JEP recommends USS valuation adjustments

The joint expert panel (JEP) investigating the Universities Superannuation Scheme (USS) pensions dispute has set out a list of recommended changes to the 2017 valuation, in a report published yesterday (13 September).

The panel, set up by the University and College Union (UCU) and Universities UK (UUK), also had concerns about the methodology, assumptions and tests of the 2017 valuation, especially at USS’s “Test 1”, which they believed formed too much of the basis for the valuation.

The JEP unanimously recommended a re-evaluation of the employers’ attitude to risk, which would also result in a re-evaluation of the scheme’s reliance on the sponsor covenant. They also suggested adopting a more consistent approach between the 2014 and 2017 valuations, which would affect the scale and timing of deficit recovery contributions.

A smoothing of future service contributions was advised to help ensure fairness and equality between generations of scheme members and making sure that the “valuation uses the most recent readily available information”, including recent market improvements, the latest data of life expectancy and new investment considerations.

A statement from USS read: “Ultimately, its proposed solutions reflect the panel’s terms of reference, but would require employers to take on higher levels of risk – and to pay higher contributions – than has been expressed to us to date, through the valuation process.

“We stand ready to engage constructively with UCU and UUK over the coming weeks as they consider their respective positions, in the hope of finding common ground that could lead to a way forward.”

These changes are hoped to satisfy the employers’ appetite for risk along with the members’ desire to maintain broadly comparable benefits, while providing a negotiating space for the stakeholders to reach an agreement on how to progress.

The JEP also found that the USS did not place enough emphasis on the unique features and strengths of the higher education sector and recommended placing greater weight on these nuances.

The valuation adjustments would require increased contributions, which the JEP believe would be 29.2 per cent, up from the current rate of 26 per cent but below the rate of 36.6 per cent proposed by USS from April 2020 based on the current valuation.

UUK chief executive, Alistair Jarvis, outlined the next steps: "Next week, we will start to consult all USS employers on their views on the panel's recommendations to inform talks with UCU and the USS Trustee. This will include examining employers' willingness to accept greater levels of risk and to pay more into the scheme than their current contribution level of 18 per cent of salary.

"Our engagement with stakeholders will aim to establish which areas highlighted by the panel can be adopted. We look forward to positive discussions with UCU, the USS Trustee and the regulator, so that we can meet our pledge of continuing to offer valuable defined benefits as part of the overall scheme and concluding the 2017 valuation."

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