Universities UK (UUK), the representative body for employers participating in the Universities Superannuation Scheme (USS), is seeking views on a covenant package and revised benefits structure aimed at staving off contribution rate hikes outlined by USS in the context of the 2020 valuation.
Employers are also being asked if they would support the introduction of a new, short-term flexible option for a growing number of early career staff that UUK says are being priced out of the scheme.
Last month USS disclosed that the deficit it calculated for the scheme ranged from £14.9bn (€17.3bn) to £17.9bn as at 31 March 2020. It indicated that total contributions would need to increase by at least 11% of salary, but that this would require extra covenant support measures different from the ones UUK had put forward last autumn. UUK has said such contribution hikes would not be affordable.
In UUK’s new consultation, the covenant support package being proposed includes a 20-year rolling moratorium on employer exits without USS’s consent, although UUK said its concerns about a long-term rule change remain.
In its consultation document, UUK said its proposed requests of employers were “very difficult” and it hoped they “demonstrate UUK’s wish to secure an outcome to this valuation which might be acceptable”.
The representative body is also proposing a change to USS’s hybrid benefits structure. Currently defined benefits (DB) are accrued up to earnings of £60,000, with salary above this going into a defined contribution scheme. The employer body has suggested a design involving a lower DB salary threshold of £40,000, a 1/85ths accrual rate (from 1/75ths), and a 2.5% per annum indexation cap.
“We remain concerned that the USS Trustee’s approach to the 2020 valuation is overly prudent and risks unnecessary levels of reform, so we will continue pressing them to reconsider their pricing,” said a spokesperson for Universities UK, on behalf of USS employers.
“As part of this we are seeking employers’ views on a proposed alternative path that could persuade the USS Trustee to review their assumptions, reduce headline costs, and preserve a significant element of defined benefits at current contribution rates, as part of a valuable pension scheme for staff.”
In the consultation document, UUK said that it and Aon, its actuarial advisor, believed the alternative covenant package it suggested, together with the change in the balance of the hybrid benefits structure, should “allow valuable DB promises to continue to be provided at the current contribution rate (30.7%)”.
The University and College Union (UCU), representing staff, lambasted UUK’s proposal, saying employers ”should deliver on previous promises to challenge the USS Trustee’s underlying assumptions, instead of attempting to slash scheme members’ benefits”.
Jo Grady, the union’s general secretary, said: ”UUK’s plans to cut the guaranteed, defined benefit element of members’ pensions are almost identical to the ones which they put forward and which members rejected midway through UCU’s 2018 industrial action – and they come at an even higher price in terms of employer and member contributions.
“Their proposals to address the high rate of staff opting out of the scheme are vague and will not be implemented in time to prevent the drastic contribution increases that are already scheduled for October 2021,” she added.
According to Grady, employers had “offered very little to dissuade members from voting for another round of industrial action”.
A UUK spokesperson responded to UCU’s comment on employers’ consultation: “It is easy to simply oppose change but reform is necessary to tackle the scheme’s funding gap and ensure that USS pensions are affordable for members and employers. We would welcome and be keen to examine alternative proposals from UCU.”
UUK’s consultation is open for seven weeks. Employers are being encouraged to discuss the issues raised with every staff member eligible for USS to ensure their views are heard.