Universities Superannuation Scheme - important update
Wednesday, 24 January 2018
I wrote before Christmas to provide information about proposed changes to the USS, and some explanation of the process to be followed to arrive at an agreed way forward.
Discussions about the proposals were being held via the USS Joint Negotiating Committee (JNC). By way of a reminder, this body comprises five representatives of Universities UK and five representatives of UCU, together with an independent committee member who acts as Chair.
An outcome of these discussions was initially expected before Christmas but a decision was taken to delay any final decision until a meeting of the JNC on Tuesday 23 January 2018.
Two different sets of proposals were being considered. The employer representatives had, as previously reported, suggested:
- A move from the current arrangement to a market-leading defined contribution scheme, with future benefits to be delivered by the USS Investment Builder.
- To construct the proposal in such a way that allows for a range of options (including the possible re-introduction of defined-benefit arrangements) if scheme funding improves at future valuations.
- To maintain the provision of death and incapacity benefits on a defined basis so that employers continue to carry the risk in these most difficult of circumstances.
At the time of my previous update, the UCU had not yet tabled a proposal. On 19 December a benefit reform proposal was tabled, with the key points being as follows:
- Employer contributions would rise from 18% of salaries to 23.5% of salaries.
- Employee contributions would rise to 8% of salaries to 10.9%.
- The accrual rate would be reduced to 1/80ths from the current 1/75ths.
- The salary threshold would remain unchanged at £55,550 (index linked).
- The 1% match facility would cease to apply.
- DC contributions above the salary threshold and the employer subsidy of investment charges would remain unchanged.
It is clear that the two sets of proposals were significantly far apart. Discussions have continued up to yesterday’s meeting of the JNC, during which the respective sides remained deadlocked. The independent Chair, who holds a casting vote, then voted in favour of the employers’ proposal.
A summary of the key features of the proposal follows this update.
What happens next?
So what happens next? The employers’ proposal must now be considered by the USS Trustee body (which you may recall has equal UUK and UCU representation). Assuming the Trustee’s acceptance of the recommendation from the JNC (which should be confirmed in March 2018) there will follow a formal period of consultation (that must last for a minimum of 60 days) which may result in some modifications to the proposals. Changes to the scheme, once formally adopted, are expected to take place from 1 April 2019.
It is very important to stress again that members’ accrued pensions (i.e. those built up prior to the proposed future changes in USS pension provision) are protected under law and will not be affected by the proposed future changes.
I noted previously that the UCU had opened a dispute with the University in respect of proposed changes to the USS in advance of the conclusion of the discussions at the USS JNC. A ballot of members closed last Friday and the results, received on Monday 22 January, supported strike action and action short of a strike.
We have not yet received formal notification from the UCU regarding the timing and nature of the proposed industrial action – they have 14 days from the date of the ballot outcome to do so. As soon as that is received I will provide a further update.
Director of Human Resources
The main elements of the JNC proposal are summarised below.
• Employers will continue to pay a contribution of 18% of salaries towards USS, and it is proposed that this important commitment is extended from March 2020 to March 2023.
• Members will continue to pay 8% of salaries towards USS.
• A new option is being proposed which would allow members to pay less (4% is proposed), whilst still benefitting from the full employer contribution of 18%.
Main benefit change
• The JNC proposal is to change USS so that members earn defined contribution (DC) benefits on all of their salary from April 2019. Currently, DC benefits are only earned on salary over £55,550, with defined benefits (DB) earned on a salary below the threshold.
• DC and DB benefits are quite distinct, and both have their advantages.
• In a DC scheme, members have individual saving pots (or funds) that both they and their employer pay into. At retirement, members draw their pension savings from their fund which consists of all of the contributions paid in plus the investment returns that have been earned. They can then choose whether they wish to take out all their retirement savings as a lump sum or to opt for alternative options such as a pension (known as an annuity) or drawdown (where cash is drawn from the fund periodically).
A valuable DC
• The DC offer proposed would represent exceptional pension provision, containing important and valuable enhancements, and all delivered using the existing USS Investment Builder.
• Employer contributions directly to members’ DC accounts is proposed to be 13.25% of salaries. To put this into context, this is almost double the median employer contribution rate to DC savings by employers generally in the private sector.
• USS employers would fully subsidise investment charges – meaning that more of your money is invested to grow your pension savings – and in addition, USS’s DC investment funds continue to perform strongly.
• One of the features of the JNC’s proposal is that it opens up new choices for members on how they might use their pension savings, and when these savings can be drawn. DC pension saving offers much greater freedom and choice, and employers want to give members much greater flexibility, and control, over their financial options as they move from work into retirement.
Death and incapacity benefits
• Death and incapacity benefits will not be changed. They will continue to be awarded on a defined basis to provide certainty to members and their families in the most challenging of circumstances – this is another important measure in building genuinely exceptional future pension provision.
• Defined benefits, or alternative scheme structures, could be re-introduced in future if the scheme’s funding situation improves.