The Russell Group has backed calls for an independent governance review of the Universities Superannuation Scheme (USS) after it proposed “unaffordable” pension contributions – but the organisation accepts significant reforms are needed to tackle an estimated £15bn pension deficit.
The organisation, which represents 24 research-intensive universities across the UK that all belong to the USS, published its response to a Universities UK (UUK) consultation with the 340 scheme members it represents. The consultation follows a USS Trustee actuarial report following the 2020 valuation.
Supporting the terms of the UUK consultation, Dame Nancy Rothwell, president and vice-chancellor of the University of Manchester and chair of the Russell Group, said the organisation members “unanimously believe the current contribution rates are fair and affordable for all parties and should be sufficient to provide an attractive pension”.
For rates to remain as they are, Dame Nancy said the sector must agree to reform that makes USS pensions sustainable long-term.
Reform must address the deficit and membership rates, the Russell Group said, with the latest figures suggesting around 20% of eligible employees decline to join.
The USS – which has more than 200,000 members working in UK higher education and research institutes – published an actuarial report that suggests pension contribution rates need to rise from 30% to more than 40% to deal with the scheme deficit, which was projected during the 2020 valuation to have reached £15 billion.
The most favourable scenario set out by the USS Trustee in March would require contribution rates to rise to 42.1% of payroll. Another costed plan proposed by the USS Trustee would see contributions increase to 56.2% of payroll. The figure is currently 30.7%, and stakeholders have agreed to an increase to 34.7% in the coming financial year. UUK described these latest proposals as “unaffordable” and “unprecedented”.
UUK has yet to publish its conclusions but set out its view during a briefing with journalists in April.
One change mooted was for a reduced defined benefits (DB) element of the scheme. Another idea floated was for a new, short-term, flexible USS option that would offer cheaper contributions for early-career staff who find themselves “priced out” of the scheme.
The University and College Union (UCU) rejected the terms of the consultation, warning universities could face industrial action if they support proposals that would see “unnecessary and damaging cuts to Universities Superannuation Scheme pensions”.
The Russell Group said it supports UUK’s call for an independent governance review of USS, adding the Trustee must become “more accountable, transparent and collaborative with the sector”.
It supports a rolling moratorium on institutions quitting USS and agrees to the principle of debt monitoring, pending more information on how these proposals would apply in practice. In its view, the current levels of contributions are “sufficient” for a good pension scheme.
The Russell Group wants to maintain a hybrid defined benefits (DB) and defined contributions (DC) scheme but accepts the proposal for a review of a lower threshold for the DB aspect.
Currently, members accrue DB up to an annual salary threshold just shy of £60,000, with 20% of earnings above invested into the DC scheme. UUK suggested lowering the threshold to £40,000 so that people on the highest salaries would pay more into the defined contribution section of the scheme.
The UUK proposal for a lower-cost, flexible alternative USS membership for “the 1 in 5 employees” that are not members also won the backing of the Russell Group.