March 3rd, 2021
The Trustee for the Universities Superannuation Scheme (USS) pension has today published a range of contribution rates to maintain the current level of pension benefits for members whilst meeting the challenges of the 2020 Valuation of the scheme.
However, the contribution rates published today are already felt by employers such as the University of Nottingham to be unaffordable for universities and pension scheme members alike.
Universities UK will now hold further discussions with USS and the government’s Pensions Regulator, and will launch a consultation with university employers later in March on the potential ways forward. Staff at Nottingham who are members or eligible to join the scheme will be invited to express their views alongside this.
Chief Financial Officer Margaret Monckton and Deputy Vice-Chancellor Professor Andy Long will lead a further series of webinars on USS for staff later this month and new USS 2020 Valuation webpages will provide all the latest information as it is published.
USS, along with most other schemes in the UK that provide defined pension benefits, has in recent years seen the costs of those benefits increase. Changes in the UK and global economies mean that expected returns in the future from the scheme’s investments are lower. There is also a sizeable deficit which means that more money is needed to fund its promises to future pensioners.
The pricing scenarios published by USS range from between 42.1% and 56.2% of payroll – with a figure of 49.6% of payroll put to the Joint Negotiating Committee of UUK and UCU nominees for consideration. For comparison, the current rate is 30.7% of the total salary bill, with 21.1% paid by employers and 9.6% paid by scheme members.
Vice-Chancellor Professor Shearer West expressed concern at the contribution rates published today.
“The principal pension scheme for universities must be accessible to – and affordable for – colleagues at all stages in their careers, and pay good benefits to scheme members once they retire.
“The prices that the USS Trustee has proposed to maintain current benefits are well above the levels of affordability for individual scheme members and employers alike, and seem to undervalue significantly the collective financial resilience of universities and the strength of the covenant which underpins the scheme.
“I am particularly conscious of the issue of intergenerational fairness and the risk that younger scheme members would either opt out of the scheme or face unaffordable contributions to support their colleagues in retirement.
“It is important that everyone eligible for the USS pension has their say on these proposals, and so when Universities UK consults university employers later this month, I will ensure that alongside this, we also seek the views of staff at Nottingham who are members or eligible to join the scheme.”
A spokesperson for Universities UK, on behalf of USS employers, said:
“The very high prices for current benefits put forward by the USS Trustee are unaffordable for employers, risk pricing even more staff out of the scheme, and undervalue the collective and enduring financial strength of the participating employers.
“Employers understand that the USS has a sizeable deficit and that a high number of staff on lower grades opt out because the contributions are too expensive for them. It is important that USS is designed so that people in early career can also access an affordable pension. This means it is vital that contributions to the scheme are affordable and sustainable for staff and employers alike and that reform is necessary.
“However, employers and scheme members need a stronger and clearer justification from the USS Trustee for the very high pricing decisions. Without this justification, employers and scheme members will be concerned that the scheme is facing an unnecessary level of reform.
“There has been a three-month delay in the USS Trustee confirming the price of current benefits, while it has had discussions with The Pensions Regulator. The USS Trustee has now set out higher prices than it previously thought necessary, and it appears to be taking a more cautious approach than employers and our actuaries advise is needed.
“Employers and their staff need significant reassurance that the USS Trustee is not being overly prudent on matters like projected investment returns or undervaluing possible covenant support measures, both of which remain under discussion.”
Dr Tim Bradshaw, CEO of the Russell Group, said:
“The global reputation of the UK’s universities is down to the talent and dedication of the people who work in them. Universities recognise this and that is why they invest more in people than anything else. As part of that investment we want to provide a pension that is attractive and fair to all staff, but it also has to be affordable for everyone involved.
“However, the proposals put forward by the USS Trustee today are unaffordable for staff and employers and don’t reflect the significant backing that the sector provides for the scheme.
“We recognise the scheme is currently in deficit and changes will be needed to address this, but at the same time the scheme must be sustainable for the future and continue to provide security for our staff. In particular, we are concerned that around 1 in 6 have already opted out because it is too expensive or does not meet their needs.
“We will need to consider carefully all of the information provided by the Trustee and regulator to ensure changes implied by today’s report are not being driven by an unnecessarily cautious approach.”
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