These options include your employers giving more commitment and financial backing to USS and possible changes to future benefits. We’re now looking at how this may impact contributions.
A key part of UUK’s consultation is a package of measures to protect the strength of ‘the covenant’ – the commitment and level of financial backing that employers provide to USS. A stronger covenant would have a positive impact on contribution rates.
If employers agree to provide a stronger package of support measures, we might be able to change some of the assumptions that underpin the potential contribution rates we told you about in our 3 March update.
We’ll calculate the full impact on the scheme’s funding position, once we know how employers have responded and when we have a complete set of proposals on both covenant support measures and benefit structures confirmed by UUK. But we think the contributions required would be much closer to today’s rates than they would otherwise be if employers don’t provide additional support to the covenant.
The next step is for UUK to table its formal proposals at the Joint Negotiating Committee (JNC). The JNC is made up of members appointed by UUK (representing employers) and UCU (representing members) and an independent chair. It’s their job to decide how contributions are shared between USS members and employers, and whether any changes need to be made to benefits.
UCU may also want to consider ways to address the funding challenges and present those at the JNC, and we look forward to supporting them in the same way.
As trustee of USS, we don’t propose any changes to the scheme’s benefits, nor do we propose how any changes in contribution rates should be shared between members and employers. It’s our job to work out how much it will cost to pay the benefits members have already built up and to keep building up the same benefits in future. The JNC decides what to do next.
We help the JNC, both as a single committee and separately by supporting UUK and UCU, to explore costs and benefit options so they can come up with proposals to address the funding challenges facing the scheme which will need to comply with the scheme rules and pensions laws.
- We’ll continue to keep you up to date on the valuation through our member emails and the website. This will include letting you know about any developments at the JNC and what they could mean for members.
- The JNC has requested a three-month extension to the period under the scheme rules in which it has to reach a decision as to how to address the cost of the increase to the contribution rate. We have agreed to the extension, and so we expect the JNC to reach a decision by the end of August.
- We’ve been looking at the funding position as at 31 March 2021 – a year after the valuation date – and the outlook is mixed. Nominal interest rates and asset values have increased, but inflation is also expected to be significantly higher and future investment returns are expected to be lower. For USS, this means the deficit on benefits already earned may now be lower compared to the valuation date of 31 March 2020 but building up new pensions has become more expensive.
You can find out more about the valuation, including our correspondence with USS stakeholders and a range of briefing documents and important information, on the valuation page.
If you missed the recent webinar, which covered contribution rates, funding USS and the 76.1 report, you can watch it, and get a transcript, on the webinar page.
Revisit previous member updates and frequently asked questions in our articles for members section.
For more on our investments and how they interact with the valuation, check out this blog from Mirko Cardinale, our Head of Investment Strategy and Advice.
Find out more about prudence and the part it plays in the 2020 valuation.