Update on USS pensions from Vice-Chancellor

Dear colleagues,

Last week the USS Joint Negotiating Committee confirmed proposals to change the benefits structure of the USS. The University Executive Board (UEB) has given very careful consideration to all the issues relating to the USS and continues to support the need for these changes.

I appreciate that this is a matter that provokes strong opinions and is of concern to many of us. With that in mind I thought it would be useful to provide an update and, I hope, some insight into UEB’s position.

The proposals for change were agreed by the USS Joint Negotiating Committee (JNC) at its meeting on 31 August 2021. These changes, designed to avoid much higher contribution rates and to be effective from 1 April 2022, are summarised as follows:

• the Defined-Benefit salary threshold is reduced to £40,000 (from the current £59,585),
• the accrual rate (i.e. the rate at which you build up benefits as a percentage of salary) reduces to 1/85th from 1/75th, and
• indexation (i.e. the rate at which the pension is increased each year) is based on CPI and capped at 2.5%.

Importantly, all benefits built up in the scheme prior to 1 April 2022 are fully protected (including how the inflationary increases are calculated). 

It was suggested at the time that insufficient regard had been paid to alternative approaches supported by the UCU. Unfortunately, our request to the UCU to share any counter-proposals last September was refused.

Four months later, in January this year, UCU General Secretary Jo Grady wrote to the USS JNC setting out a proposed alternative approach:

• a commitment from employers to retain extended covenant support (agreed previously to avoid higher contribution rates),
• employers to pay an increased contribution rate from employers of 25.2%, up from 21.4% (described by the UCU as a “small” increase but which would cost the University an additional £4.5m annually), and
• UUK to call on the USS Trustee to conduct a “moderately prudent” valuation of the scheme.

On 1 February I received a letter from Sally Pellow, Branch President of Reading UCU, asking me to confirm our support for these counter-proposals within ten days. I understand my reply, explaining why we could not support this approach, was shared with UCU members and you can read it here.

Around the same time the JNC received a formal document from the USS Trustee that set out the actual cost of the UCU counter-proposals. While the proposal from Jo Grady had mentioned only the 25.2%  contribution from employers, you can see that behind this was a condition that employers commit to a binding schedule requiring:

• a further increase in employer contribution to 29.1% by April 2024, which would cost us here at Reading an additional c.£9m per annum, and
• an increase in member contributions from 9.8% to 13.9%

UCU then issued a further clarification on the 15 February that suggested that the University’s contribution would be capped at 25.2% on the assumption that the outcomes of a further valuation of the scheme would be more favourable than the one conducted in 2020.

Universities UK consulted with all relevant HEIs to assess whether they would support this updated UCU proposal. In common with the huge majority of those responding (93 out of 97) we were unable to support the UCU proposals.

This is not, as UCU have suggested elsewhere, intransigence on behalf of employers. We were asked to make a binding commitment to contributions rates costed by the USS Trustee that are set to escalate to 29.1% from April 2024. UCU are placing a huge reliance on the perception that a further valuation will provide a more favourable outcome and therefore guarantee that employer rates will be capped at 25.2%. Clearly, an improved valuation cannot be guaranteed, and it would be irresponsible of the University to accept this. Instead, we would have to plan prudently on the basis of the further cost of £9m a year by 2024.

On a more positive note, I can report that UUK received significant support from employers for a modification to the changes scheduled for 1 April 2022. There has been much concern expressed in respect of the proposed cap on indexation of pensions at 2.5% (CPI). Employers have agreed to increase employer contributions by 0.3% for two years to defer that rule change until April 2026.

In my letter to our local UCU branch I also highlighted positive work that is underway to strengthen the scheme in the long-term, for example by exploring more flexible options for members and for those choosing not to participate, and investigating alternative approaches, such as conditional indexation. I would urge UCU to focus on this and bring the current industrial action to an end.

I appreciate that this is a long update, but given the complexity of the issues, I wanted to be as open as possible about the reasons for the University’s position and give some insight into the areas of divergence that exist. If you want to understand a bit more about the agreed proposals, you could take a look at the recording of last October’s all-staff briefing.

Kind regards,

Robert

Professor Robert Van de Noort

Vice-Chancellor