UCU calls for pension reversal; USS considers 'accelerated timetable' for 2023 valuation

The University and College Union (UCU) has urged Universities Superannuation Scheme (USS) employers to restore pension benefits or face “the biggest wave of strike action UK higher education has ever seen”.

The comments were made after analysis from the union suggested that restoring pension benefits would still leave the pension scheme in surplus, following recent funding improvements.

The UCU research, based on the latest financial monitoring report from the USS trustee, found that restoring benefits would leave the scheme with a £0.6bn surplus, and that to maintain the restoration, contributions would fall to 27.4 per cent, lower than the current level of 31.4 per cent.

UCU also highlighted the data as demonstration of how universities are "wasting money servicing a deficit that no longer exists", with employers and employees are currently paying 6.2 per cent towards the £14.1bn deficit outlined in the March 2020 valuation.

The USS monitoring update suggested that it may be possible to increase benefits, decrease contributions or do a combination of both, if at the next valuation, there is a significantly improved financial position relative to the 2020 valuation.

However, the USS trustee clarified that the monitoring updates are used to indicate, at best, the direction of travel rather than the destination, also highlighting the impact of recent market volatility on these funding improvements.

In a Q&A published alongside the latest monitoring update, the USS emphasised that financial markets have been "exceptionally volatile" since the turn of the year, warning that projections for the future path of inflation and interest rates could change materially between now and the valuation date.

Furthermore, while the USS acknowledged that the changes to benefits and contributions introduced in April were “clearly unwelcome”, it argued that they have helped to put the scheme on a more stable and affordable footing into the future.

USS chief executive, Bill Galvin, stated: “Our monitoring reports should not be seen as an indicator of the likely outcome of an actuarial valuation.

"An actuarial valuation requires much deeper and comprehensive analysis of long-term assumptions on a variety of factors, including inflation, interest rates, the outlook for future expected investment returns, mortality, the covenant position, and risk capacity.

“There have plainly been some significant, unexpected changes to the global economic landscape since the turn of the year that have helped to improve the funding position (under the monitoring basis) – not least the reversal of a decade’s worth of decline in real interest rates in the space of just a few months.

"But the sheer volatility we’re seeing does not provide a solid basis for decision-making. Projections for the future path of inflation and interest rates could change materially between now and the date of the valuation."

However, Galvin acknowledged that the current position is in "stark contrast" to the backdrop against which USS has embarked on all valuations since 2011 and provides a positive platform for stakeholders and advisers to discuss potential options for the 2023 valuation.

Indeed, the USS stated that the 2023 valuation will provide an opportunity to "make a robust assessment of the position", with the trustee confirming that it is working with stakeholders as they consider what options might be available in future.

In addition to this, the USS confirmed that it is supportive of working with stakeholders on an accelerated timetable for the next valuation with an ambition to make any follow-on changes to contributions and/or benefits decided by the joint negotiating committee by 1 April 2024.

The trustee suggested that this would be a "challenging but achievable timetable if all parties can work constructively together with a focus on early engagement on key inputs and assumptions, and potential outcomes".

USS Employers echoed the scheme's messaging, stating that while the continued improvement in the scheme's financial health was "positive news", the recent high level of economic volatility makes it hard to judge the extent of the underlying, substantive improvements.

USS Employers spokesperson continued: “The USS trustee, which has legal responsibility for the scheme, has made it clear that its monitoring reports should not be considered a likely outcome of an actuarial valuation, and the sheer economic instability since the turn of the year, evidenced most starkly over the past week or so, makes it very difficult to establish a long-term view.

“In this uncertain and unstable economic climate, the USS trustee insists that there is no solid evidence for interim changes to be made to the scheme ahead of a new, full valuation which is scheduled for March 2023.

“The USS trustee is responsible for determining the timing of the next valuation. We would support any decision to bring this forward, however the USS trustee insists this is not wise because the economic conditions behind the improvements in the funding position are not stable enough after just a few months to make informed and evidenced decisions.

“If the next valuation allows for improvements to be made in a sustainable and affordable way, then that is something we would want to do.

"In the meantime, we call on all those involved in the scheme to commit to working collaboratively and expeditiously ahead of and through the next valuation.”

However, UCU members are currently being balloted for potential strike action over pension concerns, with UCU urging universities to restore pension benefits and commit to supporting a new evidence-based and moderately prudent valuation of the scheme.

UCU general secretary, Jo Grady, commented: “University staff were clear from the beginning that pension benefits did not need to be cut and that the USS scheme was strong – today they have been vindicated.

“Not only has the deficit disappeared in six months, but new data is also showing the cuts can be revoked and benefits restored for lower contributions than are currently being paid to deliver cuts. Every vice chancellor who supported the cuts, against all reliable evidence, should hang their heads in shame.

“There is no credible argument against returning pension benefits to staff and a commitment to that must be forthcoming. If it isn’t, university staff will deliver the biggest wave of strike action UK higher education has ever seen.”

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