Universities Superannuation Scheme - dealing with the issues of the moment

Article Experience

If you’re a university employer participating in the Universities Superannuation Scheme (the ‘USS’), the UCU’s latest threats of strike action this Michaelmas term won’t have escaped your attention.

What has happened so far?

For those who were perhaps enjoying the opportunity for some last minute R&R by the Med, and who haven’t managed to keep on top of the news, the UCU’s warning of “inevitable strikes” came following a vote by the USS Trustee and UUK (the body appointed to represent universities in the USS) to pursue an alternative approach to the 2020 USS financial valuation.

The 2020 valuation shows a significant increase in the gap between the USS’s assets and liabilities, and a real and immediate need for improved funding. In short summary, the revised approach looks to deal with these core issues by, amongst other things:

  • marginally increasing university employer contributions to 21.4% and employee contributions to 9.8% of salary;
  • reducing the rate of accrual from 1/75 to 1/85 of salary per annum;
  • reducing the salary threshold for accrual to £40,000; and
  • further limiting the inflation protection afforded to benefits in payment.

The UCU considers that this agreed proposal is unnecessarily detrimental to USS members, and that it can offer an alternative approach which limits the amount by which future benefits must be reduced, while at the same time requiring USS members to contribute less to the scheme rather than more. The UCU has asked all parties to consider this proposal as a matter of urgency, threatening that it will otherwise call on its members to strike.

What will happen next?

Although approved by UUK and the USS Trustee, the proposal for dealing with the 2020 valuation still needs to undergo a 60 day period of consultation with affected members and their representatives. This is due to take place later this year. An additional consultation with universities is also needed to approve the formal funding documentation.

Changes to contribution rates are due to be introduced with effect from 1 October 2021, although changes to benefit accrual rates and future benefit structure won’t come into effect until April 2022.

What can you do?

Whatever your university’s views on the situation, you may be wondering what, if anything, you can or should be doing. Clearly no single university can determine what will happen next and how the USS trustee and/or the UCU will respond. That is not to say, however, that there isn’t a lot that can be done to support the university and staff in the next few months.

Good decisions can only be made if they are informed decisions.

Good decisions can only be made if they are informed decisions.

We therefore recommend that as a university you ensure that you understand the proposal, the issues raised by the UCU, the options, and your responsibilities. Pensions can seem overwhelmingly complicated, but they don’t have to be if you know where to look for help.

Employee members of the USS are also going to be asked to make decisions, and as an employer you can help your employees to understand the issues and what is being asked of them. Pensions can be as daunting for members as they are for employers. Appreciating this and reflecting it in your communications with employees can be an effective way of engaging those individuals and obtaining their support.

For example, it may help to explain that changes of this nature are happening in other similar pension schemes (such as the Teachers’ Pension Scheme); that the proposed increases in member contributions are lower than those that were otherwise due to be imposed from 1 October; that the protection of accrued benefits has to be a priority over the accrual of future benefits; that if the pension cost cannot be managed there will be a detrimental impact on research, staffing and/or student experience; and that whatever changes are made the USS remains an incredibly and unusually generous benefit for private sector employees. It may also help to explain your university’s current financial position and drivers. Simply being told that “a significant increase in pension costs isn’t financially viable for the university” may not be enough to persuade staff to vote for the changes.

These are all important and fairly complex points, which merit more than a few words each. Making these points sensitively and effectively could really help employees to understand the context in which they are being asked to make a decision, and ultimately to support the changes that need to be made. The Education team at Withers are experienced at advising on pension matters, employee communications, and managing employee relations, and would be very happy to help you navigate the pension challenges ahead.