Colleagues will have seen the recent information from USS regarding proposed benefits changes – summarised in an internal news item earlier this month. This obviously affects a very significant number of our staff, and of course in many ways this will feel as if USS issues have never gone away after strikes in both 2017/18 and 2019.

There is a lot being said about this at the moment, and I wanted to share my views, which we discussed at the Warwick Leaders Forum on 22 September. You will all be able to have your say too, as we will consult staff in November on the proposed changes.

The proposal that will be at the heart of the consultation is one that is designed to protect all members of the scheme. It has no impact on the benefits that members have already built up; it is about future benefits.

USS takes contributions from members and employers and invests them in a wide range of markets. According to the USS Trustee Board, the prevailing market conditions mean that it is more expensive to provide guaranteed defined benefits. Consequently, this is reflected in their valuation assumptions. Without benefit reform, this results in higher contributions.

Some believe that USS is too conservative in its assumptions about the future value of its investments in relation to payments. There are many aspects to this. For example: how much can the stock market be assumed to grow over 15 or more years; what will be the impact of inflation; what will be the average life expectancy of pensioners who draw from the scheme?

There are also different ways of making these calculations. How USS does so is framed, and constrained, by the assumptions and the responsibilities set out in law. This aspect is overseen by the Pensions Regulator, which has sweeping powers over pension schemes if they consider that there is non-compliance.

The central purpose of the legislation is to protect the benefits built up for every member of a pension scheme. That requires relatively conservative assumptions: if those assumptions are too bold and not supported by subsequent events, there will not be enough money in the scheme, and pensioners will not be able to draw the funds to which they are entitled.

The Pensions Regulator has been heavily involved in this USS valuation, and that has been in the public domain.

Looking to the other key player in the negotiations, UCU: in the structure of USS, the role of UCU is to represent the views of members of staff (whilst UUK represents the views of employers). Through six months of formal negotiations with UUK on the USS proposals, UCU did not formally table an alternative proposal. It also did not support the proposal that has now been put forward for consultation. At the time of writing, UUK continues to welcome any proposal from UCU but none is forthcoming. This is disappointing. Whilst UCU members may understand this position, it is difficult for others to understand.

Ahead of the consultation with members, the UCU General Secretary has threatened a ballot on industrial action. That would be a ballot on a way forward when UCU does not and has not offered an alternative; essentially – balloting for industrial action to oppose changes as unaffordable as they would be for both members and universities. It would potentially result in the withdrawal of education for students. And remember how much students have suffered already in the last couple of years because of Covid.

By not putting forward proposals, UCU has in essence boycotted this process. And yet now calls for industrial action where they have failed to offer an alternative. I think that the same attitude should be taken to any ballot over industrial action.

Turning now to the new proposals that you will be consulted on in the next few weeks, these are the only proposals that have been tabled that offset the enormous costs that would otherwise arise should the new proposals not be progressed (changes designed to meet the requirements of the Pensions Regulator intervention).

If the new proposals are approved, your contribution rate will increase by only 0.2% to 9.8% of your salary, and stay at this rate at least until the next valuation has been concluded in about three years’ time (unless there were adverse conditions signalling the need for a review of the USS contributions schedule).

If the new proposals are not approved, your contribution rate will initially rise to 9.8%, but then go up to 11% of your salary from next April and continue to rise after that every six months in line with decisions made by USS. For example, the October 2022 figure would be 12.9%, and October 2025 would be 18.8% under the original, higher cost, proposals. 

For the University, under the new proposals, our contribution rate will increase from 21.1% to 21.4%.

If the new proposals are not approved however, our contribution rate will increase to 23.7% from next April, and then carry on increasing every six months up to 38.2% in October 2025.

Assuming no significant changes to our overall payroll, each 1% increase to the employer contribution means £2.2m per annum extra for the University to find. At the same time, we and our colleagues will see an increase to staff costs due to the Government’s increase in national insurance contributions.

Any rise in costs without a corresponding rise in income may well be unwelcome, but the scale of the ongoing increases that will go through without approval of the new proposals is significant – for every member and for the University.

The radical change of cost of the scheme between maintaining the status quo and the new proposals is a vital point: for some universities, the additional cost would lead to redundancies, and for some the cost to members would be so much that many would simply withdraw from the scheme altogether.

For Warwick, some people ask why we can’t pay more into the scheme if we can afford to. It is a fair question. But there are two answers. First, the USS scheme is only available to our staff at grade 5 and above. To pay substantially more into this scheme would be disproportionately unfair to those on lower salaries not eligible for the scheme. Second, we could not pay more even if we did not have that concern.

This is because USS is a mutual scheme. It does not matter how much money any individual university employer is able to generate/contribute. What matters is what the sector can afford. If one university becomes bankrupt, its liabilities to USS are automatically shared amongst all other universities. So we have to find a solution that works for us all.

How was this radical change in costs arrived at? The answer is through a change to the benefits for the contributions that you will make in future. There are three key aspects to this.

First, the threshold between the part of your salary that is treated as defined benefit and the part which is treated as defined contribution is lowered - from £59,883.65 to £40,000. Second, the accrual rate will decline from 1/75 to 1/85. Third, the cap on the impact of inflation is reduced to 2.5%.

Taken together, these reductions in future benefits lead to the new rates described above. Without the new proposals, maintaining existing benefits would lead to the cost rises also listed above - so that eventually members would be paying 18.8% from October 2025 with the University paying 38.2%.

What are we to make of all of this?

First, this is about protecting pensions in the future, even though the value of those pensions being built up will be less in the future than currently. Second, USS continues to provide comparative benefits. Third, it retains defined benefits, which we welcome, and in the context of current and future economic uncertainty – over Covid, over Brexit – it provides some reassurance in terms of value to members.

What next? As I have said above, the next step is the consultation by employers on the UUK proposals - the only proposals on the table, designed to offset the extraordinary cost that USS would otherwise impose.

I say ‘impose’ for a reason: if we reject the proposals, you – as USS members, and the University, would be required to pay the higher costs. Universities are tied into the scheme and opting out is cost prohibitive - we cannot afford to leave the scheme. The only proposal tabled through negotiation is this one, and the opportunity for negotiation is now passed. It leaves this proposal only, or the alternative significantly higher costs.

Stuart Croft

Vice-Chancellor

22 September 2021