Update on the 2017 valuation funding review

For the 2017 valuation funding review, USS is expected to demonstrate to the Pensions Regulator no later than 30 June 2018 that the scheme is sustainable.

The USS trustee needs to conduct the valuation with regard to that legal deadline.

As trustee, our first focus with a valuation is to ensure the security of retirement benefits members have already earned, and the second is to ensure that pensions promised today are secure.

We do this, objectively and independently of members and our sponsoring employers, by taking a prudent view of likely future investment returns and setting the level of payroll contributions required to fund a given level of benefits.

Employer and member representatives, through the Joint Negotiating Committee (JNC – made up of an equal split of UUK and UCU representatives, with an independent chair), then negotiate on the level of pension offered based on our costings.

These negotiations have been under way, both formally and informally, for several months.

To maintain a credible valuation schedule, the JNC needed to have made a decision on future benefits by 30 November, to allow sufficient time for employers to consult with 200,000 affected employees on the benefit proposals and, in turn, the trustee to consult 350 employers on the required contributions.

To this end, parties agreed in June to commit resources to reaching a decision before 1 December. However, as at 19 December, the JNC had not reached a decision. UUK and UCU representatives have agreed to formally reconvene on 23 January 2018.

USS is confident that a decision will be made at this meeting but, as two negotiating deadlines have already been missed, the trustee board has decided it must now take reasonable steps (parallel to the JNC discussions) to ensure the valuation completes.

In line with the relevant Scheme Rules introduced by the JNC, the board has submitted an official actuarial report on the financial condition of the scheme and the increase in the aggregate employers contributions required to maintain the current benefit structure.

This formally gives the JNC until early 2018 to reach a decision on how the cost of the increase is to be addressed. If it does not reach a decision within this window, the Rules prescribe a process for how that increase will be dealt with by default. The default process would see:

  • Firstly, ‘the match’ discontinued;
  • Secondly, consideration of a reduction in, or the complete removal of, employer contributions to the USS Investment Builder above the current USS Retirement Income Builder salary threshold (2017/18: £55,550*);
  • Finally, an increase in contributions from both employers and members (on a 65:35 cost-sharing basis) to support the benefits.

In doing so, USS is not seeking to impose any benefit solution on the JNC but is acting in line with the scheme rules and with regard to the statutory deadline.

We will continue to do all we can to support the JNC in its discussions, which we recognise are challenging.

*The salary threshold is revalued each year to take account of inflation (the rising cost of goods and services). Automatic contributions to the USS Investment Builder are based on your salary in excess of the threshold.

Published date: 21 December 2017

Last updated: about 12 months ago