The USS Trustee board has agreed to take forward the Joint Negotiating Committee’s (JNC) recommendations for concluding the 2020 USS valuation, saving pension scheme members and universities from steep contribution increases from 1 October 2021.

Employers and scheme members were facing escalating contributions from October, where scheme members would have seen their payments rise from 9.6% of salary, to 11%, and employers from 21.1% of salary to 23.7%. However, with the USS Trustee board’s approval of the JNC’s decision to modify benefits, and agreement to proceed with a dual schedule of contributions, new rates of 9.8% for members and 21.4% for employers will apply instead.

The alternative approach to the valuation – passed by a JNC vote – was developed by Universities UK (UUK), the formal representative of over 340 employers in the scheme following consultation with all scheme employers. The proposal includes additional commitments by employers on covenant support and benefit changes to prevent unaffordable rises in contributions.

Central to the proposals are formal commitments from employers to explore alternative scheme designs, including conditional indexation, for the future; accelerate a major review of USS governance with independent expertise; and work with stakeholders including the University and College Union (UCU), representing scheme members, to develop and implement a flexible, low-cost option for lower paid members of staff.

Employers agreed to provide an additional £1.3 billion worth of financial backing to the scheme – or ‘covenant support’ – to ensure the scheme’s current hybrid of guaranteed defined benefits and defined contributions, which depend on the performance of investments, could be maintained.

The JNC decision was passed by the casting vote of its Chair, on the final day for negotiations on its already extended timetable, after UCU decided not to put its counter proposal to the vote of the committee. Now that the JNC’s recommendation is formally accepted by the USS Trustee, a 60-day consultation on the proposals will follow with scheme members as required under the scheme rules.

The employers’ proposal for changes to the scheme, required to meet its 2020 triennial valuation, includes:

• minimising increases in contributions to the scheme by members to no more than 0.2%, and employer contributions to 0.3%, meaning that members’ contributions would only rise from 9.6% to no more than 9.8% of salary.
• maintaining the scheme’s Defined Benefit /Defined Contribution hybrid model with Defined Benefit applying up to a salary threshold of £40,000, and retaining Defined Contributions at an overall 20% of salary above that threshold.
• employers to offer further, stronger covenant support measures including a moratorium on exit, debt-monitoring and ensuring that pension promises are even more secure through protecting the USS Trustee’s status as a creditor.
• a commitment that should the scheme’s financial situation get better then improvements to benefits can be considered rather than reducing contribution rates.
• addressing the high opt-out rate, which sees around 20% of members choosing not to join the scheme and losing out on the 21.1% employer contribution, by giving eligible members the choice of a new lower contribution option.
• a major new review of the scheme’s governance, and exploring moves to a conditional indexation model, which pegs a part of annual pension provision to the performance of scheme funds, via a working group of members’ representatives, employers, and USS.

While the reform package passed by the JNC proposes a particular set of changes to the future pensions earned from USS’s defined benefit and defined contribution sections, the forthcoming consultation with scheme members could lead to these proposals being amended. Employers remain open to considering alternative benefit structures and formulations, provided they are viable, affordable and implementable.

Benefits which members have already earned within USS are protected by law and secure, and the employers’ package, and in particular the unprecedented additional covenant support measures provided by employers, further strengthens that protection.