We’ve reached an important point in the 2020 valuation of USS – the Scheme Actuary has produced a report recommending what the overall contribution rate should be in order for the scheme to keep offering the same benefits it does now.
Known as the ’76.1 report’, it’s named after Rule 76.1 of the Scheme Rules. It goes to the Joint Negotiating Committee (JNC) – the body that represents members and employers – to help it decide what benefits the scheme will provide in the future, and how the cost should be shared between members and employers.
The report shows that the combined contribution rate needed from members and employers in order for the scheme to continue offering the current level of benefits is at least 42.1%.
The current contribution rate
At the moment, the combined contribution rate is 30.7%. Members pay 9.6% of salary, and employers pay 21.1%.
In October, the combined contribution rate is due to rise to 34.7%, as the final increment in the phased increases that followed the 2018 valuation. For members, your contribution will go up to 11%, and employers will pay 23.7%.
The contribution rate recommended by the Scheme Actuary
Based on the Scheme Actuary’s ‘76.1 report’, the combined member and employer contribution rate of at least 42.1% will fund the same level of benefits in the future as members are building up now.
However, even this rate depends on employers committing to measures to ‘strengthen the covenant’, which means committing to support the ongoing funding needs of the scheme for the long-term, based on a range of possible future circumstances.
The 76.1 report sets out higher rates that would apply if employers don’t feel they’re able to agree with the long-term commitments required to secure a rate of 42.1%.
In reaching our position, we have had intensive discussions with The Pensions Regulator on the overall risk being taken in funding members’ benefits relative to the strength of the covenant and the additional support that could yet be provided by employers.
The more positive outcomes shown in the 76.1 report, including the 42.1% contribution rate, represent the limit of what we understand the regulator would regard as compliant with the relevant legislation, given the covenant support we feel could be provided by employers. However, if employers are able to commit to further strengthening the covenant, this could reduce the contribution rate.
Alternatives to increasing the contribution rate
The contribution rates in the 76.1 report represent a significant increase from both the current rate and the rate that will apply from October, and we understand the impact that these could have on members.
UUK have already told us that the current combined rate of 30.7% is at the limit of what employers consider to be sustainable, so, they asked us to illustrate how changes to the benefits offered in future could keep contributions at the current level.
We’ve provided some indicative examples in the Trustee Update in the ‘engagement’ section of the valuation page based on the hybrid DB and DC benefits offered to members currently. We recognise that alternative contribution rates and benefit structures are also possible and that UUK intends to consult employers on these matters shortly.
In addition, decisions reached by our stakeholders will not impact benefits already built up by our members, whether active, deferred or retired members, as these are secure and protected by law.
The JNC will now consider how to move forward
The next steps are for UUK to consult with employers on the commitments they are prepared to make to the scheme and on issues of benefit design. At the same time, UCU will also consider the 76.1 report and their preferred response.
Both stakeholders will then feed into their representatives on the JNC, which is made up of members appointed by UUK and UCU, with an independent chair. The JNC will then discuss all the information and decide what benefits will be offered in the future, and how the costs should be shared between members and employers.
We will work for the best result we can
We understand that nobody wants to see contribution rates rise, and we are committed to providing a pension scheme that continues to deliver security and value to our members and future members in order to support your retirement ambitions.
However, schemes which offer defined benefits like the Retirement Income Builder, which provide a set, inflation-linked income for life in retirement, are increasingly expensive to run and increasingly rare outside of the public sector. That’s one reason why USS is one of the last private sector schemes of its kind still open to new joiners.
Our purpose is to work with Higher Education employers to build a secure financial future for our members and their families. We will continue to strive for this and will support the JNC in every way we can. We will also continue to keep you up to date with developments and will provide information and support to help you make the most of the benefits that are on offer.
Find out more and ask questions
You can find out more about the 2020 valuation and put your questions to USS Chair Dame Kate Barker and Chief Executive Bill Galvin at a webinar on Wednesday 10 March. Register to attend.
Get more information on the 2020 valuation, and how the scheme is funded, including the latest documents shared with stakeholders on the valuation page.
Read previous valuation updates on the articles for members pages.
Published: 3 March 2021