Employers back proposed changes to USS

Employers in the Universities Superannuation Scheme (USS) have issued their support for proposed changes to the scheme outlined by Universities UK (UUK) in a recent consultation.

Changes backed by employers included maintaining a defined benefit (DB) element of the scheme but reducing the salary threshold from around £60,000 a year to £40,000 a year.

Employers agreed to offer additional covenant support measures, including a moratorium on exit, debt-monitoring and ensuring that pension promises are “even more secure” through protecting the USS trustee’s status as a creditor, if they result in a “good level” of DB pensions and avoid “unaffordable” contribution increases.

The employers, which represent 95 per cent of USS membership, also backed proposals for a governance review of the scheme, a flexible cost option for members and to investigate the feasibility of conditional indexation, whereby yearly inflation increases would be linked to scheme performance.

Proposals to give eligible members the choice of a lower contribution option and to commit to considering an improvement benefits rather than reducing contribution rates if the scheme’s financial situation improves were also supported.

UUK’s consultation sought employer views on creating a “valuable, affordable, inclusive and sustainable” scheme for the long term, and received 141 responses.

USS Employers, which is a site owned and managed by UUK, warned that employers and members could face escalating contribution rates if changes to the scheme were not made.

Further consultation is planned with employers to see whether they can give stronger assurances on covenant.

“We are grateful for the very high response rate to our consultation with many employers engaging extensively with their governing bodies and members of staff,” a USS Employers spokesperson said.

“There is a strong desire for changes to the scheme, some of which will take time to fully explore including governance reform and conditional indexation, which requires legal changes and significant work to get right.

“This still leaves employers and scheme members with an immediate challenge. Action is needed to avoid unpalatable contribution increases for both employers and members or the number of staff leaving the scheme will become a stampede and there will be cuts to teaching, research and jobs at many institutions as employers would be forced to pay extraordinarily high pension costs.  

“We continue to press USS and The Pensions Regulator to achieve a fair price for the demanding additional support measures employers are offering to keep the hybrid alive and maintain a good level of defined benefits in the scheme.

“The USS trustee’s initial response to the UUK proposal, which has received the backing of employers in this consultation, is that it is willing to adjust its assumptions to lower scheme costs, but not far enough to be able to offer the level of defined benefits for the contributions and covenant support proposed by UUK. Further consultation is therefore planned with employers to see if they can give stronger assurances on covenant, and then with the USS Trustee to see how any final gap can be bridged.

“We hope the union will work with us and suggest ways of tackling these immediate financial challenges to avoid ruinous contribution increases, and to explore longer-term changes, including a governance review, a flexible option for members and conditional indexation.”

The proposals will now be discussed over the coming weeks with the University and College Union (UCU), representing members, UUK, and USS at the Joint Negotiating Committee.

UCU previously warned that the proposals could see the typical USS member facing a 35 per cent DB pension cut in retirement.

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