The debate over the 2020 valuation of the Universities Superannuation Scheme continues, as another consultation that sought to find common ground among employers comes to a close today (Monday 5 July).
Despite a series of correspondences throughout June between Universities UK chief executive Alistair Jarvis, who represents the 340 employers in USS, and the chair of USS Dame Kate Barker, the two could not agree on the efficacy of an employer-led support package.
The USS said proposals presented by UUK, while consequential, did not rule out the need for contributions to increase, prompting UUK to launch a two-week consultation to shore up support for a tweaked solution.
USS member employers include large universities, research institutes, HE organisations and small not-for-profit education and research organisations. High contributions would hurt some and potentially cripple others, UUK says.
Debate broke out within the sector after the USS Trustee published an actuarial report on 3 March 2021 that suggested pension contribution rates need to rise from 30.7% to at least 42.1% of salaries, described at the time by Universities UK, which represents 340 USS employers, as “unprecedented” and “unaffordable”. A seven-week consultation with employers produced support for a package of fixes that would maintain current contribution levels and retain some elements of the current pension scheme – albeit not all.
UUK asked the Trustee in early June to consider this package of fixes – with its chief executive writing: “If you disagree with our view on the pricing terms that are possible, we would want full transparency and would need a detailed explanation of the reasons why”.
The Trustee did disagree with UUK’s calculations, claiming that after consultation with the Pensions Regulator, the new package meant contributions would need to increase to 31.2%. “Our counter-proposal aims to achieve an outcome as close to 30.7% of payroll as possible, as UUK has requested,” the chair of USS Dame Kate Barker wrote to UUK in early June. “We hope that UUK and employers will welcome this position in the spirit it is intended”, adding that the regulator “has warned that the latest proposals […] are at the margins of compliance”.
UUK bemoaned the “apparent decimal point accuracy” of the USS response and queried the “margins of compliance” given for rebuffing the rescue package. UUK chief executive Alistair Jarvis said he hoped Dame Kate would re-evaluate the counter-offer “so that we can all move on to the important next phases”.
Dame Kate responded to Jarvis on 28 June to explain the Trustee had confidence in its analysis and would not revisit its conclusions unless “there is additional or new information”. The Trustee made a revised assessment of the scheme’s health on 31 March 2021 – but concluded it did not lead to a “materially different outcome”. Although interest rates and asset values have increased, inflation will likely rise “significantly” in the future, lowering future investment returns, USS concluded. It also warned that “any developments”, such as “the outlook for HE funding” following the Comprehensive Spending Review later this year, would also weigh in any revised calculations.
In anticipation of months of wrangling ahead, UUK returned to employers, launching a two-week consultation that closed today (Monday 5 July). Mr Jarvis warned Dame Kate, “the path to a potential settlement is still difficult”. The consultation hopes to shore up support for a tweaked rescue package.
The University and College Union (UCU), which represents 140,000 employees, many of whom have USS pensions, and shares membership of the Joint Negotiating Committee (JNC), lambasted the UUK plans. It accused university leaders of “trying to hoodwink staff” by “failing to come clean” over the true impact of proposed pension reforms it said would cut guaranteed retirement benefits by 35% for an average lecturer.
The Russell Group, whose members are the biggest employers in the USS scheme, said it continued to believe a 30.7% contribution rate “should be sufficient to provide a stable, comfortable income in retirement”. The body said its members had agreed to enhanced covenant support measures to give the scheme enhanced guarantees. “We hope this agreement and recent significant improvements in the economy will allow the 0.5% increase in contributions proposed by USS to be reduced or eliminated as we work to seek a resolution to the 2020 valuation,” it added.
The JNC is tasked with deciding a way through: failure to do so could prove disastrous for the scheme and lead to industrial action.
Both JNC parties remain tight-lipped ahead of those JNC meetings – which the USS has agreed to allow an extension of an additional three months in anticipation of wrangling.