Universities Superannuation Scheme backs pension benefit cuts

Fund’s embrace of employer-led reforms averts massive hikes in contributions

September 6, 2021
USS, pension, pensions, retire
Source: iStock

Employer-led cuts to pensions provided by UK higher education’s biggest scheme have been backed by fund managers, but employees’ contributions will still rise slightly.

The board of the Universities Superannuation Scheme signed off reforms put forward by Universities UK, which unions have claimed could reduce employees’ guaranteed benefits by as much as 35 per cent, costing members thousands of pounds annually in retirement.

The deal averts a massive hike in contributions by employers and staff, to a combined level of between 42.1 per cent and 56.2 per cent of salaries, in order to protect current benefits.

But UUK’s hope that contributions could remain at their current level of 30.7 per cent – 21.1 per cent from employers and 9.6 per cent from staff – were dashed by USS. It has approved new contribution rates of 21.4 per cent and 9.8 per cent respectively – a total of 31.2 per cent.

The University and College Union has warned that a repeat of the strike action seen in recent years over USS reforms is “inevitable”.

The fund, which covers 340 employers and has about 400,000 active and retired members, has a hybrid structure with defined benefits – which offer a guaranteed amount of pension – accrued on earnings up to a salary threshold, currently set at just under £60,000. Twenty per cent of earnings above that threshold are invested in a defined contribution scheme, under which incomes are tied to stock market performance.

Under UUK’s proposals, the threshold for the defined benefit cut-off will be reduced to £40,000 from April 2022, in a bid to close the fund’s deficit – estimated to stand at between £14.9 billion and £17.9 billion.

The changes are subject to a consultation which will be conducted late this year.

A spokesperson for USS employers said that avoiding higher contributions had been “essential for both employers and scheme members”.

“For employers, higher rates would have consequences for jobs, teaching and the student experience, while unaffordable contributions for members would undoubtedly force many to drop out of the scheme in greater numbers, and miss out on money from their employer towards their future,” employers said.

The spokesperson said that UUK was committed to working with UCU on a “major governance review” of USS, “including shaping a lower-cost option so staff on lower salaries are no longer priced out of retirement saving by high contribution rates”.

Jo Grady, UCU’s general secretary, said that USS’ decision would “put rocket boosters” under planned industrial action.

“It is deeply disingenuous and downright offensive for employers to claim that they have heroically prevented contributions increasing,” Dr Grady said. “The simple fact of the matter is that their proposals will slash thousands of pounds from the retirement income of university workers and do nothing to help the thousands of low-paid and insecurely employed who are priced out of the scheme at present.

“Vice-chancellors across the UK on eye-watering salaries should look their staff in the eye and tell them the truth, rather than hide behind UUK press releases.”

UCU previously said its modelling showed that under UUK’s proposals, a typical USS member aged 37 and earning £41,526 – the current starting salary for many lecturers – would build up an annual guaranteed pension of £12,170 if they continued to work full-time in the sector until age 66.

This compares with £18,857 under current benefits – a 35 per cent cut, which would also apply to the guaranteed cash lump sum that members receive on retirement.

UUK has countered that the typical reduction in benefits for a staff member earning £40,000 would actually be about 12 per cent because benefits earned before the change would be unaffected. To keep current benefits, the typical USS member would need to pay in at least £1,660 more annually, it said.


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Reader's comments (3)

A 21.1% employer contribution to any scheme is nice.
Not if it is mostly used to pay for people who retired in their fifties on much higher benefits. The deficit is also grossly exaggerated as the valuation was carried out in March 2020 when stock markets were at multi-year lows due to Covid.
Britain is determined to win that race to the bottom!