Russell Group backs enhanced covenant support for USS; calls for broader reform persist

The Russell Group of Universities has confirmed that it would back enhanced covenant support measures for the Universities Superannuation Scheme (USS), welcoming the trustees' offer of a revised package that is broadly in line with current contribution rates.

The comments were made in response to Universities UK’s (UUK) second consultation with employers, which seeks views on potential modifications to the indicative outcome to the 2020 valuation.

Whilst UUK's initial package of reforms received strong employer backing, USS trustees have stated that the indicative benefits would require an overall contribution of 31.2 per cent of salary, 0.5 per cent higher than current contributions, which would in turn require further commitments for a covenant support package.

Russel Group Universities highlighted this counter proposal from the scheme as a “positive and welcome step” that means USS members and employers will not be “saddled with unrealistically high payments”.

The group also confirmed that it would agree to an enhanced covenant support measure where the metric trigger for pari-passu security would move to 10 per cent of assets on secured future borrowing, as part of efforts to find a sustainable and affordable solution.

However, the Russell Group of Universities also emphasised that the parties involved must now work together “rapidly” to find a long-term solution that provides better value for money and does not place an unfair burden on future generations.

It argued that exploration of alternative scheme designs, along with an independent governance review of USS, must begin “immediately” to identify a range of options that could be implemented ahead of the next scheduled valuation as well as improvements to how the scheme is run.

The group stated: “We hope this agreement and recent significant improvements in the economy will allow the 0.5 per cent increase in contributions proposed by USS to be reduced or eliminated as we work to seek a resolution to the 2020 valuation.

“Our determination to support our staff so they can enjoy their retirement is unchanged, as is our commitment to a hybrid scheme.

“We are not seeking to reduce what employers pay into pensions and we want more staff to be in the USS scheme so they can benefit from employer contributions.

"That is why the trustee must urgently prioritise the development of an additional low-cost alternative to give staff more options to stay in the scheme.

“We recognise this is a challenging situation for our staff. We are working hard to find a solution that will provide a decent pension without contributions that are constantly increasing."

The group has also previously warned that reform is needed to put the scheme on a “stable, long-term footing”, outlining a number of principles it views as key to any discussions around the scheme.

More broadly, the group stated that its view remains that a pension scheme backed by a contribution rate of 30.7 per cent shared between employers and employees should be able to provide a stable comfortable retirement income.

However, it warned that if contribution rates continue to rise, more employees will probably choose to leave the scheme and lost out on valuable employer contributions to their retirement savings.

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