Union proposes increase in contributions to plug USS deficit

UCU plan would maintain defined benefit scheme, but has been branded ‘unaffordable’ by universities

January 10, 2018
Inflatable piggy bank
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The University and College Union has proposed an increase in contributions from employers and employees to the UK higher education sector’s biggest pension scheme, in a bid to save the most generous pay-outs.

The UCU’s plan would require employer contributions to the Universities Superannuation Scheme to rise by 5.5 percentage points, to 23.5 per cent of salaries, and member contributions to increase by 2.9 percentage points, to 10.9 per cent of salaries, according to the pension scheme’s modelling.

UCU believes that this would allow the defined benefit element of USS pensions to be maintained, albeit with a lower accrual rate.

The proposal comes as the union’s members are balloted on strike action over Universities UK’s proposal to end the defined benefit element of the scheme, which calculates that it has a £7.5 billion deficit.

At present, the USS operates a hybrid scheme in which defined benefit pensions can be accumulated on salaries of up to £55,550, with earnings above this threshold directed towards a defined contribution scheme, under which retirement incomes depend solely on returns from money invested in the stock market.

UUK’s proposal would move the entirety of members’ earnings on to a defined contribution model.

A UCU spokesman said that it had been forced to propose the increase in contributions because USS’ valuation process, which the union regards as being overly prudent, indicated such a large deficit.

“In the course of these negotiations, while the employers have refused to move from their position that the guaranteed pension must end, UCU has put forward, on a without prejudice basis, a range of options to provide a basis for negotiation, including one, which the employers are currently consulting on, which would retain guaranteed pensions for all salaries up to £55,500, while reducing the current accrual rate,” he said.

“A solution of this kind would mean an increase in contributions due to the way the deficit is currently being calculated and would be funded using the cost-sharing formula previously agreed in 2014, but UCU would stress this is not the only suggestion we have made and we are not yet clear whether the employers are prepared to move at all from their entrenched position.”

However, a UUK spokesman claimed that the UCU’s proposal would result in scheme members paying in excess of 35 per cent more to get fewer pension benefits than they do currently.

He also expressed concerns about universities’ ability to bankroll a further increase in pension contributions.

“UCU’s proposal would mean employers having to increase contributions to unaffordable levels totalling about £500 million every year,” the spokesman said. “This would necessitate large cuts to budgets in other areas such as teaching and research, and put many jobs at risk.

“In fact, increasing employer contributions to the unsustainable level that UCU is currently proposing could threaten the very security of USS, as employers will no longer have the same capacity to shoulder the level of risk being run in the scheme.”

Modelling released by UUK indicates that its proposal would reduce members’ pension incomes by up to 17 per cent. UCU’s analysis of the same option suggested much higher reductions, however, of up to 39 per cent.

The strike ballot closes on 19 January.

sophie.inge@timeshighereducation.com

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Reader's comments (3)

This is highly misleading! I believe UCU's position is that 2% employer, 1% employee additional contributions are sufficient, as long as Universities UK agree to row back to September's de-risking plans. The increased de-risking that resulted from the consultation with UUK is hugely expensive, and gives almost no protection against adverse events (see https://twitter.com/sheffielducu/status/950322301295382528).
The UUK modelling is also highly misleading (see Page 4 of the linked UUK document). A large tranche of the pension is provided by State Pension, entirely separate from the present dispute. A proper rendering of the UUK data shows a 29% cut in USS pension, not 17%. Even this, so far as we can tell, includes capital draw-down from pension, which leaves the pensioner vulnerable to living too long. On a like-for-like basis, the UCU estimate seems sound. Not a civilised way to treat your pensioners.
I think this article is wrong. As I understand, the UCU proposal is to: - Retain a Defined Benefit pension scheme up to £55,550, but with the accrual rate reduced from 1/75 to 1/80 - Retain the Defined Contribution element over £55,550 as is, except that the voluntary 1% match would be eliminated. This could be funded by a modest increase in contributions of a little more than 2% for employers and 1% for members. Importantly, this can only be achieved if USS reverts to the scheme valuation they originally proposed in September 2016. Even though 53% of employers accepted the already prudent level of investment risk of the September valuation, the opposition of 42% prompted USS to revise their valuation in November 2016 by speeding up the shift of the investment portfolio from growth assets to bonds during the next twenty years.

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