The UK’s largest pension fund has proposed raising combined employer and employee contributions by 41% by April 2020 in order to fund an estimated £900m-a-year (€1bn) funding gap.
Under the proposals, members of the £60bn Universities Superannuation Scheme (USS) would increase their contributions in three steps from 8% of salary currently to 11.7% by April 2020, starting from April next year.
Employer contributions would increase from 18% to 19.5% from April 2019, ultimately reaching 24.9% from April 2020. In total this would result in combined contributions increasing by 10.6 percentage points, from 26% to 36.6%.
The USS trustees have also decided to scrap a policy of matching scheme members’ voluntary contributions to USS Investment Builder – the scheme’s defined contribution section – from April next year. According to a USS spokesman, this would have the effect of reducing the total contribution required from 37.4% – equivalent to £900m – to 36.6%, or £800m.
The increases come as USS faces an uncertain future. A valuation of the scheme completed last year led to a proposal to close the defined benefit section to future accrual, which in turn prompted widespread strike action across UK universities.
A joint expert panel was then set up to scrutinise the contested 2017 valuation of USS, and is due to report back to Universities UK (UUK) and the University and College Union (UCU) – the employer and employee representative groups, respectively – in September.
The cost sharing that has been proposed is the default process set out in the scheme’s rules, and is being pursued because the USS joint negotiating committee (JNC) did not reach an agreement on how to address the increased cost of meeting benefits.
Under the scheme rules, the increase in the total contribution rate is to be shared between members and employers on a 35:65 basis.
A spokesperson for UUK said: “The increases in contributions being proposed will be challenging for both employers and scheme members. This temporary fix will lead to difficult decisions at many institutions over financial priorities. Over the summer we will be working with employers and other stakeholders to fully understand the implications.”
The UUK spokesperson added that UUK and UCU were committed to reaching an agreement on the 2017 valuation following the joint expert panel’s report.
“We hope this agreement will allow the higher levels of contribution increases proposed to be avoided,” the spokesperson added.
From September there will be a 60-day consultation with employers and affected employees about the contribution increases.