Employers in the Universities Superannuation Scheme (USS) are supporting several proposals for medium and long-term reform of the pension scheme, Universities UK (UUK) announced.
They are also willing to back significant covenant support measures proposed by UUK and which are deemed necessary by the USS trustees to lower its pricing in the current valuation – if it results in a good level of defined benefit (DB) pensions and avoids damaging, unaffordable contribution hikes, it added.
Without changes to the scheme, employers and scheme members face escalating contribution rates: for employers, from the current level 21.1% of salary to 23.7% in October 2021, and at least 28.5% next year.
UUK also said that members would see their payments rise from 9.6% of salary, to 11% in October 2021 and reach at least 13.6% next year – and risk pricing more and more members out of pensions saving.
UUK received 141 responses from employers to its recent consultation, outlining their support for the following package of reforms:
- Employers to offer stronger covenant support measures including a moratorium on exit, debt-monitoring and ensuring that pension promises are even more secure through protecting the USS trustees’ status as a creditor;
- No increases in member contributions or employer contributions;
- Maintaining the scheme’s DB/DC hybrid with changes at this valuation to keep contributions at the current level with a proposed salary threshold of £40,000;
- A major new review of the scheme’s governance;
- Developing proposals to move to a conditional indexation model – which pegs a part of annual pension provision to the performance of scheme funds – through the suggested establishment of a joint member/University and College Union (UCU), employers, and USS working group to collaboratively design a proposal;
- Addressing the high opt-out rate, which sees around 20% of members choosing not to join the scheme and losing out on the 21.1% employer contribution, by giving eligible members the choice of a new lower contribution option;
- A commitment that, should the scheme’s financial situation get better, then improvements to benefits can be considered rather than reducing contribution rates.
The Russell Group, a group of 24 leading research-intensive UK universities, was one of the supporting employers, which last month set out areas of agreement with options put forward by UUK in its consultation on ways of addressing the contested 2020 valuation of the £68bn (€79bn) USS.
UUK said these proposals will be discussed over the coming weeks with the UCU, representing members, UUK, and USS at the Joint Negotiating Committee, which is responsible for approving any scheme rule changes and concluding the 2020 valuation.
“We are grateful for the very high response rate to our consultation with many employers engaging extensively with their governing bodies and members of staff. There is a strong desire for changes to the scheme, some of which will take time to fully explore including governance reform and conditional indexation, which requires legal changes and significant work to get right,” said a spokesperson for USS employers.
“This still leaves employers and scheme members with an immediate challenge. Action is needed to avoid unpalatable contribution increases for both employers and members or the number of staff leaving the scheme will become a stampede and there will be cuts to teaching, research and jobs at many institutions as employers would be forced to pay extraordinarily high pension costs,” the spokesperson added.