UK higher education’s largest pension fund has set out three proposals to solve the impasse over future contributions, after drastically reducing its estimation of its multibillion-pound deficit.
All of the options from the Universities Superannuation Scheme, presented as it finalises its new valuation of the fund, reduce the anticipated level of employer and employee contributions compared to what has previously been proposed, and preserve “defined benefits” – guaranteed payments in retirement which union members went on strike for 14 days last year to protect.
None meet the “no detriment” position demanded by some members of the University and College Union – under which any future increases in contributions would be paid for in full by employers – and nor do they fully accept universities’ demands.
But they are based on a calculation that the USS’ deficit, previously put as high as £7.5 billion – and the trigger for demands to reform contributions and benefits – may in fact be less than half that figure.
Contributions to the USS, which has around 200,000 active members, mainly in pre-92 institutions, rose to 8.8 per cent of salary for employees and 19.5 per cent for employers this month, up from 8 per cent and 18 per cent respectively. Based on the previous valuation, they are due to rise to 11.4 per cent and 24.2 per cent by this time next year.
Under the first new option, based on an estimation of a £3.6 billion deficit, employee contributions would increase to 10.7 per cent from next April, with employer contributions going up to 23 per cent. Under this scenario – the default if employers and unions cannot agree on an alternative approach – the next scheduled valuation would be in 2021-22.
However, USS says that, if “sufficiently strong” arrangements can be made for “contingent contributions” – under which, contributions would be increased if the pension fund does not perform as well as hoped – the baseline level of contributions would be 9.3 per cent for employees and 20.4 per cent for employers.
Contingent contributions were proposed by Universities UK but USS says that vice-chancellors’ plans did not provide “adequate protection from short-term risks”. Under USS’ proposals for contingent contributions, the overall rate of contributions could increase by 2 per cent annually, up to a maximum of 6 per cent.
A third option offers a slightly higher level of contributions – 9.6 per cent for employees, and 21.1 per cent for employers – but removes the risk of contingent contributions, in return for the next valuation taking place a year earlier, in 2020-21. In the event of a failure to implement a revised deal on contributions following that valuation could not be reached by October 2021, the combined total contribution rate would increase to 34.7 per cent from that date.
Paul Bridge, head of higher education at the UCU, said that “none of the three options satisfy the union’s ‘no detriment’ policy position”.
He said that the union would continue to “press” this position when the proposals are considered by UCU and UUK in the joint negotiating committee. “It will then be for our members to decide what happens after proposals emerge from the JNC negotiations,” Mr Bridge added.
A UUK spokesman said that the organisation was “disappointed” that its proposal for contingent contributions was not acceptable to USS, and that it was now consulting members to establish which of the three options for concluding the 2018 valuation was preferred.
USS’ proposals follow the work of a joint expert panel, set up by USS and UUK at the end of the strike, which suggested that existing benefits could be protected if employer contributions rose to 9.1 per cent, and employers paid 20.1 per cent.