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Response to UCU and update on the University’s USS position

The University is committed to keeping you informed of the latest developments surrounding USS pensions.

On 7 June, the University received a letter from UCU Head of Higher Education, Paul Bridge.  You can read this letter online and in the thread below, as the letter to the Vice-Chancellor Adam Tickell included an additional reference to his role in the Employers’ Pensions Forum (EPF).

The Vice-Chancellor responded to this letter on Wednesday 12 June and this response is below.

The USS Trustee has proposed three options as a means of concluding the 2018 valuation of USS. You can also read information here on the majority of universities’ preference for Option 3 along with the VC’s recent email to all staff.

 

*12 June letter from Vice-Chancellor to UCU’s Head of Higher Education*

Dear Paul

USS Trade Dispute

Thank-you for your letter of 7 June.

The Council of the University of Sussex met on 30 May to consider the latest proposals to resolve the challenges faced by the Universities Superannuation Scheme.  Although the University is disappointed that the USS Trustee did not accept the arguments made by Universities UK and its actuaries in their March submission, Council overwhelmingly endorsed Option 3 as the only feasible way forward but asked that USS give further information.

This decision was taken in recognition that:

  • However much UUK, or indeed UCU, may disagree, the rules of the scheme are such that the Trustee has the final assessment of the assets and liabilities of the scheme and their approach to de-risking the scheme
  • Option 3 gives the Joint Expert Panel – set up as a result of an agreement between UUK and UCU – the opportunity to conduct Phase 2 of their work
  • Option 3 both retains the current benefit structure and is a lower cost option than either there being no agreed 2018 valuation or the imposition of the Upper Bookend.  It would also be significantly less risky for employers and employees than the Trustee’s proposed Option 2
  • Taking into account the time that has elapsed since the publication of the JEP’s report, the costs of Option 3 are substantively in line with the JEP’s recommendations. 

We are aware that the Regulator wrote to USS in a letter that was first leaked and subsequently released by USS in which the Regulator expressed a concern that even Option 3 was insufficiently prudent to satisfy their concerns about the integrity of the Scheme.   Whilst we do not share this view, the Regulator has legal powers to require higher payments if they believe that the liabilities of the scheme cannot be covered – and their assessment of the commitment of stakeholders will inform their judgement.

I am very concerned that, in your letter, you have outlined a set of conditions that cannot reasonably be met by employers.  The 2017 Valuation has been lodged with and accepted by the Regulator and unless it is superseded it commits us to higher payments than 26%.  This is a legal undertaking that we do not have the power to overturn. 

Furthermore, the suggestion that employers should pay any balance is a breach of the long-standing cost-sharing agreement that has governed relations within the scheme.  Like all employers, I do not welcome the prospect of increased contributions but – at present – the University of Sussex is in a position where we could absorb the projected increases under Option 3 on the cost-shared basis.  However, further increases could only be met by reducing our total staffing budget elsewhere, which would lead to job insecurity and increased workloads, whether this would be achieved through job freezes or voluntary severance.

I would like to clear up a misconception in your letter regarding the Employers’ Pensions Forum.  The EPF, which I chair, is simply a body that explores options regarding USS and helps to harness the expertise among employers on pensions.  It has no constitutional standing with either UUK or USS.  It is the UUK Board, which I am not a member of, that determines UUK’s policy on pensions and it is UUK’s nominees on the JNC which vote.

The University of Sussex is a small player in USS, representing approximately 0.7% of active members.  Yet in my separate capacity as Chair of the EPF I would be pleased to meet with you or other representatives of UCU in order to explore constructive ways to resolve our differences.  However we do this,  there is real urgency.  Without a rapid resolution to the 2018 valuation, the October 2019 and April 2020 increases will be introduced automatically with grave implications for both institutions and individual members.

With best wishes

Adam Tickell
Vice Chancellor

 

*7 June letter from UCU’s Head of Higher Education to Vice-Chancellor*

Dear Professor Tickell 

USS Trade Dispute

You will be aware that early last year UCU members took part in 14 days of industrial action, which resulted in UUK withdrawing proposals to change USS from a hybrid defined benefit pension scheme into a defined contribution pension scheme.

UCU members later voted to suspend the action and set up the Joint Expert Panel (JEP) in response to an offer from UUK. 

The JEP reported in September 2018 and made a number of recommendations for the conclusion of the 2017 valuation. If implemented, these recommendations would also replace the Rule 76 contribution increases relating to the 2017 valuation which were triggered by USS while the JEP was still producing its report. The Rule 76 increases are being implemented in three instalments, from April 2019 until April 2020, when combined contributions would rise to 35.6%. The Rule 76 changes are based on the retention of the current levels of pension benefits, minus the 1% match, which has already been removed.

