USS Employers highlights concerns over 'unhelpful' USS consultation process

Universities Superannuation Scheme (USS) Employers has raised concerns over the recent USS consultation process, highlighting it as “unhelpful” and “incredibly difficult” to understand, according to Universities UK (UUK).

UUK, the representative body for USS employers, stated that the overall sense of the responses showed concerns over the consultation itself, with a large number of employers feeling strongly that further information is needed from the trustee in order to respond.

The group, which received responses from 103 employers that represent approximately 88 per cent of the active membership of the scheme, noted that a large number of employers had subsequently chosen not to, or felt unable to, respond to some of the questions posed.

It highlighted a number of “fundamental gaps” in the approach, stating that the trustee’s covenant assessment, proposed rule change and debt monitoring arrangements, and recovery plan need to be resolved before employers can make informed decisions.

USS previously confirmed that these areas would be subject to further confirmation, and have since emphasised that long-term rule changes in particular will be "the most urgent issues" to address in determining the 2020 valuation outcome.

Many employers also supported the view that the material presented by the trustee was missing a wider perspective.

In particular, employers stated that the questions were “impossible” to answer in isolation, instead of as part of a comprehensive picture, arguing that the consultation also presented too “wide-ranging” outcomes to be meaningful.

The USS explained when launching the consultation in September that the “very wide” range of illustrated contributions included was necessary to show, as there are a number of covenant-related factors outside their control that could change and would be critical to the overall valuation outcomes, including the sector’s resilience to Covid-19.

However, UUK added that doubts were also raised around the timing of the valuation, with some arguing that the consequences of Covid-19 need to become clearer in order to offer meaningful responses.

Despite this, UUK said that employers acknowledged that time to consult is “very tight”, and subsequently agreed to any changes to the scheme that might be necessary to avoid the higher and unsustainable contribution rates from 2021.

Although UUK also emphasised that it would like the trustee to consider this “very carefully” as they plan potential timelines for the remaining aspects of the valuation to ensure that adequate time exists for the necessary processes to take place, without the threat of the October 2021 increases.

Affordability was a key issue across the responses, according to UUK, with respondents stating that the current level of contributions is already at the very limit or beyond the threshold of affordability.

Indeed, whilst the USS itself acknowledged this within the consultation, stating that the illustrated outcomes are “therefore unlikely to be considered affordable or sustainable by employers and members", respondents expressed disappointment that the trustee did not seem to take it into account in considering its approach to the consultation.

Aside from the eight specific questions raised in the consultation, employers had also raised concerns around the member opt-out rate.

The response stated that analysis in the Joint Expert Panel, seen by UUK, has shown that there are a variety of reasons why members are opting out of the scheme, with affordability and suitability being two notable examples.

Considering this, UUK stated that employers would like to see flexible options introduced for members, noting that the one-size-fits-all offering is increasingly out of step with modern workplace pension provision.

Furthermore, UUK called on the trustee, in collaboration, to develop an outline proposition for the valuation showing how the various components might operate together in an overall solution, to be shared with employers ahead of future consultations.

The response stated: “It is clear that the UUK Pensions Team, and UUK’s wider representative team, is ready and willing to work closely and constructively with the USS team – and indeed with UCU colleagues – to develop a proposition(s) for employers to consider.

“This has been the missed opportunity that UUK and employers had feared.

“It is important to express and explain the disappointment and concern of UUK and employers with the material presented.

“However, UUK wishes to be constructive and provide responses to the trustee’s questions as far possible in order to make progress.”

In response, the USS warned that the UUK's position on supporting the scheme is likely to result in "unaffordable" contributions for both employers and members, calling on the group to reconsider.

A USS spokesperson commented: “We recognise the extreme difficulties UUK faces in building a consensus across 340 disparate employers, particularly in securing a uniform and long-term commitment to USS.

“Equally, they must appreciate the difficult position in which their response places the trustee: after 18 months of deliberations, their suggestions for key covenant support measures fall considerably short of the commitments required."

They added: “We will need to work with UUK urgently to see if we can find a way forward on this critical issue.

"As we have repeatedly made clear over the past year-and-a-half, it is fundamental to the valuation and the uncertainty surrounding it explains why a range of outcomes was illustrated for our consultation.

“As it stands, UUK’s position on supporting the scheme is likely to result in contributions that are unaffordable for employers and members. The trustee hopes they will reconsider this position.

“Ultimately, the options for mitigating the rising cost of funding the scheme’s benefits sit with UUK and the Joint Negotiating Committee, who design the scheme. The trustee’s role is to administer those decisions, and to ensure promises made are secure.

“We are committed to striving for the best outcome possible in incredibly challenging circumstances.”

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