USS is back in the news, and it’s not looking good. To give you a sense of what’s going on, we’ve put together some Frequently Asked Questions. For the latest information, as well as another set of FAQs, you can check our national website here.
What’s going on with our pensions?
In September last year, the USS pension scheme produced its 2020 valuation. It claimed the scheme was in a bad state, and required massive contribution increases from employers and USS members – from the current 30.7% to as much as 56% – in order to keep the same level of benefits.
That valuation was calculated using a methodology with glaring errors – errors which were identified by the Joint Expert Panel (JEP) in 2019, when they analysed the failings of the last valuation, but which were simply repeated this time round. As a result, it was roundly condemned by both UCU and the employers’ representatives Universities UK (UUK).
However, USS ignored these criticisms, just as it had ignored previous warnings. As a result, it’s presented employers with an ultimatum: pay an additional, unaffordable level of contributions into the scheme, or make cuts to staff benefits. Employers agreed with us before, but it looks like they’re starting to waver, with proposals for drastic cuts on the table.
Is there anything wrong with the pension scheme?
No! USS is in good health, according to actuaries from UCU and UUK. Discussions between UCU and UUK in their recent Valuation Methodology Discussion Forum pointed to similar conclusions. USS’s asset base is huge, doubling in size since 2011, and it receives more in contributions each year than it pays out. The 2020 valuation was based on a ludicrously pessimistic view of the economy and the HE sector. It used this to justify massive increases in contributions. But not only are those increases unnecessary: by pricing out many lower-paid and casualised workers, they actually risk endangering an otherwise healthy scheme.
What is the employers’ position?
When the valuation came out, employers were just as dismayed as staff by its findings. They wrote to USS trustees in March 2021 rejecting the need for higher contributions, and calling for a whole new valuation. Here in Cambridge, the Vice Chancellor joined together with the heads of the colleges and Cambridge UCU to co-sign a strongly-worded letter to USS criticizing the latest valuation. The University’s Chief Financial Officer, Anthony Odgers, has also confirmed he shares much of our critique.
In recent months, though, UUK seems to have forgotten its concerns. It could have put stronger pressure on USS to change course; it could have met the cost until the next valuation. Instead, in April, it laid out proposals for massive cuts to our pensions – up to 25% of their value – and put them to its member institutions for consultation. In rough terms, they proposed:
- Cutting the guaranteed, defined benefit (DB) element of the scheme;
- Creating a new defined contribution (DC) scheme aimed at lower-paid staff;
- Removing the current protection against inflation, potentially leading to major erosion of benefits in a period of high inflation.
These changes could cost the typical employee upwards of hundreds of thousands of pounds. You can find more details of their proposals here. In essence, they’re the same measures that employers put forward back in 2018, midway through UCU’s strike action, and which members overwhelmingly rejected. If anything, they’re worse.
So despite rejecting the 2020 valuation and the need for cuts, employers are apparently happy to pass those cuts onto staff. The consultation window closed on Monday 24 May, with the findings expected soon after.
What is UCU’s position?
We’re sticking to our guns: there is no rationale for increasing contributions or decreasing benefits. We want a better valuation from USS, and we want employers to stand up for their staff rather than throwing them under the bus.
In the longer term, we’ve put forward FIVE PROPOSALS to secure the USS scheme:
- Good, secure pensions for members. Over the past decade, we’ve seen our retirement income come under repeated attack. On top of the 18% pay cut in real terms we’ve taken since 2009, we’ve also had to pay more of our salaries for pensions. We need a long-term solution so we don’t end up in this situation again.
- Lower contributions for lower-paid staff – for the same benefits. Current rates of contributions are too high for casualised and lower-paid staff. UUK is suggesting a two-tier scheme in response, with lower-paid staff put onto a scheme with lower benefits. We propose lower contribution rates for lower-paid staff in return for the same benefits with the same security
- Smart, ethical investing. USS has tended to invest in assets that are low-yield and fixed income. Notoriously, it also has holdings in some ethically highly dubious areas. We argue it can provide outstanding pensions by putting a majority of its holdings in assets that yield high returns and meet high ethical standards.
- Governance reforms to build trust. Employers need to commit to a longer moratorium on potential exits from USS, to avoid another Trinity. It also needs to commit to wholesale governance reform of USS, to make the scheme more democratic and accountable, and to ensure we never face another debacle like this.
- Conditional benefits discussions. Employers have suggested they’re willing to discuss ‘conditional benefits’. That would mean more risk for our pension benefits, but under the right circumstances, it could also involve lower contributions and higher benefits – however, we’d only be prepared to explore this option on terms that work for members.
How does this relate to the 2018 pensions crisis?
Back in 2018, USS produced a similarly grim-looking valuation, and argued that the only solution was to slash staff pensions – moving from a Defined Benefit (DB) to a Defined Contribution (DC) scheme. UCU pointed out the litany of errors and flaws in USS’s valuation, but employers were only too happy to collaborate with cutting staff’s benefits. As a result, UCU members across the country went on strike, in an unprecedented wave of industrial action. That action brought employers back to the table, and saw off the threat of a move to DC pensions.
In the wake of that strike, UCU and UUK agreed on a Joint Expert Panel (JEP) to review the union’s arguments about the flaws in USS’s valuation. In two reports published in 2019 and 2020, the JEP vindicated UCU’s position, and made a series of recommendations for USS’s 2020 valuation. Those recommendations were largely ignored. USS’s latest valuation is therefore just as dreadful as the previous one, with the same errors in its methodology. This time, employers can see that too: the question is what they’re willing to do about it.
I’m a lower-paid member of staff – what does this mean for me?
Over the past three years, contribution rates have risen from 8% (2018) to 11% (October 2021). Together with a real-terms pay cut, and the soaring cost of living in Cambridge, that’s meant many lower-paid members of staff dropping out of the scheme. That in turn risks making the scheme weaker, with fewer members paying in.
UUK’s response is to propose a second scheme for lower-paid staff, with lower contributions, but with vastly reduced benefits. Instead of a guaranteed income at retirement, staff would have no guarantees, with a much worse pension than USS members currently has. That wouldn’t just increase the intergenerational unfairness in Higher Education – it would also endanger the Defined Benefit part of the scheme, by making it easier for employers to downgrade everyone’s pensions.
The two-tier scheme UUK proposes would be a sort of Trojan Horse, risking the destruction of our pension scheme as we know it. UCU is standing up for a progressive contribution rate for lower-paid staff, with the same level of benefits for more affordable contributions. That would mean a better deal for the most precarious staff in HE, and – by making USS more affordable for more people – a safer pension scheme for everyone.
What happens next?
Now that its consultation period has closed, UUK will spend 2-3 weeks collating employers’ responses and deciding on its next move. If it pushes ahead with these proposals and puts them to the Joint Negotiating Committee (JNC), UCU will have to put a counter-proposal or see these plans waved through. That’s what happened in 2018, and that’s why UCU members took industrial action. If UUK doesn’t stick with these proposals, there’ll be a longer round of negotiations on what happens next.
Does this mean another round of strike action?
If members feel it’s necessary, then possibly, yes. The only way these kinds of cuts have been seen off in the past is through industrial action. If we hadn’t taken strike action back in 2018, when employers wanted to eradicate Defined Benefit pensions entirely, we wouldn’t have guaranteed pensions left to defend.
Strike action isn’t inevitable at the moment, and all options – including further negotiations and/or legal action – are on the table. But we may soon find ourselves in a position where going on strike is the only option left. All decisions about the prospect and timing of strike action will be taken democratically by UCU members.