USS set to restore pension benefits; TPR urged to update DB funding code

The Universities Superannuation Scheme (USS) has confirmed that restoring benefits to pre-April levels will cost less than employers are currently paying into the scheme, with University and College Union (UCU) and Universities UK (UUK) agreeing to prioritise this work.

The latest update from the USS trustee confirmed that the guidance previously shared with stakeholders in December remains valid, meaning that the overall contribution rate required for the current level of benefits is unlikely to be in excess of 20 per cent of payroll.

In addition to this, however, the rate that would be required for the pre-1 April 2022 benefit structure, going forward, is unlikely to be in excess of the current cost of future service, 25.2 per cent.

The update was shared ahead of the formal valuation date of 31 March 2023, which is now expected to confirm benefits can be fully restored, paving the way for employers to do so by April 2024.

The trustee board also confirmed that it heard directly from UCU and UUK’s representatives on the Joint Negotiating Committee (JNC) who have fed into discussions at the Valuation Technical Forum (VTF).

In addition to this, it revealed that the technical provisions consultation with UUK, which sets out the key financial and demographic assumptions for the valuation, and their consequences, is expected to launch in the summer.

In a letter to stakeholders, USS Trustee Board chair, Kate Barker, stated: "Early decisions from stakeholders on the future service benefits that might be considered alongside that consultation – to, in turn, allow earlier progress on the statutory 60-day member consultation – would be particularly welcome."

Barker also commented on progress more broadly, stating: “We are in as positive a position as we could reasonably hope to be at this early stage, and I hope that we can maintain that collaborative spirit.

"If we can do so, the ambitious timetable we have set ourselves is achievable and we can work positively towards implementing any changes to contributions and benefits the JNC decides to make by 1 April 2024.

“As we move past the 31 March 2023 valuation date and towards the technical provisions consultation, we will consider what further communications and engagement with employers and members will support the overall process.

"We plan, for example, to provide UUK and employers with further information about the value of the covenant support measures, as committed to in the 2020 valuation.”

Alongside the latest update, the USS trustee shared its formal response to The Pensions Regulator’s (TPR) consultation on its draft Defined Benefit (DB) Funding Code, which has also been reinforced by a letter to TPR co-signed by UUK and UCU.

In the joint letter, the parties urged TPR to improve regulation for open DB schemes, arguing that this would help prevent a "repeat of the misguided 2020 valuation, which pushed the USS pension scheme into crisis".

Whilst the letter also recognised the need to deal with a range of different schemes of different maturities with different employer support and levels of member interest, the UCU argued that the USS is "very different" to most DB pension schemes in the UK, most of which are now closed to new members and on their journey toward an ‘end game’.

Given this, the UCU suggested that the circumstances of USS – including its open status, long-term horizons, and the strength and nature of the higher education sector that supports it – need to be better reflected in the code.

UCU general secretary, Jo Grady, commented: “The brutal cuts that led to our members being forced onto picket lines must never happen again.

“That is why UCU, employers and the trustee have come together to urge The Pensions Regulator to update its code to account for the open nature of USS, the enhanced covenant support from employers and the strategic global importance of the UK’s higher education system.

"We welcome the new spirit of cooperation from university employers and scheme managers that we have seen in recent months.”

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