Proposed changes to Universities Superannuation Scheme (USS)
Background to the Proposed Changes
Based on extensive assessment, and discussion with employers (via Universities UK (UUK)) and the Pensions Regulator, the USS trustee's 2017 valuation has determined that the cost of continuing to offer the benefits currently provided by the scheme - and repair a £7.5 billion deficit in relation to pensions already earned - has increased by £900 million a year.
The USS trustee has concluded that, in order to maintain the scheme's current level of benefits and features and address the deficit, the combined contribution rate required in total from members and employers needs to increase by 11.4%, from 26% of salaries to 37.4%. More information on the valuation can be found at www.uss.co.uk/2017valuationupdates.
Summary of the Proposed Changes
The proposed changes are summarised below.
- Member contributions to increase from 8% to 8.8% from 1 April 2019;
- Further increases to member contributions to be phased in at 1 October 2019 (10.4% of salary) and 1 April 2020 (11.7% of salary);
- Employer contributions would also increase on the same dates;
- The employer match would be removed from 1 April 2019. Members who have opted to pay 1% match contributions would continue to do so, unless they elect to cease paying via My USS;
- 8% of member contributions from salary above the salary threshold would continue to be saved in the USS Investment Builder, with the excess supporting the benefits of the USS Retirement Income Builder.
A formal consultation with affected employees and their representatives will run from 3 September until 2 November.
The consultation is your opportunity to have your say on the proposals. You are encouraged to participate in the consultation process.
If you have not received a letter and an information leaflet from USS providing a summary of the proposed changes and further information about how you can access the full consultation information, you should contact Lynne Cameron on ext 2832 or email email@example.com.
The University ran briefing sessions for staff during September to assist and provide USS members with the opportunity to raise questions. If you were unable to attend any of the sessions you can view a recording of one of them here:
The slides are available here: USS Consultation Slides
Press statement from the joint expert panel (JEP)
The first report of the joint expert panel (JEP) is published today (13 September). The panel was set up by the University and College Union (UCU) and Universities UK (UUK) following the recent industrial dispute over the Universities Superannuation Scheme (USS). The panel comprises senior figures from the pensions sector as well as academic experts from within higher education and is chaired by Joanne Segars OBE.
The first report has undertaken a retrospective review of the 2017 valuation, including an assessment of the methodology, assumptions and process underpinning the valuation. Arising from this, the panel has explored the scope for possible adjustments to the methodology which would allow the valuation to be concluded.
In launching the report Joanne Segars said:
“In reaching our unanimous conclusions and recommendations the JEP has, of course, had the benefit of hindsight – a luxury not available to the Trustee as it worked to a tight timetable to complete the valuation. Neither has it been the approach of the panel to be critical of any party that has been involved in the valuation. Our observations, conclusions and recommendations are intended to be constructive and should be read in that spirit.”
The panel unanimously recommends four areas where adjustments to the valuation should be considered:
1. A re-evaluation of the employers’ attitude to risk, which would result in a re-evaluation of the reliance on the sponsor covenant.
2. Adopting a greater consistency of approach between the 2014 and 2017 valuations, which affects the scale and timing of deficit recovery contributions.
3. Ensuring fairness and equality between generations of scheme members by smoothing future service contributions.
4. Ensuring the valuation uses the most recently available information which means taking account of recent market improvements, new investment considerations and the latest data on mortality, for example.
In addition, greater weight should be given to the unique features and strengths of the higher education sector. The panel believes the combined effect of these changes would satisfy the employers’ overall appetite for risk as well as members’ desire to maintain broadly comparable benefits and would provide a constructive negotiating space for the stakeholders to reach a consensus on the way forward. It is the view of the panel that the changes proposed are consistent with the Trustee’s fiduciary duties and the objectives of the Pensions Regulator and provide an opportunity for stakeholders to resolve the dispute.
Adjustments in each of these areas would have a material impact on the valuation and resulting contribution increases. The level of benefits is a matter for the stakeholders to negotiate. However, it is the panel’s belief, based on independent actuarial analysis, that the full implementation of these adjustments could mean total required contributions estimated at 29.2% to fund current benefits (minus the 1% match). This compares to the current rate of 26% (18% of salary paid by employers, 8% by employees) and the rate of 36.6% from April 2020 which is proposed by USS, based on the valuation as it stands.
Commenting on those recommendations which propose adjustments to the valuation Joanne Segars said:
"The panel does not underestimate the practicalities of concluding an actuarial valuation so long after the process began. However, the panel believes it would be in the public interest if all stakeholders, including the Regulator, could find a way forward to implementing our recommendations within the 2017 valuation."
The panel also looked in detail at the methodology, assumptions and tests employed by the trustee, and particularly at USS’s 'Test 1' which underpins the 2017 valuation. In the panel’s view this test has assumed too much weight in determining the valuation.
The panel concluded that this and other issues should be addressed by phase 2 of its work which should seek to determine whether there is an alternative methodology for future valuations that could both provide long-term stability for the scheme and enjoy the support of all parties. Phase 2 of the JEP’s work should also include a wider review of the involvement of UUK and UCU in future valuations so that a more collaborative approach can be adopted which would help to restore confidence in the scheme.
Looking forward Joanne Segars said:
"We believe that our constructive and practical proposals for adjustments to the valuation can be implemented quickly and act as the cornerstone for a negotiated settlement. Ultimately it will be for all the parties to decide whether to respond positively, but we believe that the report provides a genuine opportunity to turn the page, to focus on the long-term stability of the USS and rebuild trust and confidence in the scheme.
Our report and its recommendations do not address all the issues faced by the scheme. We believe further work is required by the JEP. This should include developing an approach to the valuation that is clear and which can deliver a sustainable scheme based on a shared set of principles.
I would like to thank the many scheme members, employers and experts who have submitted views and evidence to the JEP. I would also like to thank USS for their cooperation and for the considerable resources they have laid at our disposal. While we have been grateful for all the support we have had the conclusions are ours alone."
1. The panel’s members are: Joanne Segars OBE (independent chair), Ronnie Bowie (appointed by UUK), Sally Bridgeland (appointed by UUK), Chris Curry (appointed by UUK), Catherine Donnelly (appointed by UCU), Saul Jacka (appointed by UCU), Deborah Mabbett (appointed by UCU).
2. The panel’s purpose, as set out in its terms of reference, was to make an assessment of the 2017 valuation; focus in particular on reviewing the basis of the scheme valuation, assumptions and associated tests; agree key principles to underpin the future joint approach of UUK and UCU to the valuation of USS. The agreement set out that the panel would take into account: the unique nature of the higher education sector, intergenerational fairness and equality; the clear wish of staff to have a guaranteed pension comparable with current provision whilst meeting the affordability challenges for all parties; and the current regulatory framework.
3. The report is available here: Report of the Joint Expert Panel