The USS Trustee Board has confirmed to UUK that 31.2% of pay would be needed to fund the package of benefit changes they have put forward for consideration.
If UUK confirms its proposals in the coming weeks, the Joint Negotiating Committee (JNC) would then need to agree to that package and decide how the required contribution rate would be shared between employers and members. Of the current rate (30.7%), members pay 9.6% and employers pay 21.1%.
In our report on the 2020 valuation from March this year, the lowest contribution rate we identified was 42.1% – but that was based on continuing current benefits and securing certain commitments to the scheme from employers.
When UUK initially put options forward that included changing future benefits, our initial view was that the contribution rate involved would be 34.7%. In arriving at our rate of 31.2%, we’ve considered the latest advice from the Scheme Actuary and we’ve proposed some adjustments to elements of UUK’s package relating to commitments from employers.
The Pensions Regulator has shared its views on our position in a letter you can read here.
UUK is now going to ask employers if they accept our position. We expect to hear back from them in early July and ahead of the JNC on 12 July.
UCU may also wish to bring proposals to the JNC.
It’s up to the JNC to decide how the cost of any changes would be split between employers and members – and it has until 31 August to make a decision. However, given the changes being considered, it is likely that there will need to be an employer consultation with members. The earliest date any changes to benefits could be introduced would be 1 April 2022.
Some members have asked whether the recent recovery in financial markets has improved the outlook for the scheme. The scheme’s funding position has improved, and it has benefited from more favourable market conditions. This has helped to reduce the scheme’s deficit. However, there have also been unfavourable changes, including to UK inflation rates and the investment outlook. This means the cost of promising new pensions in future has gone up – just like it has in other schemes – and it is that cost that is the most significant to the scheme. Overall, it’s unlikely that the cost of providing scheme benefits has significantly changed since the 31 March 2020 valuation date.
The benefit package UUK has put forward maintains the scheme’s structure as a ‘hybrid’ of two kinds of benefit – both defined benefit (up to the salary threshold) and defined contribution (above the salary threshold). The Retirement Income Builder builds up a secure, predictable income for life, based on 1/75th of your salary up to a threshold (currently £59,883.65). On top of that, the Investment Builder gives you a separate pot of money that is invested to help it grow where you have choices about how to use that money for retirement. Lowering the defined benefit salary threshold and accrual rate to £40,000 and 1/85th respectively – as suggested by UUK – would reduce cost by building up benefits as a smaller proportion of salary. Members who earn more than the threshold would see more money going into their Investment Builder funds.
We know that employers and members are concerned about the current cost and inflexibility of the one-size-fits-all nature of the scheme, which leads to some employees leaving, or never joining. We are keen to support discussions with UUK and UCU, to look at possible ways of providing more affordable pension benefits for some members, should they consider that the best option for them.
Published: 18 June 2021