UCU and UUK warn against 'unaffordable' USS pension contribution increases

Universities UK (UUK) has warned against "unaffordable" pension contributions for the Universities Superannuation Scheme (USS), calling for "stronger and clearer justification" for the "very high pricing decisions".

In addition to this, the University and College Union (UCU) has argued that USS "must do better", calling on UUK to "step up the pressure" on the scheme amid concerns that contribution increases could prompt member opt outs.

The comments were made in response to the latest scheme update on its 2020 valuation process, which suggested that pension contributions may need to increase to as much as 56.2 per cent of payroll.

UUK has urged the scheme to provide "significant reassurance" that it is not being overly prudent, warning that without further justification, employers and members may be concerned that the scheme is facing an "unnecessary level of reform".

A UUK spokesperson, stated: “The very high prices for current benefits put forward by the USS trustee are unaffordable for employers, risk pricing even more staff out of the scheme, and undervalue the collective and enduring financial strength of the participating employers.

“There has been a three-month delay in the USS trustee confirming the price of current benefits, while it has had discussions with TPR.

“The USS trustee has now set out higher prices than it previously thought necessary and it appears to be taking a more cautious approach than employers and our actuaries advise is needed.

“Employers and their staff need significant reassurance that the USS trustee is not being overly prudent on matters like projected investment returns or undervaluing possible covenant support measures, both of which remain under discussion.”

The UCU has echoed this, warning that USS has an “overly pessimistic view” of the higher education sector and is not taking proper account of its growing asset base.

In addition to this, UCU has confirmed that it will be holding a special sector conference for higher education branches to decide next steps, stating that it "cannot rule anything out".

UCU general secretary Jo Grady said: ‘USS is trying to spin the fundamentally flawed assumptions which its valuation of the pension scheme relies on as objective matters of fact. In doing so it risks endangering a healthy scheme.

"Problems with USS’s methods and assumptions have not been properly addressed despite widespread dissatisfaction among members and criticism from across the pensions industry and the higher education sector, including the universities of Oxford and Cambridge.

"UUK now needs to step up the pressure on USS to change its approach.

"USS’s asset base is huge and has doubled in size since 2011, yet it continues to revise assumptions down."

She continued: "The rationale for this remains unclear to many, even those of us closest to the process. It has also proceeded with a valuation date of 31 March 2020, so the value of its assets has been measured during a global pandemic as markets were crashing.

"The scheme receives more in contributions annually than it pays out, making it able to ride out any bumps."

Grady argued that, after a "decade" of pay and conditions being "degraded", many low paid and "precarious" higher education workers can no longer afford to be USS members, warning that even more will quit if contribution rates go up further, potentially endangering the health of the scheme as a whole.

She added: "USS and employers must do better. For their part employers need to show higher education staff that their commitment to USS is serious by working with UCU and USS on covenant support measures and to get key aspects of the JEP implemented."

Commenting on the valuation update, USS Trustee Board chair, Dame Kate Barker, stated: “We fully recognise the scale of the challenge facing the scheme and sympathise with our employers and members in light of the difficult decisions that lie ahead.

“Trends in financial markets have made the valuable pension promise offered by USS – a set inflation-linked income for life in retirement, regardless of what happens to the economy in future – much more expensive today than in the past.

“I believe everyone involved with USS wants to find a way forward, consistent with our legal and regulatory duties, that provides valuable and secure pensions, and that puts the scheme on a sustainable footing.

“We are committed to being as collaborative and constructive as we can in supporting UUK and the University and College Union (UCU) discussions to this end.”

UCU has previously raised concerns over the USS valuation approach, calling on employers to challenge the approach, whilst USS has also raised concerns over the "unhelpful" consultation.

Indeed, representatives from Oxford and Cambridge University have also highlighted "serious concerns" over the valuation approach , whilst a formal complaint letter to the scheme garnered support from over 3,800 members.

In particular, criticisms have been made around the scheme “cherry-picking” recommendations from the Joint Expert Panel, convened by UCU and Universities UK following "unprecedented" pension and pay related strike action, which was paused amid Covid-19 concerns.

UCU and UUK have also previously warned that the current contribution rates are already at the limit of what is affordable for scheme members, after the USS previously warned that future contributions could range from 40.8 per cent to 67.9 per cent of payroll.

TPR is expected to meet with representatives of both UUK and UCU following the publication of the report, and is expected to produce a 'frequently asked questions' response in the context of TPR’s role in the valuation process, based on this.

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