Strike action 'inevitable' as proposed changes to USS progress to member consultation

The Universities Superannuation Scheme (USS) Joint Negotiating Committee (JNC) has agreed to consult on Universities UK’s (UUK) proposed changes to the scheme with affected members, prompting threats of strike action from University and College Union (UCU).

Under the proposed changes, the salary cap for the scheme would be reduced from £60,000 a year to £40,000 a year, indexation would be capped at 2.5 per cent a year, and members' pension accrual rate would also reduce from 1/75th of salary to 1/85th of salary.

Commenting on the development, a USS spokesperson stated: “After six months of extended negotiations, USS’s JNC has now decided how the funding challenges facing the scheme should be addressed. This comes almost two years after we first committed to holding a 2020 valuation.

“We understand the decisions faced by the JNC, and its members who represent UCU and UUK, have been very difficult. Long-term economic and demographic trends have made ‘guaranteed’ defined benefit pensions much more expensive.

“The JNC’s recommendations will now be considered by the trustee board, alongside how best to manage the benefit and contribution changes proposed. The best interests of members and the scheme will continue to be the board’s first concern.”

The JNC’s decision has also been welcomed by USS Employers, with a spokesperson stating that it provides a “viable and implementable” solution to the 2020 valuation, as the proposal would see a "significant element" of defined benefit (DB) retained while preventing unaffordable contribution levels.

USS Employers also highlighted the additional backing offered by employers as "unprecedented among UK pension schemes", with the USS trustee valuing their additional covenant support at around £1.3bn per year, which has the impact of limiting the benefit reforms needed.

“In partnership with the UCU we look forward to progressing a major governance review of USS, jointly exploring future options for scheme design including conditional indexation, and shaping a lower-cost option so staff on lower salaries are no longer priced out of retirement saving," they stated.

Indeed, sponsoring employers of the scheme have previously called for long-term reform and consideration of conditional indexation, particularly in light of comments from The Pensions Regulator, which suggested that previous reforms were "not acceptable".

Furthermore, whilst the planned changes have received a mixed reaction, with a UCU modeller suggesting members could face a 35 per cent DB cut, USS Employers emphasised that USS’s formal assessment of the scale of the deficit meant that no change was not a viable option.

"We understand that the benefit changes passed by the JNC will be unwelcome for scheme members, but the huge increases in contributions required to keep benefits the same are unaffordable for most members and employers," the spokesperson explained.

“The valuation methodology adopted by the USS trustee and the position of TPR meant that no change was not an option. Faced with total contributions that would equate to 56 per cent of salaries, the proposals accepted by the JNC represent the least bad compromise possible.

“The employers’ proposal for reforms is an alternative to the USS trustee’s proposed unaffordable contribution rates for scheme members and employers, which would have caused considerable disruption for members and risks forcing more people to leave the scheme.

“UUK’s package of reforms averts damage to the student experience, and job losses and recruitment freezes because additional money from teaching and research budgets would have to go towards even higher pension costs."

However, UCU has warned that industrial action in universities is now “inevitable”, and that the only way to avoid this would be for employers to undertake a rapid consultation on covenant support and UCU proposals.

The union previously voted to ballot for industrial action if employers did not rethink their proposals in June, and has since emailed over 50,000 members in USS institutions calling them to a mass member meeting, where it will outline next steps and how to prepare for balloting and strike action.

UCU general secretary, Jo Grady, commented: “Employers represented by UUK have today voted to implement a set of regressive USS pension proposals that will reduce member benefits, discourage low paid and insecurely employed staff from joining USS, and threaten the viability of the scheme as a whole.

“Employers have failed to support alternative compromise proposals put forward by UCU, drawn up under the constraints of a flawed 2020 valuation of the scheme.

“Disappointingly, UUK did not support calls from UCU for a new valuation, despite the overwhelming case for one, and refused to allow for time to consult universities on UCU's proposals, instead choosing to vote through their cuts.

“UCU's proposals were far superior to those of UUK, delivering higher benefits and reducing contributions for staff. They provided flexibility and for the first time in the scheme's history guaranteed benefits for the thousands of low-paid and insecurely employed staff who are currently priced out of joining USS.

“However, the proposals did not win the agreement of employers, who failed to commit to providing the same covenant support as they did for their own proposals.

“UCU's proposals would have provided a safe and equitable stop-gap solution until a new valuation is carried out, which should be at the earliest opportunity. Sadly employers have chosen to use a flawed valuation conducted at the start of the pandemic to rush through cuts to members' pensions.

“Unless employers allow for a rapid consultation on our proposals with a view to revoking their decision today, the path looks inevitably to lead to industrial action - and that is the responsibility of UUK.”

However, a spokesperson for USS Employers stated that it did not receive an alternative formal proposal from UCU for decision by the JNC and that it had “repeatedly said to UCU during the JNC process that UUK would be willing to put any UCU suggestions to employers”, an offer which still stands.

“Up until this point, UUK has not been allowed to even discuss the union’s suggestions for benefit reform publicly – indeed it remains unclear if the UCU suggestions have the support of its members,” a USS Employers spokesperson stated.

“The upcoming member consultation on the UUK package is important and open – and could lead to these proposals being amended. Employers will still consider alternative benefit structures and formulations, provided they are viable, affordable and implementable.”

In addition to this, the USS Employers spokesperson stated that UCU did not ask for a one-month delay to the JNC timetable as claimed, also explaining that given the lack of a formal UCU proposal, it was not apparent that any further time would be productive and could lead to higher costs.

Commenting in response, a UCU spokesperson said: "UUK undermined UCU’s proposals from the get go by refusing to offer the same covenant support as it would for its own package.

"That, along with a refusal to consider delay options to avoid the cuts, is not by any stretch of the imagination, a commitment to exploration. Whichever way they try to spin this, the truth is that employers would rather cut pensions than agree to a small increase in their own contributions."

Commenting further on the reforms passed today by the USS JNC, a spokesperson for USS Employers said: “We have had helpful and constructive discussions at the JNC on many areas of reform. We are keen to continue this engagement with UCU and other unions over the coming weeks and also seek further views from members of USS, through the forthcoming 60-day scheme member consultation on the proposals.

“Employers have consistently said that they would be happy to explore viable alternative proposals for reform from the UCU.

"While the reform package passed by the JNC today proposes a particular set of changes to the future pensions earned from USS’s DB and defined contribution sections, the upcoming consultation is important and open – and could lead to these proposals being amended.

"Employers remain open to considering alternative benefit structures and formulations, provided they are viable, affordable and implementable.

“Benefits which members have already earned within USS are protected by law and secure, and the employers' package, and in particular the unprecedented additional covenant support measures provided by employers, further strengthens that protection.”

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