Strike threat comes as USS pension war looms

Representatives for staff and employers questioned the assumptions of the 2020 Universities Superannuation Scheme – but university and union chiefs no longer agree, as plans to redraw pension rules stagger on

The University and College Union (UCU) has described industrial action as the “inevitable” consequence of the 2020 Universities Superannuation Scheme valuation, which drew to a close with a tie-breaking intervention from the chair of the joint negotiating committee for resolving staff-employer disputes.

The joint negotiating committee – known as the JNC – is separate from USS, comprising five delegates each from both Universities UK (UUK) and UCU, representing the 340 employers and 204,000 active members of the UK’s largest private pension scheme. The JNC deliberates how best to divide contributions to USS – but there has been scant evidence of consensus among panellists for years.

The independent and committee-appointed JNC chair, Judith Fish, cast her tie-breaking vote in favour of the proposals from UUK, which seek to avoid what it described as “ruinous” pension contribution payments. Despite a UCU source suggesting the contrary to University Business earlier this month, the union did not table counter-proposals for the vote, calling instead for a month-long extension to negotiations to facilitate more consultation with pension members.

With the dust settling on the vote, UCU emailed 50,000 of its members that belong to USS to apprise them of its plans for industrial action. It says the only realistic way to avoid strike action at this late stage is for employers to carry out a rapid consultation on the UCU proposals.

This March, the USS Trustee published an actuarial report that suggested pension contribution rates need to rise from 30% to nearly 50% to deal with the scheme deficit, which quadrupled to almost £15 billion. Both UCU and UUK queried whether the USS valuation is, in the union’s words, “overly pessimistic”. Union critics argue USS decision-making is driven by the Pensions Regulator (TPR), which has not “fully recognised the unique strength of the scheme and the sector that underpins it”.

Sadly employers have chosen to use a flawed valuation conducted at the start of the pandemic to rush through cuts to members’ pensions. Unless employers allow for a rapid consultation on our proposals with a view to revoking their decision today, the path looks inevitably to lead to industrial action – and that is the responsibility of UUK
– Jo Grady, University and College Union

But employers took a different view. A UUK spokesperson said: “The valuation methodology adopted by the USS Trustee and the position of The Pensions Regulator meant that no change was not an option. Faced with total contributions that would equate to 56% of salaries, the proposals accepted by the JNC represent the least bad compromise possible.”

Employers agreed more covenant support valued at £1.3 billion per annum, a form of insurance for the scheme, and plans to lower the salary threshold for the defined benefit (DB) element of the hybrid scheme from around £60,000 to £40,000: USS invests a fifth of earnings above that threshold into the defined contribution (DC) element of the hybrid scheme. UUK also agreed to reduce inflation protections and cut the accrual rate from 1/75 to 1/85 – this equates to the rate at which pension benefits are built up and is expressed as a fraction of pensionable salary.

UUK will, in the meantime, press USS “to explore the feasibility of Conditional Indexation, the development of a more flexible and lower-cost option for members to help address the high opt-out rate and to begin scoping a governance review of USS that would start after the current valuation”. None of these changes will impinge upon the 2020 valuation, but UUK hope these changes will avert future crises.

Earlier this summer, USS claimed the UUK proposals would slash thousands of pounds from employees’ pensions.

UUK’s package of reforms averts damage to the student experience, and job losses and recruitment freezes because additional money from teaching and research budgets would have to go towards even higher pension costs
– Universities UK

UCU had drawn up different proposals, and a source indicated that the Trustee had deemed them viable, but these were not formally published or tabled at the JNC. University Business has approached UCU for comment.

UCU claim its workable proposals would see employer contributions rise to 24.9%, 3.8% more than at present, and employee contributions drop to 8.1%, 1.5% less than at present. The UCU proposals would also entail lowering the defined benefits threshold to £40,000, much like the UUK, and reducing the accrual rate from 1/75 to 1/80. But UCU wants employers to sign up to a much longer, 30-year exit moratorium and pledge much larger covenant support. Universities have already argued their support for the scheme is at a limit.

The UCU proposals would have been unlikely to generate enthusiastic support from its rank-and-file members, as they would amount to a reduction in benefits. In details on its website, updated on 25 August, UCU said it was “engaged in extensive lobbying and other campaigning efforts to influence both USS and TPR’s decisions about the valuation and that will continue over the coming months regardless of what happens in negotiations”. In essence, the union continues to demand a rethink of the assumptions of USS investments on which the 2020 valuation rests. Legal challenges may prove the most effective way forward, the union suggested.

UCU says employers’ changes threaten the viability of the scheme, with more and more staff likely to decide to leave the scheme in the face of cuts to benefits and increased contributions. UUK argues rocketing contribution rates are already driving out younger members. According to UCU, a typical member of the USS scheme on a £42,000 salary, aged 37, will suffer a 35% loss to the guaranteed retirement benefits over the rest of their career. UUK argues that high contribution rates and weakened pension finances will harm individual members’ finances.

UCU general secretary Jo Grady, said: “Employers represented by UUK have today voted to implement a set of regressive USS pension proposals that will reduce member benefits, discourage low paid and insecurely employed staff from joining USS, and threaten the viability of the scheme as a whole.

“Employers have failed to support alternative compromise proposals put forward by UCU, drawn up under the constraints of a flawed 2020 valuation of the scheme. Disappointingly, UUK did not support calls from UCU for a new valuation, despite the overwhelming case for one, and refused to allow for time to consult universities on UCU’s proposals, instead choosing to vote through their cuts.”

Grady said the UCU proposals “were far superior to those of UUK, delivering higher benefits and reducing contributions for staff”. She blamed employers for not promising the same covenant support for the UCU plan as the UUK one. “Sadly employers have chosen to use a flawed valuation conducted at the start of the pandemic to rush through cuts to members’ pensions,” she continued. “Unless employers allow for a rapid consultation on our proposals with a view to revoking their decision today, the path looks inevitably to lead to industrial action – and that is the responsibility of UUK.”

The spokesperson for UUK said the organisation was “keen to continue this engagement with UCU and other unions over the coming weeks and also seek further views from members of USS, through the forthcoming 60-day scheme member consultation on the proposals.

Although it knows UCU is against its proposals, the UUK spokesperson said its representatives “have had helpful and constructive discussions” with the union and “would be happy to explore viable alternative proposals for reform”.

An upcoming consultation “could lead to these proposals being amended”, the spokesperson continued. “Employers remain open to considering alternative benefit structures and formulations, provided they are viable, affordable and implementable.”

The UUK spokesperson concluded: “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. UUK’s package of reforms averts damage to the student experience, and job losses and recruitment freezes because additional money from teaching and research budgets would have to go towards even higher pension costs.”


Read more: USS pensions: Oxbridge VCs and UCU presidents agree need for radical pension overhaul

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