Both UCU and UUK welcomed the JEP report as the basis for negotiations. Initially, if applied to the 2017 valuation, the JEP’s proposals would have entailed a combined contribution level of 29.2% with no changes to pension benefits. However subsequent modelling by USS, based on changed market circumstances, showed that implementing the JEP in full would actually result in combined contributions no higher than 26%, or 8% for members.

 

However USS has not accepted some of the key recommendations in the JEP report. Instead, it has proposed replacing the 2017 Rule 76 increases with a new 2018 valuation that still involves contribution rates far above 26%. 

USS’s insistence on higher contributions is partly based on external pressure from The Pensions Regulator (TPR). TPR has expressed views on the levels of risk and the strength of the employers’ covenant, and USS has accepted these views rather than seeking to challenge them. This is despite the fact that both UCU and UUK’s professional actuarial advisers consider a valuation based on the JEP to be compliant with regulations, and despite the fact that the JEP has heavily criticised TPR’s role in the valuation process. However, USS has not worked to put the case for the JEP to TPR.

Instead, after months of drawn-out negotiations and unexplained delays, USS has given employers three options for finalising the 2018 valuation. The three options do not involve changes to pension benefits. However, all involve higher rates than would be the case if USS adopted the JEP’s recommendations.

The three options are now subject to a further UUK consultation and I consider each in turn:

Option 1: contributions of 33.7% (23% for employers and 10.7% for employees), to apply from April 2020;

Option 2: contributions of 29.7% – but with a mechanism for contingent contributions of three 2% increases (an additional 6%), split 65:35 between employers and members, to be added to starting contributions of 20.4% and 9.3% respectively; and

Option 3: contributions of 30.7% (21.1% for employers and 9.6% for employees) to apply from October 2019, with another valuation in 2020. Should no agreement on the contribution rate from the 2020 valuation be implemented before October 2021, the contribution rate would rise to 34.7% in October 2021.

 

UCU has a clear policy position of ‘No Detriment’ established by the union’s conferences. This policy means no increases in contributions and no cuts to pension benefits. Unlike a 2018 valuation informed by the JEP’s recommendations, all three of USS’s proposed options fail the test of ‘No Detriment’.

Members waited for the JEP report to be issued and implemented, while USS went ahead and scheduled massive contribution increases based on its controversial 2017 valuation. The JEP report called that valuation’s integrity into question. Other developments have made USS’s position even more questionable. These include Sam Marsh and First Actuarial’ s demonstrations that USS has not properly justified its ‘de-risking’ strategy; USS’s misrepresentation of the Regulator’s methods for evaluating risk; and the extraordinary recent accusation by statistician and USS Trustee board member, Professor Jane Hutton, that she has been denied access to important information and that the deficit may have been ‘substantially over-estimated’.

 

Members have trusted employers to work to replace the 2017 increases with a fair outcome, but it has become clear that they will not do so. Employers have a lot of influence over the valuation process, but they have allowed USS to dismiss the JEP’s most important recommendations, they have not pressed USS to engage properly with the Regulator, and, when other developments have called USS’s position into question, they have taken USS’s side.

 

UCU is running out of patience. At the UCU HE Sector Conference on 26 May 2019, delegates voted overwhelmingly to commence a dispute with USS employers and to move to a statutory ballot for industrial action in September.

I am now writing to seek your confirmation on behalf of your Institution that you will not impose any benefit cuts and/or contribution increases, including contingent contributions and default contribution rates for future valuations, on members from October 2019 onwards. This includes any and all increases over the rate of 26% (8% for members) which was established prior to the 2017 valuation. You must instruct your representatives on the Employers' Pension Forum (EPF) and the UUK nominees on the JNC not to introduce, comply with, or vote for any proposals that would involve such cuts and/or increases for members; and, failing that, you must cover any scheduled increases in full until USS’s governance and valuation methods and assumptions have been overhauled.

If I do not have your affirmative response by 19 June 2019, UCU will consider a trade dispute to exist between your Institution and your employees/our members regarding this matter.

It is possible to avoid a damaging dispute and strike action in the autumn of 2019, and potentially thereafter in 2020. All you need to do is commit to uphold the level of contributions no higher than 26% (8% for members). You also agree to instruct your representatives on the Employers' Pension Forum (EPF) and the UUK nominees on the JNC not to introduce, comply with, or vote for any proposals that would involve such cuts and/or increases for members; and, failing that, you must cover any increases in full that are needed to maintain current benefits until USS’s governance and valuation methods and assumptions have been overhauled.

I look forward to hearing from you no later than 19 June 2019 with your affirmative response as set out above.

Yours sincerely

Paul Bridge

UCU Head of Higher Education


By: James Hakner
Last updated: Friday, 14 June 2019

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