A recent pensions webinar organised by Cambridge University gave a really good insight into both sides of the pensions dispute and in particular into the reasons why the tendency to risk aversion is so strong on the USS side. 

What came out clearly, however, was that, under the existing regime, only in the distant future (towards end of 21^st century) is there even a modest chance of the fund being unable to deliver on its pensions promises and that, looking back into the past, modelling based on the last 120 years does not support the need felt by USS to derisk so drastically – unless that is, said one of the speakers, ‘a general decimation of humanity’ takes place (i.e. via global warming or something) and in that case USS would be trying to ‘protect us from the unprotectable’. 

What was reassuring too was that this was not some kind of UCU ‘propaganda’ exercise. It was introduced by the Vice Chancellor of Cambridge University, chaired (very well) by Chris Havergill, Times Higher Education pensions reporter, and contributed to by the Chief Financial Officer of Cambridge University and by acknowledged academic pensions experts from Imperial College and Cambridge University Business School.  And the whole thing was conducted in a spirit of attempted understanding and conciliation between the sides. 

It is publicly available for all to watch : here is the link

As Swansea University is aware, UCU is in dispute with the University employer over pensions. We would urge Swansea University, whose representative body for pensions is UUK, to instruct their representatives to help to resolve this dispute.  

The UCU demands are reasonable, affordable and straightforward to implement. They would strengthen the Swansea University’s strategic plan, they will lead to improvements in all areas of our work, including the University KPIs, staff wellbeing and the student experience. They will improve the international reputation of the entire sector.  

Swansea University UCU asks that the University publicly call on UUK to meet the reasonable and easily achievable demands in the UCU dispute letter.  

The letter to UUK (on USS) 8 November 2021 calls on UUK to consult employers on:  

· Withdrawing their current un-agreed detrimental changes to members’ pensions;  

· Whether they would be prepared to pay higher contributions for fixed period of time to allow a negotiated settlement; and  

· To call publicly for a 2021 valuation.  

Background on USS  

Against the backdrop of repeated misleading statements from UUK, the UUK cuts to USS pensions, which are significant and which will impact most severely on the next generation of university staff, were voted through by JNC Chair’s vote on 31 August 2021.  

UCU has since written to USS CEO Bill Galvin, outlining a legal case relating to serious grounds for questioning the rationality and reasonableness of the decision-making of the trustee.  

However, the March 2020 valuation has now been submitted to the Pensions Regulator (TPR), ahead of the legally required 60 day consultation with members. The valuation date of March 2020 was an extreme low point due to the initial impact of the pandemic, with funding positions of DB schemes falling dramatically at March 2020, then recovering significantly.  

Views on the 2020 valuation  

The following quotes support the widely held view that the 2020 valuation gives a highly pessimistic and misleading measure of the financial health of the scheme.  

… more disturbance from striking academics. It is easy to condemn them, but I do not. They are the victims of unduly risk-averse decision making at the Universities Superannuation Scheme, under the influence of misconceived regulation. [Martin Wolfe, Chief Economics Commentator, Financial Times, 14 November 2021] 

31 March 2020 was a poor date to carry out a valuation compared with market conditions at 31 March 2018. However, the position has since improved for most schemes. … Given the exceptional circumstances at 31 March 2020, there is a danger that too much can be read into the conclusions of a valuation at that date. [UUK Actuaries AON, April 2021]  

The 2020 valuation methodology is described as ‘misleading’ and a ‘hall of mirrors’ by UUK’s actuary [AON report, April 2021]. The valuation is described by UUK as ‘unjustified’, ‘unnecessary’, and ‘unaffected by the evidence presented’ [public letter from UUK to USS, May 2021].  

In the case of the USS, the right option is to make conservative, but not insanely pessimistic, assumptions and conclude that it is healthy. [Martin Wolf, Chief Economics Commentator, Financial Times, 27 June 2021]  

The level of cuts and the cost of maintaining benefits  

The UUK proposals to cut benefits have three parts  

· Reduction in accrual rate from 1/75 to 1/85  

· Cap on interest at CPI of 2.5% (currently capped at 5% plus half from 5%-10%)  

· Lowering of DB threshold from circa £60k to £40k  

Since May 2021, UUK has issued consistently misleading statements on the level of cuts and the cost of maintaining benefits throughout UUK consultations.  

For example, the USS modeller makes it clear that the reduction in future guaranteed pension income is significant. The cuts range between 17% and 48% for Consumer Price Index of 2.5%. If CPI is 3.5% the cuts range between 28% and 56%. The cuts hit the youngest and the next generation the hardest.  

As UCU stated in its dispute letter of 22 September 2021, the level of cuts to the future guaranteed pension for a typical member are 35%, and this reduced to cuts of 23% when the non-guaranteed DC is included.  

The UUK proposals will mean a USS member aged 37 earning £41,526 (the current starting salary for a lecturer in many institutions) can be expected to go on to build up an annual guaranteed pension of £12,170 if they continue to work full time in the sector until age 66. This compares with the £18,857 annual income which they would build up under the existing arrangement. The same 35% cut would also apply to the guaranteed cash lump sum which the member would receive when they retire. Even when the expected extra cash is included into this member’s DC pension pot and then converted into USS DB pension, the cut from the UUK proposals remains at 23% of pension income.  

UUK has consistently briefed against this estimate from UCU’s actuaries, with UUK’s Head of Pensions writing to UCU explicitly writing to VCs to say this statement is ‘untrue’.  

The cost to Universities of retaining benefits  

The cost of maintaining current benefits to the end of the University financial year would be less than previously budgeted by Universities under their 2018 Schedule of Contribution October rises.  

