The joint negotiating committee (JNC) for the £82.2bn (€96.7bn) Universities Superannuation Scheme yesterday decided to progress a proposal from employers for changing the pension scheme, with the committee’s recommendations now to be considered by USS’s trustee board amid a warning of industrial action from the main trade union for the higher education sector.

University College Union (UCU) has said industrial action in universities is “inevitable” after Universities UK’s (UUK) proposals were voted through in the JNC.

A spokesperson for USS said that after six months of negotiation, the JNC had decided how the funding challenges facing the scheme should be addressed. It noted that this came almost two years since the scheme committed to holding a 2020 valuation.

“We understand the decisions faced by the JNC, and its members who represent UCU and UUK, have been very difficult,” the spokesperson added.

“Long-term economic and demographic trends have made ‘guaranteed’ defined benefit (DB) pensions much more expensive.”

According to the spokesperson, the JNC’s recommendations will now be considered by the USS trustee board, “alongside how best to manage the benefit and contribution changes proposed”.

“The best interests of members and the scheme will continue to be the board’s first concern,” the spokesperson said.

USS has previously said that total contributions to the scheme would need to increase by at least 11% of salary to fund current benefits, with the deficit estimated at between £14.9bn and £17.9bn as at 31 March 2020.

The overall contribution rate currently stands at 30.7% and, as part of the 2018 valuation, is due to increase to 34.7% from October, although it is possible that the outcome of yesterday’s JNC meeting will mean this latter hike does not happen.

In connection with the 2020 valuation, USS has said that even in the most favourable scenario considered, the overall contribution rate would need to rise to 42.1% of payroll to maintain existing benefits. Without covenant support measures from employers, the trustee has said the overall contribution rate would need to rise to 56.2% of salary.

According to UUK, the representative body for employers participating in USS, the USS trustee has priced UUK’s proposal at an overall cost of 31.2% of salary, so 0.5 percentage points higher than current combined contribution levels.

The JNC comprises an equal number of representatives from UCU and UUK, and an independent chair. Yesterday’s decision on the UUK proposal was passed by the casting vote of Judith Fish, of professional trustee firm Dalriada, who was appointed chair by the JNC last year.

Unless there are specific legal reasons, supported by actuarial advice, that would prevent USS from taking steps to implement the JNC’s recommendations, the next step would be a statutory consultation on the proposals with scheme members and their representatives.

‘Viable, affordable, implementable’

UUK’s proposed reform package includes a lower salary threshold for a switch to defined contributions from defined benefits in the hybrid scheme, stronger covenant support from employers, a commitment to explore alternative pension designs such as conditional indexation, and the development of a lower-cost option for members to help address the opt-out rate.

A spokesperson for USS employers said the decision by JNC “provides a viable and implementable solution to the 2020 valuation”.

“The employers’ proposal sees a significant element of defined benefit retained while preventing unaffordable contribution levels,” the spokesperson continued, claiming that the additional backing offered by employers was “unprecedented among UK pension schemes”.

UCU claimed that under UUK’s proposals USS members would face significant cuts to their retirement income. It is organising an event for USS members on Friday to discuss “how we fight these cuts”.

“Employers represented by UUK have voted to implement a set of regressive USS pension proposals that will reduce member benefits, discourage low paid and insecurely employed staff from joining USS, and threaten the viability of the scheme as a whole,” said UCU general secretary Jo Grady.

UCU argued that its proposals, intended to be “a fair and short-term resolution to the flawed USS scheme valuation”, would deliver higher benefits for lower contributions than those put forward by UUK.

It said employers refused to agree to a small increase in their contributions, and to provide the same level of employer covenant support for UCU’s proposals as they were willing to provider for their own.

“Employers remain open to considering alternative benefit structures and formulations, provided they are viable, affordable and implementable”

Spokesperson for USS employers

According to USS employers, UCU did not table an alternative formal proposal for decision by the JNC. In a Q&A document, it said that UUK had until this point not been allowed to even publicly discuss the union’s suggestions for benefit reform, and that it was not clear if the UCU suggestions had the support of the union’s members.

A spokesperson for USS employers said employers had “consistently said they would be happy to explore viable alternative proposals for reform from UCU”.

“While the reform package passed by the JNC proposes a particular set of changes to the future pensions earned from USS’s defined benefit and defined contribution sections, the upcoming consultation is important and open – and could lead to these proposals being amended,” the spokesperson added.

“Employers remain open to considering alternative benefit structures and formulations, provided they are viable, affordable and implementable.”

USS, which is one of few private UK DB schemes still open to new members, has been criticised by stakeholders for its approach to the 2020 valuation, but The Pensions Regulator has indicated it would not consider a less prudent approach to be compliant with pensions law.

Looking for IPE’s latest magazine? Read the digital edition here.