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Universities join Sussex in supporting Option 3 to conclude pensions valuation

The majority of universities in the UK, including Sussex, have expressed their preference for Option 3 as a means of concluding the 2018 valuation of the Universities Superannuation Scheme (USS). 

Universities UK (UUK) confirmed last week that the vast majority of universities, representing nearly 85 per cent of active USS members, said they preferred the option, which is one of three that have been proposed by the USS Trustee. 

Adam Tickell, Sussex’s Vice-Chancellor, emailed all staff last week to explain Sussex’s decision to support Option 3, which he said is the “best option on the table”. You can read that email in full below. 

Employers will be consulted again once the USS Trustee has provided additional details and clarification requested by employers, to inform discussions at the next meeting of the Joint Negotiating Committee in July. 

UUK has published a Q&A document to explain why a majority of employers back Option 3 and the next steps in concluding the 2018 valuation. 

 

*Email to all University of Sussex staff, 3 June 2019* 

Dear colleague

Even though eyes – and cameras – have been trained firmly on the door of Number 10 Downing Street, the past week has also seen a number of big developments affecting universities.
 
The long-awaited publication of the Augar review into post-16 education funding has potentially significant implications for Sussex and the university sector. We have lots of analysis still to do but you can read my initial response to that report on *Research Professional. In the current political environment it is impossible to predict whether none, some or all of the Augar review’s recommendations will be implemented. Some of them will be costly for universities and students alike; the net effect would be to reduce universities’ independence further and I am unhappy that the review fails to appreciate the importance of a social sciences or humanities education.
 
All the while, discussions are ongoing regarding the future of the Universities Superannuation Scheme (USS).  Earlier this month, the USS Trustee put forward three options regarding future pension contributions for USS members and employers in order to finalise the 2018 valuation.  Although both UUK and UCU have strongly argued that the scheme’s problems could be managed in a different way, the scheme actuary has not accepted these arguments.
 
The three options being offered are:

  1. An ‘upper bookend’ with employer contributions of 23% and employee contributions of 10.7% from April 2020
     
  2. A ‘lower bookend’ with initial contributions set at 29.7% (20.4% employer, 9.3% employee), but with three potential – and automatic – 2% contribution increases should the scheme funding deteriorate, potentially taking the required rate to a maximum of 35.7%. USS assess that there is a high likelihood that one or more of these additional contributions will be necessary.
     
  3. An initial contribution rate of 30.7% (21.1% for employers and 9.6% employees) to apply from October 2019. A 2020 valuation would be undertaken and, subject to that and ongoing discussions between stakeholders, the contribution rate would remain unchanged until 1 October 2021. In event of there being no agreement on an alternative Schedule of Contributions following the 2020 valuation, a default rate of 34.7% would apply.

 
Option 3 also has the advantage of allowing the ‘Joint Expert Panel’ to complete the second phase of their work and help all sides to find an agreed and permanent solution to the pension fund’s problems.
 
Following a meeting of the University’s governing Council, we have submitted our preference for Option 3, because it is the best option on the table. Option 1 is too expensive for both employers and individual members and, while it looks the most attractive on the face of it, Option 2 would very likely see costs rise very quickly.
 
We are all aware that any increase in contributions, for either employees or the University as the employer, provides challenges. However, I firmly believe that this is the least bad option of the three that we are faced with.
 
The rules of USS mean that the Trustee Board determines the required level of contributions and they are able to impose an outcome if the stakeholders (UCU and UUK) are unable to recommend one. This means that, if Option 3 does not go through, there are only two alternatives. The first of these would be that the 2017 valuation would stand, and the planned increases for October 2019 (to 10.4% for employees and 22.5% for the University) and April 2020 (11.4% for employees, 24.2% for the University) will automatically be implemented.  The second would be that the USS Trustee would impose Option 1 – the, so-called, upper bookend – from July 2019. In either of these cases, the costs will be considerable.
 
According to the scheme’s rules, increased contributions are divided between employers and individual members on a two-thirds/one-thirds basis. Without a change of rules and the extremely unlikely reversal of April’s contribution increase, the reality is that there is no possible option that would not see both the University’s and member contributions rise.
 
Our support of Option 3 is, therefore, a pragmatic compromise, designed to keep increases to a minimum while securing the future of the scheme.

Adam Tickell, Vice-Chancellor

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By: James Hakner
Further information: https://www.ussemployers.org.uk/briefing-resources/briefings/latest-qa-why-employers-support-option-3-and-where-next
Last updated: Thursday, 13 June 2019

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