Following an emergency two-week consultation, employers in the Universities Superannuation Scheme (USS) have agreed to increase levels of covenant support for the beleaguered pension programme, bringing a conclusion to the 2020 valuation within reaching distance.
Universities UK (UUK), which represents all 340 employers, provided a solution to the 2020 valuation 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.
Despite a series of correspondences throughout June between UUK chief executive Alistair Jarvis and the chair of USS, Dame Kate Barker, the two could not agree on the efficacy of an employer-led support package.
In response to the Trustee concerns, UUK consulted with employers seeking additional financial backing for USS. Sources close to the process told University Business that employer support for the enhanced package drew broad support from more than 90% of employers.
The University and College Union (UCU) has made clear it does not support the measures proposed by UUK, which it says would mean a typical lecturer could suffer a 35% cut to their guaranteed retirement benefits. In a blistering attack, the union accused the USS and UUK of “colluding to slash pensions“.
UUK will take its proposals to the Joint Negotiation Committee (JNC), which has until the end of August to sign off a plan.
A UCU spokesperson confirmed to this publication that “it has been mandated by its Higher Education Committee to develop counter proposals and is currently discussing these with branches, and that these will be submitted to Joint Negotiation Committee”.
This level of proposed employer covenant support will limit employers’ ability to borrow money in the future, lead to higher borrowing costs, and could be a barrier to improving courses, support and services to students and staff – Phil Harding, Joint Negotiating Committee
Employers want UUK to pursue “immediate action” on longer-term reforms to the scheme after a bruising cycle of valuations depreciated confidence and goodwill towards the pension scheme. UUK will 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”.
Phil Harding is the lead employer representative on the Joint Negotiating Committee. He stressed that universities considered the solution unveiled today as a ‘least worst’ option.
“With the loss of government capital funding for higher education, institutions need to be able to borrow money to sustain their investment in the physical and digital infrastructure,” said Harding. “This level of proposed employer covenant support will limit employers’ ability to borrow money in the future, lead to higher borrowing costs, and could be a barrier to improving courses, support and services to students and staff. It will be the financially weaker employers that will be most severely impacted, since they rely on secured borrowing the most and have the thinnest reserves, so increases in cost feed immediately through to cost-cutting.”
A spokesperson for USS employers said the agreement was “no mean feat in the current economic and regulatory environment”.
The spokesperson continued: “By making even firmer commitments to USS on secured debt and by agreeing to an immediate and much longer moratorium on exiting the scheme, employers are taking on considerable additional costs and risk so they can offer members the best possible level of benefits at current contributions.
“We will continue to ask the USS Trustee to further consider the valuation assumptions so that the more affordable UUK proposal can be delivered at the current contribution rate of 30.7% of salary.
“Employers also want to see rapid action on the longer-term future of the scheme, and we hope that UCU and USS will join UUK to explore alternative scheme design, a lower contribution option for members, and a review of the scheme’s governance.”