next 12-18 months. Cambridge has worked with its UCU branch and others to make this case to USS and across the sector and we continue to believe that putting in place an alternative scheme structure is the most promising long-term solution to the instability that has dogged USS for some years.

What happens next?
The original UUK proposal retained the pre-October 2021 combined contribution rate of 30.7% (9.6% members and 21.1% employers), but with reductions in member benefits. USS did not completely accept the UUK proposed rates for the benefits suggested and costed the benefits at 31.2% of salary (9.8% members 21.4% employers), the rate to which contributions rose on 1 October 2021. Members were recently consulted on this proposal: we shared the Cambridge results with you last month. In response to the member consultation results, UUK is now consulting on a revised proposal deferring implementation of the inflation cap on future benefits, at a cost in increased contributions to employers of an additional 0.2% of salary. Cambridge has previously advocated this deferral.

If the deferral of the inflation cap is approved, the UUK proposal could be signed off by 28 February, the date that USS have advised is necessary in order for the new arrangements to be implemented by 1 April and avoid the significant contribution rises that, under scheme rules, would otherwise come into force on that date.

Now UCU has tabled a formal proposal, which would retain the current level of benefits by raising the combined contribution rate to 34.7% (11% members, 23.7% employers) from 1 April this year, followed by further increases up to a maximum of 43% (13.9% members, 29.1% employers) in two years’ time if not superseded by a new valuation. The UCU proposal however also envisages a mechanism whereby employer costs are capped at 25.2% of salary, with member costs reduced to 9.8% of salary after April 2023 and benefits reduced if necessary to fit within this budget. UUK is awaiting details from UCU on how such a mechanism would work. However, even if a workable mechanism is proposed, the UCU proposal would result in a significant further increase in contributions.

UCU’s proposal will be considered by UUK employers over the next week ahead of a JNC meeting scheduled for 22 February. 

I will write to you again once Council has considered its response to the UCU proposal and we will, as always, publish important updates about USS via this bulletin and on our USS latest pages.

With best wishes,
Anthony Odgers
University Chief Financial Officer


14 February 2022