- Employers representing 95% of USS membership respond to UUK consultation.
- Significant additional employer covenant support measures put forward to save the Defined Benefit part of the scheme.
- Employer support for fully investigating the feasibility of conditional indexation, a governance review of the USS pension scheme, and a new flexible cost option for scheme members.
Employers in the Universities Superannuation Scheme (USS) are backing a series of proposals for medium and long-term reform of the pension scheme.
They are also willing to support a series of significant covenant support measures proposed by Universities UK (UUK) and which are deemed necessary by the USS Trustee to lower its pricing in the current valuation - if it results in a good level of Defined Benefit pensions and avoids damaging, unaffordable contribution hikes.
Without changes to the scheme, employers and scheme members face escalating contribution rates: for employers, from the current level - 21.1% of salary – to 23.7% in October 2021 and at least 28.5% next year. Similarly, members would see their payments rise from 9.6% of salary, to 11% in October 2021 and reach at least 13.6% next year – and risk pricing more and more members out of pensions saving.
UUK received 141 responses from employers to its recent consultation, outlining their support for the following package of reforms:
- 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.
- No increases in member contributions or employer contributions.
- Maintaining the scheme’s Defined Benefit /Defined Contributions hybrid with changes at this valuation to keep contributions at the current level with a proposed salary threshold of £40,000.
- A major new review of the scheme’s governance.
- Work to begin immediately on developing proposals to explore a move to a conditional indexation model - which pegs a part of annual pension provision to the performance of scheme funds - through the suggested establishment of a joint member/ University and College Union (UCU), employers, and USS working group to collaboratively design a proposal.
- 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 commitment that should the scheme’s financial situation get better then improvements to benefits can be considered rather than reducing contribution rates.
These proposals will now be discussed over the coming weeks with the UCU, representing members, UUK, and USS at the Joint Negotiating Committee, which is responsible for approving any scheme rule changes and concluding the 2020 valuation.
Commenting on the outcome of the consultation, a spokesperson for USS employers, said:
“We are grateful for the very high response rate to our consultation with many employers engaging extensively with their governing bodies and members of staff. There is a strong desire for changes to the scheme, some of which will take time to fully explore including governance reform and conditional indexation, which requires legal changes and significant work to get right.
“This still leaves employers and scheme members with an immediate challenge. Action is needed to avoid unpalatable contribution increases for both employers and members or the number of staff leaving the scheme will become a stampede and there will be cuts to teaching, research and jobs at many institutions as employers would be forced to pay extraordinarily high pension costs.
“We continue to press USS and The Pensions Regulator to achieve a fair price for the demanding additional support measures employers are offering to keep the hybrid alive and maintain a good level of defined benefits in the scheme. The USS Trustee’s initial response to the UUK proposal, which has received the backing of employers in this consultation, is that it is willing to adjust its assumptions to lower scheme costs, but not far enough to be able to offer the level of Defined Benefits for the contributions and covenant support proposed by UUK. Further consultation is therefore planned with employers to see if they can give stronger assurances on covenant, and then with the USS Trustee to see how any final gap can be bridged.
“We hope the union will work with us and suggest ways of tackling these immediate financial challenges to avoid ruinous contribution increases, and to explore longer-term changes, including a governance review, a flexible option for members and conditional indexation.”