Under the backstop, retaining full benefits, the cost is £1m, far less than budgeted by most and significantly below the much larger amount estimated in Universities’ risk registers.  

These are costs that are affordable to Universities up to October 2022 and that maintaining full benefits under the backstop until October 2022 would allow space for negotiation and a new valuation.  

Given that the UUK proposal for cuts to future service benefits are clearly and visibly not the best that can be achieved against appropriate assumptions, we recommend that University publicly calls on UUK to meet the UCU demands.  

 Swansea University UCU  

In the Emergency General Meeting we called on pensions earlier this month to discuss the developing situation of potential USS pension detriment, we pointed out the deficiencies of the survey sent round to USS members by the University as part of the Universities UK (UUK) consultation of its members, i.e. the employers. The survey seemed designed to achieve a pre-determined result and there was considerable support for the idea that we run our own parallel survey asking different more relevant questions. So we did just that and sent the survey round later the same week. You can see the results in statistical form and with brief analysis of the statistics and members’ additional comments here

The standout feelings of members were:

 1: that the USS scheme’s secure defined benefit nature was highly valued;

 2.: that there was opposition to the kind of two-tier pension being proposed where lower paid staff would have defined contribution conditions and higher paid ones would have defined benefit;

 3: that the death and incapacity benefits of a defined benefit pension were highly important;

 4: that significant governance reform was required by USS in order to achieve a realistic valuation of the pension fund.

The scheme’s current value stands at £80B+, with its non low-risk assets performing extremely well.

We shared the outcome of our own survey with the University and met with the Director of Finance who had been tasked to draw up the University’s response to the UUK consultation. The Director of Finance then shared her own draft report with us and asked for our feedback. This was useful engagement and cooperation and I’m pleased to say that her report showed that she had taken on board some important elements of our case. So, for example, her report begins as follows:

“The University’s first position is that it believes that the valuation methodology takes too prudent an approach and that the underlying assumptions should be revisited. This would be our preference as a way forward and we would like to see UUK continue to press the USS trustee to review the assumptions.

Additionally, we believe both The Pensions Regulator and the USS Trustee are taking an unnecessarily prudent approach to the covenant strength of the sector, on the basis of one exit from the Scheme. There is no history of universities becoming insolvent and there is little evidence to suggest that this is likely in future.”

It goes on later:

“There is no doubt that the way that this valuation process has been conducted has been wholly unsatisfactory and a review of where the shortfalls and failings have been is absolutely essential.

This recognition of the flawed methodology being adopted by USS is a positive start and we are continuing to engage with the University, hopefully with a view to an agreed joint statement on pensions, as has happened already at several other institutions.

More widely, we understand that UUK is concerned that its members (i.e. the University managements) are not unified in their consultation responses and are not uniformly confirming UUK’s line of basic acceptance of USS’s assumptions even if proposing a different but in many ways equally detrimental way of putting them into practice. So there’s good deal of questioning and challenging going on by Universities, influenced at least partly by strong responses from UCU, both locally and nationally. The grapevine even says that USS is now concerned that they may face opposition from UUK and have been attempting some not very subtle interventions and potentially meddling in industrial relations, which is inappropriate. 

Looking forward, the employer consultation has now closed and there will be a 2-3 week write-up period and then a consultation with UCU. Then, on the UCU side, the matter will be discussed by our Superannuation Working Group and then go to the JNC, the joint employer-employee negotiating committee, and we can expect a final proposal from UUK in July or August.

As for UCU, we’ll have to explore every avenue in the campaign we wage. It’s unlikely that reason, logic and fairness will be enough. We’ll need to look at. for example, things like conditional indexation, a possible legal challenge to USS on the grounds that the Trustee is not acting in the fiduciary interest of scheme members, and, if the worst comes to the worst and very reluctantly, even industrial action. Short of that we need to push for commitments from employers on extending covenant support, governance reform, and lobbying for regulatory change. We believe USS can provide members with good pensions by ensuring that a significant majority of its holdings are in assets that generate relatively high returns. It should stop and ultimately reverse its current tendency to hold an increasing proportion of low-yield, fixed-income assets such as gilts. As for UUK, we want it to showing more support for and confidence in the scheme as a vital element in the sector. Above all we want to see UUK and UCU working together to end the cycle of dispute over pensions.

Howard Moss

Swansea UCU Pensions Rep

The 2020 USS pension valuation is currently in process, and universally considered to be seriously defective. UniversitiesUK (the organisation representing VCs) has been scathing in their response to the proposed valuation. Cambridge University VC and other leaders have written openly to raise serious concerns and call for re-engagement. If the USS proposal were to be implemented, it would increase total contribution rates from 30.7% of payroll (i.e. employer + employer contributions) currently to between 40.8% and 67.9% of payroll. Yet despite the enormous potential impact, USS has not provided credible evidence or rationale for these changes.   

We would therefore encourage all USS members, whether they are UCU members or not, to sign a letter of complaint to USS regarding the valuation of our pension scheme. We would like as many USS members as possible to sign the letter before it is submitted on 22 January by Neil Davies, Bristol UCU pension rep., under USS’s own complaints procedure as set out in the scheme rules.   

It’s a difficult time for everyone at UK Universities and this may not seem a priority at the moment, but the valuation as it stands will cause very serious and unnecessary financial difficulties both for the sector and its staff. The full letter of complaint with appendix can be seen here. 

USS has a responsibility to seriously address the issues raised in the complaint. Please Sign.   

There is now a very good video on the pension valuation to help understand these issues