The first phase of 'cost-sharing' is being implemented. Later phases may be superseded by the new 2018 valuation.
This is an update about changes to the Universities Superannuation Scheme (USS). It was sent directly to USS members at the University on Tuesday 19 February via the USS e-bulletin. If you did not receive this e-bulletin and think you should have done, you might want to check your spam folder. You can sign up for the bulletin online (Raven login required).
Pension contribution changes from 1 April 2019
Members of USS currently pay 8% of their salary into the scheme. From 1 April 2019, this will automatically rise to 8.8% of salary for all members.
Members who pay additional voluntary pension contributions worth 1% of salary or more currently benefit from a 1% ‘match’ contribution from their employer. This ‘match’ will be discontinued from 1 April. Other benefits will remain unchanged.
Background to the contribution changes
These changes are part of the ‘cost-sharing’ measures, provided for by the scheme rules, which have been implemented to complete the disputed 2017 valuation of USS. When the cost of providing current benefits has risen, but university employers (represented by UUK) and scheme members (represented by UCU) cannot reach agreement on changes to benefits and/or contributions, the cost-sharing rule obliges the scheme Trustee to impose higher contribution rates up to the level it deems necessary. The increase in contributions is split 65:35 between employers and members.
A member consultation on these changes was carried out between 3 September and 2 November 2018.
As part of its response to the consultation, the Trustee has phased the implementation of the cost-sharing contribution increases required by the 2017 valuation. After the increases on 1 April this year, further increases are scheduled to come into effect in October 2019 and April 2020, as detailed in the table below:
| Current | 1 April 2019 | 1 October 2019 | 1 April 2020 | |
| Member | 8% | 8.8% | 10.4% | 11.4% |
| Employer | 18% | 19.5% | 22.5% | 24.2% |
It is important to note that the second and third phases may not be implemented, as the 2017 valuation will be superseded by a new, 2018 valuation currently in progress. The 2018 valuation could lead to lower contribution increases.
2018 valuation
Much of the dispute around the 2017 valuation focused on the methodology and assumptions used. In response UUK and UCU formed a Joint Expert Panel (JEP) to look at the valuation methodology and assumptions, and to recommend possible modifications that could lower the cost of providing current benefits. The JEP reported in September 2018.
In response to the JEP report and the issues around the 2017 valuation, the Trustee agreed to undertake a new valuation of the scheme as at 31 March 2018. The 2018 valuation will take into account changes in market data, life expectancy, and forecasted investment returns since the last valuation, as well as actual investment experience in the year after March 2017. The changed data could produce a more positive picture of the scheme’s funding position, one that will not require contribution increases of the level needed under cost-sharing.
The USS Trustee has consulted with employers on the proposed assumptions and contribution rates for the 2018 valuation. Employers, including the University, have until 15 March to provide their feedback to UUK, which will then respond to USS on behalf of all employers. The Trustee will consider the feedback from UUK and will then seek to agree assumptions and finalise contributions during the second quarter of 2019, at which time the Joint Negotiating Committee (representing scheme members through UCU and scheme employers through UUK) will have the opportunity to provide further input on the new proposals. The aim is for the JNC to agree on a set of assumptions and contributions that would come into effect before the second wave of cost-sharing contribution increases is due in October 2019.
There are still questions around the level of risk that the Trustee, and the Pensions Regulator, will consider acceptable in the 2018 valuation. Accepting higher risk makes providing benefits cheaper, but pension schemes have to balance this against their statutory duty to be prudent. A possible solution for USS is for the Trustee to accept a higher level of risk, but to require ‘contingent contributions’ from employers and members should financial conditions deteriorate.
These contingent contributions would be within an agreed range only and would only be payable if the position of the Scheme has deteriorated significantly since 31 March 2018. Based on USS’s proposals, the total member contribution rate is unlikely to exceed 10.7% in these circumstances. However, it is expected that employers and UUK will seek a lower level of contingent contributions both for members and employers.
Recording of open meeting
Earlier this week, there was an open meeting for USS members at the University, during which these issues were discussed in more detail. The Cambridge UCU branch president, Sam James, gave a very clear summary of the current situation with USS, the background to it, and what the next developments are likely to be. Anthony Odgers, the University’s Chief Financial Officer, made some brief additional remarks about future developments, and both speakers took questions from the audience.
You can watch a video of this meeting online (Raven login required).
Keeping you informed
The University is committed to keeping USS members informed of developments relating to the scheme. Updates will be sent via this bulletin, published on the For Staff pages, and advertised in The Reporter.