USS Pension: Employers’ proposal to progress to consultation

September 1st, 2021

The Joint Negotiating Committee (JNC) has decided to progress the employers’ proposal for changes to the USS pension scheme to consultation with scheme members and representative bodies.

The decision means that scheme members could avoid significant increases in their contributions, which the USS Trustee has said it would otherwise be required to implement, going up from the current 9.6% to 18.6% of their salary from as soon as April 2022.

The proposal is backed by university employers increasing their support for the covenant that underpins the scheme by some £1.3 billion per year.

The JNC decision on the UUK proposal 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.

If 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.

A spokesperson for USS employers said:

“Today’s decision by the USS Joint Negotiating Committee provides a viable and implementable solution to the 2020 valuation. The employers’ proposal sees a significant element of defined benefit retained while preventing unaffordable contribution levels.

“The additional backing offered by employers is unprecedented among UK pension schemes, with the USS Trustee valuing their additional covenant support at around £1.3 billion per year, which has the impact of limiting the benefit reforms needed.

“The valuation methodology adopted by the USS Trustee and the position of The Pensions Regulator meant that no change was not an option. The employers’ proposal for reforms is an alternative to the USS Trustee’s proposed unaffordable contribution rates for scheme members and employers, which would have caused considerable disruption for members and risks forcing more people to leave the scheme.

“In partnership with the University and College Union (UCU), we look forward to progressing a major governance review of USS, jointly exploring future options for scheme design including Conditional Indexation, and shaping a lower-cost option so staff on lower salaries are no longer priced out of retirement saving.”

USS Employers has published detailed FAQs about the employers’ proposal and challenged some of the assertions in recent UCU statements. You can read these alongside further background information on the University’s USS 2020 Valuation webpages.

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.

Tags: JNC, pension, pension scheme, Pensions regulator, USS, USS pension scheme, USS Pensions
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