Employers propose reforms to ensure USS pension scheme remains sustainable and attractive to members
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​Employers propose reforms to ensure USS pension scheme remains sustainable and attractive to members​
Higher education employers are proposing changes to the USS pension scheme to address the scheme's deficit and the significant rise in the cost of future pensions.
Employers are proposing a solution that avoids any increase in costs for members and ensures that money is not diverted from other core activities, such as teaching or research.
USS, one of the largest private schemes in the UK, provides pensions for academic and other university staff. Difficult economic circumstances have resulted in an increased deficit alongside a significant increase in the cost of future defined pension benefits of more than a third since 2014.
A sustainable solution to the funding challenges facing USS needs to be found. This has been clearly emphasised by the Pensions Regulator, who wrote to USS Trustees in September expressing concerns. This is important as the Regulator is obliged to evaluate the valuation outcome.
To ensure the sustainability of the scheme, employers are proposing changes to pension benefits. The proposal is that future benefits would be delivered by the USS Investment Builder section providing a market-leading defined contributions scheme. This proposal would tackle the scheme's financial deficit and rising future costs whilst ensuring that it continues to offer attractive pensions benefits to members.
Employers are clear that this proposal is not driven by a desire to cut costs, with employers committing fully to maintaining their total contribution to USS at 18% of salaries.
Any changes implemented to the USS benefit structure would only apply to the build-up of future benefits. Members' accrued pensions (those built up prior to any future changes in USS pension provision) are protected under law.
Alistair Jarvis, Chief Executive of Universities UK, says urgent action must be taken to ensure the USS scheme remains sustainable:
"The costs of USS need to be controlled to ensure the scheme remains sustainable and secure for the long-term. Change is needed to address the scheme's deficit and the rising cost of future pensions. Our proposals for reform will tackle the scheme's funding challenges so that universities can continue to offer attractive pensions benefits to staff.
"Most universities can't afford to pay more into pensions without diverting money from other central areas, such as teaching or research, reducing their positive impact. Increasing contributions could damage the high standards that students, research funders and others rightly expect. It could even undermine the sustainability of some institutions.
Universities UK, who represent more than 350 higher education employers in the scheme, has tabled proposals for reform at the Joint Negotiating Committee involving employers (through UUK) and members (through UCU) together with an independent chair. There will be full consultation with members on any reform proposals agreed at the Joint Negotiating Committee. ​
The threat of industrial action by UCU is premature and disappointing as there is an agreed series of imminent meetings between UUK and UCU to discuss USS pension benefit reform. Employers have been requesting discussions with UCU on reforms to USS benefits for the last six months to deal with the significant funding challenges facing USS.
USS is one of the largest private pension schemes in the UK and is the principal scheme for academic and comparable staff in UK universities and other higher education and research institutions with over 350 employers participating in it.
Universities UK is the representative organisation for the UK's universities. It has formed its pensions benefit proposal following consultation with employers, drawing together the views of employers responsible for 92% of USS active scheme members.
Universities UK, who represent more than 350 higher education employers in the scheme, has tabled proposals for reform at the Joint Negotiating Committee involving employers (through UUK) and members (through UCU) together with an independent chair. There will be full consultation with members on any reform proposals agreed at the Joint Negotiating Committee.
The USS scheme provides generous benefits to members with employers contributing 18% of salary and members 8% of salary. The current hybrid scheme is a mixture of defined benefits (through the USS Retirement Income Builder) on salary up to £55,550 and defined contribution (through the USS Investment Builder) on salary above that threshold. With defined benefits, the amount members receive on retirement is set using a formula based on average pensionable earnings during active membership. With defined contributions, the amount members receive on retirement depends on the amount the member and employer have contributed and investment returns.
USS trustees have a legal obligation to regularly review how the pension scheme is performing. USS has used their independent actuary to value the scheme and to assess risk. It estimates that the scheme has a large deficit of approximately £7.5 billion and the cost of funding the current benefits offered in the scheme has risen by at least 11%.
Discussions with the trustee and formal negotiations between employer and member representatives are expected to proceed through December 2017. Any agreed changes to member benefits or contributions will necessitate a full consultation with scheme members and other affected employees in Spring 2018.
Response to the Joint Expert Panel report reviewing the Universities Superannuation Scheme (USS) 2017 valuation, processes and assumptions. The report from the Panel makes a number of observations and recommendations.