UK universities have flagged the importance of the higher education pension scheme continuing to perform well in investment markets after reforms were passed that will see guaranteed defined benefits (DB) build up more slowly and on a lower salary base.
Benefits provided and priced by the £82bn (€98bn) Universities Superannuation Scheme (USS), and how the costs of providing these are shared, are decided by the Joint Negotiating Committee (JNC), which comprises employer and member representatives.
Yesterday the JNC, via the independent chair’s casting vote, passed a package of reforms proposed by employers to conclude the controversial 2020 valuation of the scheme. The USS trustee has been saying scheme changes needed to be decided by the end of February.
Employers said the reforms were necessary to provide an “affordable and sustainable solution” to the valuation.
“Today’s decision brings a considerable period of uncertainty to an end and gives stakeholders an opportunity to break the cycle of disagreement and dispute ahead of the next valuation,” said a spokesperson for Universities UK (UUK), which represents the 340 employers in USS.
“Our focus can now return to working collaboratively on alternative scheme designs, a review of the scheme’s governance, and developing lower-cost options and flexibility to give members more choice in their retirement saving.”
The University and College Union (UCU), which represents higher education staff, offered a diametrically opposed take on the situation, with general secretary Jo Grady warning the dispute was far from over.
“This is a deplorable attack which our members won’t take lying down,” she said.
She said UCU would on Friday decide the next steps, which would include reballoting and “escalation towards a marking and assessment boycott”. Staff at 44 universities are several days into 10-day strike action over the changes to USS pensions.
Following the JNC decision, employer and member contributions will rise by 0.5% of salary and 0.2%, respectively, from the 2018 valuation, from 1 April 2022.
Scheme members earning up to £40,000 per annum will see defined benefits accrue at a rate of 1/85 rather than 1/75 and the salary threshold up to which defined benefits are built up will reduce from around £60,00o to £40,000 per annum.
Members earning above the threshold will receive a 20% contribution into their individual defined contribution pot.
In its response to the JNC’s decision, UUK noted the importance of USS continuing to generate good investment performance “with the aim that the new flexible DC funds members will build up above the salary threshold provide as far as possible similar value and flexibility to the previous benefits, as well as provide guidance and support to members whose benefits are set to change”.
The reforms were changes proposed by employers, underpinned by covenant support equal to an additional £1.3bn per annum.
Following consultation feedback from members to a proposed 2.5% cap on future inflationary increases, employers have agreed an additional contribution to defer the application of the cap until at least the next valuation. Currently benefits are protected up to 5% and half protected against inflation between 5% and 15%.
Also on the table at yesterday’s JNC meeting was a counterproposal from UCU. Like the UCU representatives on the JNC rejected the UUK’s proposal, the UUK representatives on the JNC rejected UCU’s, following feedback from employers in a recent consultation.
USS’s deficit has shrunk significantly since the March 2020 strike date for the 2020 valuation, but the pension scheme has said this is only one part of the picture, as the cost of funding its liabilities and new pension promises has increased and it is difficult to reach any definitive conclusions as to the true direction of travel based on the last few months alone.
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