For several years, the whole sector has been engaged in understanding how USS (Universities Superannuation Scheme) could continue to offer strong pension outcomes, given a variety of pressures. Most defined benefit schemes have closed, partly because of additional caution introduced in legislation, but largely by the impact of exceptionally low interest rates for over a decade which have impacted on investments. We have seen in Warwick industrial action over this matter in the past. And around the country, there are many universities currently undergoing industrial action.
We are now at the key stage of the process which marks the end of the valuation. I will explain shortly what that means and wanted to inform our whole staff to ensure you are updated and informed at every key stage.
After much debate, the USS Joint Negotiation Committee (JNC) recommended changes to the scheme in response to the 2020 valuation, which showed that the cost of future benefits had increased significantly, and the gap between how much money the scheme has, and how much it needed at that time had increased. A critical view is that of the pension fund itself, and the Pensions Regulator, who have confirmed acceptability.
Affected staff were consulted on proposed changes between last November and mid-January of this year. For us, this followed a series of independent briefings for interested members of USS. One key concern that came out of this is the proposed reduction in the inflation caps. USS subsequently wrote to staff here to explain about proposed modifications. Warwick supported this change, and along with other employers, have agreed to pay an extra 0.2%, to bring employer contributions to 21.6% of salary leaving member rates unchanged at 9.8%.
On 28 February, the USS Trustee Board agreed an amending deed to bring these benefit reforms into effect from 1 April 2022. These changes do not impact any benefits built up prior to this date.
USS will now write to members directly via e mail with a further update. This is the sense in which, formally, this valuation round is now complete.
UCU counter proposal
Warwick UCU has asked me to explain our attitude to the counter proposal that was issued by UCU at a very late stage of a valuation process which has taken over 18 months. UCU (which has representation on both the JNC and USS Board) submitted a counter proposal which we received from UUK on 10 February. Both the UUK and UCU proposals have been reviewed by University Council.
On 16 February, Council decided not to support the UCU proposals because:
- The indicative costs provided would have meant staff and employers paying significantly higher contributions, which would have increased every six months until 2024. The cost of the current benefit package is high for employers, but also of course for you as members.
- In making these proposals, UCU were hoping that USS would agree to a new valuation as of 31 March 2022 on a moderately prudent basis. I do not support this, and neither did our Council. It is not the case that a valuation date in March would produce a better outcome, particularly now we can see the impact of the invasion of Ukraine on the global economy and on the markets, in which pension funds are invested.
- It is expected that following the recent consultation with staff, many members are expecting to pay no more than 9.8% from April and have planned on this basis. At this short notice, to change this, is unreasonable.
The uncertainty around the UCU proposals and significantly higher costs led 93 out of 97 employers that responded to reject the UCU proposals. But even had the UCU proposals been approved by the JNC, there would have been a considerable risk that the Pensions Regulator stepped in, arguing that the level of risk was too high, in that there could be a real risk to the future pensions of members. Had this happened, then the fall-back contributions featured in the consultation material or worse could have applied. This could have seen member contribution rates reach 18.8% and employer contribution rates reach 38.2% from 1 April 2025 onwards. It is unreasonable to run the risk that members of USS could be asked to pay so much. It would run the risk that many members would leave, and the funding basis of the whole pension scheme would be brought into question.
It is my view that these UCU proposals, and the moment at which they were introduced, were reckless.
For the whole decade past, Warwick has been strong in its support of a pension fund that has a major element of defined benefit and have been on the record as so doing. Our priority now that there is a formal end to this round is to ensure that pensions remain affordable, for both staff and employers, especially in these uncertain times. As such, we have supported the pension reforms which have now been agreed by the USS Trustee.
9 March 2022