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

Jun 28, 2019

Louise Edwards-Holland
Louise Edwards-Holland

The University is committed to keeping you up to date on the USS pension situation.

On 7 June, the University received a letter from UCU.  Louise Edwards-Holland, Director of HR and Organisational Development, responded on behalf of the Vice-Chancellor Friday 21 June. You can read our response here: 

Dear Paul,
 
Thank you for your letter, sent to the Vice-Chancellor on 7 June 2019 in relation to the proposed USS Trade Dispute. The Vice-Chancellor has asked that I respond on her behalf.
 
Firstly, The University of Salford fully recognises the importance of the employer supporting employees to save towards ensuring that they have a secure income in retirement.  The Universities Superannuation Scheme (USS) enables this, but like other schemes that still offer defined benefits it faces ongoing funding challenges. The legal requirements on USS require a balanced funding solution for members and employers, which must also be acceptable to the USS Trustee and The Pensions Regulator (TPR). It is acknowledged that finding a solution that is agreeable by all parties presents a significant challenge at the current time and that regrettably the uncertainty of the current situation is inevitably having a detrimental impact on our employees.
 
However, the University is concerned that, in your letter, you have outlined a set of conditions that cannot reasonably be met by employers. If employers were to reject all the options proposed by the USS Trustee, this would compound the situation resulting in delays to the completion of the 2018 valuation.  In the absence of a decision on the 2018 valuation outcome, it is likely that the USS Trustee will conclude the valuation in a manner that it deems appropriate, which could be in line with ‘Option 1’ i.e. contributions of an aggregate of 33.7% of salary with increases split 35:65 between members and employers. This would result in rates of 10.7% of salary for members, and 23% for employers.  The imposition of rule 76.4 is within the gift of the USS trustee and is in accordance with the scheme Deeds and Rules. We are aware that specific questions have been asked of the USS Trustee in relation to this including at the Member institution meeting in December 2018 at which representatives of UCU were present.
 
If the 2018 valuation were to be concluded under ‘Option 3’, the 2017 valuation increases will be superseded. This means that employee contributions of 9.6% of salary would supersede the 10.4% due at 1 October 2019, and 11.4% due at April 2020. Collectively within the higher education sector employers would be committed to pay an extra £250 million per annum into the scheme (This represents a 3.1% increase in employer contributions to secure the defined benefits up to the date of the next triannual valuation only). The Pensions Regulator has made it clear that it would have concerns and would question an outcome in line with ‘Option 3’as this would increase the level of contributions to 30.7% of salary. While the USS Trustee has yet to respond to the TPR letter, it is clear that Option 3 would lie at (or perhaps beyond, based on TPR’s initial comments) the very limit of acceptability. It is therefore completely unrealistic to expect the USS Trustee to contemplate going further and submitting a valuation that delivers combined contributions of 26% with no changes to benefits. It is also worth noting that this would further set USS apart from other defined benefit schemes still in existence for new entrants.
 
Furthermore, the 2017 Valuation has been lodged with and accepted by TPR and unless it is superseded, it commits employers to contributions no higher than 26%. The power to decide the contribution rate within USS rests with the USS Trustee, subject to consultation. This is a legal undertaking which the University of Salford does not have the power to overturn. Simply refusing to pay additional contributions would be unlawful and would provoke legal action.
 
It should also be noted that the 35:65 cost sharing formula and subsequent rule was decided and agreed by the Joint Negotiating Committee. As previously highlighted, it is embedded within the scheme Deeds and Rules, which determine the legal operation and administration of the scheme between the trustees and the employers. It was agreed as a default position should agreement not be possible and all parties were aware of this going into the current round of consultation.  The recommendation that employers should pay the full cost of any additional contributions increases is unfeasible from a budgetary position and a breach of the long-standing cost-sharing agreement which governs the financial conditions relations within the scheme.  Even if the University were in a financial position to cover the full cost of contribution increases, this would result in a reduction in our total staffing budget which would lead directly to significant job losses, increased workloads and ultimately a negative impact on our students.
 
I have arranged for a meeting with the UCU Salford Branch Officers on 5 July 2019 to discuss the concerns raised in your letter in further detail. It is my understanding that Universities UK is continuing to engage with yourselves over the issues raised in your letter and we would urge representatives of UCU to explore constructive ways to resolve these matters. Without a rapid resolution to the 2018 valuation, it is our understanding, based on the scheme Deeds and Rules that the October 2019 and April 2020 increases will be introduced with severe implications for both employers and individual employees.
 
Yours Sincerely,
 
Louise Edwards-Holland
 
Director of HR & Organisational Development

You can read the original letter from the UCU here: 

Dear Professor Marshall

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