Oxford UCU’s pensions update for October 2018
A great deal has happened with USS since our strike. Here is a big catch up post on pensions.
We went on strike against the proposal to downgrade our pensions to Defined Contributions only. Our action successfully took this proposal off the table. But the situation is still not settled, so it is probably most accurate to say: we have won a reprieve for Defined Benefits but still must remain vigilant.
The agreement which ended the strike set in motion two parallel processes:
- The Joint Expert Panel was set up to examine the valuation of our USS pension scheme.
- Because of our strike, there was no agreement between Universities UK and UCU on how to deal with the deficit purported by the November 2017 valuation. When this happens, by the Scheme rules, the current benefits must stay the same, but USS management sets increased contributions to cover the shortfall they estimate.
How do the contribution increases and JEP interact?
Our best understanding is: we can view the contribution increases as a process that will begin, then be overtaken at some point by changes coming out of the JEP report.
Let’s start by looking at the contribution increases in more detail, then come back to the JEP report outcomes and more recent developments.
What contribution increases are USS management proposing?
When there is no agreement between Universities UK and UCU on the way forward for our Scheme, then by the Scheme rules, USS managers increase the contributions in order to cover the deficit they calculate. By these rules, which apply only when there is no agreement, the increase is split in the ratio 35% for employees, 65% for employers.
Today USS contributions total 26% of salary: 8% from employees and 18% from employers. USS says that a large increase in contributions is needed to cover future benefits and the deficit: an extra 10.6% of salary, shared between employees and employers. Please see the table below for full details.
USS has proposed phasing the contribution increases in three steps, so that they start smaller, then go up. USS hopes this will give time for UCU and Universities UK to reach a new agreement based on the Joint Expert Panel report, before the largest increases take effect.
Here are the amounts and timings of the increases:
Why are the contribution increases proceeding, despite the JEP report?
Many will wonder why USS is forging ahead to implement these changes, when the Joint Expert Panel has just reported.
USS management say that as the 2017 valuation is running late, they are under pressure from the Pensions Regulator to complete it quickly. They say that the process required to finalise a new agreement based on the JEP report would take about 12 months, which would have been too long for the Pensions Regulator to wait. Since the communications between the Pensions Regulator and USS all take place off the public record, we are in the position of having to take USS’ word for this.
What did the JEP report say?
In brief: the JEP report unanimously vindicates UCU’s position: the November 2017 valuation is unnecessarily pessimistic about the health of our Scheme. The report also criticises Universities UK for the way they consult university management teams, as rushed and poorly framed (at the very least). It criticises USS management for excessive prudence, the design of the valuation (especially Test 1), unclear communications and for always prioritising listening to employers over listening to us, the beneficiaries of the Scheme.
Specifically on the question of benefits and contribution levels, the JEP recommended: by making selected adjustments within the scope of the 2017 valuation, our current benefits can be maintained unchanged, with a much smaller increase.
The JEP recommends that a total contribution of 29.18% is sufficient to maintain current benefits (29.18% total from both employees and employers). This is an increase of 3.18% compared to today’s total of 26%, but much less than the total of 36.6% asserted by USS executives.
This is very important for us to know: there is no rule about how this 3.18% increase should be split. The 35 : 65 cost sharing ratio is only mandatory in cases where there is no agreement between UUK and UCU. Changes following the JEP report will be negotiated between UUK and UCU. This will be a new agreement and therefore the attribution of the 3.18% is to be negotiated. There is no automatic ratio in this case.
I heard there were new findings about the valuation in the last two weeks?
Yes: Dr Sam Marsh, a UCU elected national negotiator for pensions and president of Sheffield UCU, has obtained cash flow data from USS. Unlike USS, who do not make use of projected asset growth in the valuation, but rather set future asset values by assumption, Sam Marsh’s calculations reveal:
- Calculated on a prudent basis (same as USS uses), if investments are not derisked prematurely, with no increase in contributions, the Scheme is expected to have a surplus of £19 billion in 20 years, in real terms. A surplus. Of £19 billion.
- Calculated on a prudent basis, even if derisking is applied as currently driven by Test 1, with no increase in contributions, the Scheme will break even in 20 years. No deficit, no increase in contributions needed.
These are explosive findings indeed. To find out more, please read:
So what outcomes do we expect?
What is clear in the short term is that the April 2019 contribution increases will happen, simply because there is not enough time to finalise a new agreement before then. So as USS members, our contributions will go up from 8% of salary now to 8.8% in April.
Beyond April, it is a bit harder to say. We know that UCU and UUK will be working towards a new agreement this autumn, based on the JEP report. Depending on how soon agreement can be reached, it is possible that a new agreement will supersede the October 2019 increases, and this is certainly to be hoped.
Overall: the JEP report and now Sam Marsh’s conclusions have considerably strengthened UCU’s hand. We can’t stand down from vigilance, but there is ever more light ahead. We will post new updates (now that we have this blog!) as more information becomes available.
What can I do personally?
Respond to the current USS consultation! Oxford UCU recommends starting from this easy-to-use template response prepared by USSbriefs and signed by a range of UCU pensions experts and committee members.
Your response will have the most weight if you can make it by Sunday 28 October, but in any case, do respond before 5pm on Friday 2 November when the consultation closes.
Please see our recent e-mail or this post: Influence USS via the consultation for full details.