Universities UK (UUK) has published an update on its initial work to explore whether an alternative scheme design such as Conditional Indexation could work for USS, which was part of the package of reforms coming out of the 2020 USS valuation.
UUK, its advisers Aon, and the USS Trustee have worked collaboratively on exploring possible approaches to greater sustainability in the pension scheme – with Conditional Indexation being a leading consideration.
Conditional Indexation (CI) is a defined benefit pension scheme design where some or all of the future increases (also known as indexation) applied to benefits earned in future would be conditional on the scheme’s funding position. The pension rights which have been already built-up by members would remain fully protected.
In light of the significant improvement in the funding position of the scheme, in March 2023 a joint statement confirmed that UUK and the University and College Union (UCU) agreed to develop and implement a robust and transparent mechanism for managing risk, which can provide more sustainable benefits and contributions for future valuations.
A joint working group has been established through the USS Joint Negotiating Committee to consider stability and although CI is not expected to form part of the outcome for an accelerated 2023 valuation, as it would take time to establish these arrangements if the stakeholders decided to proceed, CI could play an important role in the future sustainability of the scheme beyond 2023.
Vivienne Stern MBE, Chief Executive of Universities UK, representing 340 USS employers, said:
“The 2023 valuation of the USS scheme is underway. In preparation for this, we have been working with the UCU, representing scheme members, to agree a way forward which is designed to create long-term stability and increase confidence in the scheme as part of a package which could also include lower contribution levels and improved benefits.
“In this context, UUK has been exploring alternative scheme designs such as Conditional Indexation. This could provide added stability, as far as is possible with Defined Benefits, along the lines successfully implemented in Canada over the last decade.
“We want to build further trust with UCU through greater transparency and by unlocking member flexibilities to stop so many younger members being priced out of the scheme.
“We also hope to progress an independent governance review of USS, with involvement from UCU, which could be crucial to improving how the scheme is run and managed, and to the success of stability measures such as Conditional Indexation or other alternative scheme designs.”