USS update — a briefing for members of the USS pension scheme from elected UCU negotiators
27 March 2023.
Photo credit: Matt Buck, IMGP2272, Creative Commons
Here we outline our view that the agreements between UCU and UUK now being implemented by USS are sufficient to stand down (or pause) industrial action over USS. We believe there are no further gains to be made at this stage in the USS dispute. This view is shared by the majority of the elected UCU Joint Negotiating Committee (JNC) members and by the majority of UCU’s Superannuation Working Group (SWG).
We believe that this progress would not have been achieved without the huge aggregate mandate secured by UCU and the tireless work of activists and members across branches. We consider this progress on USS allows for a renewed focus on Four Fights. We detail and support our arguments below.
Jackie Grant and Mark Taylor-Batty
- The current dispute over USS
The USS dispute letter to VCs in August 2022 had two points for resolution:
That UUK should agree to withdraw their benefit cuts and put pressure on USS to restore benefits to 2021 levels as soon as possible.
That UUK should put strong pressure on USS to ensure that the next and all subsequent valuations are moderately prudent, and evidence based.
This briefing deals with progress on both of these points and how they are driving full benefit restoration at April 2024, with more affordable contribution rates, as part of the USS 2023 valuation timetable. The first of the points is probably of most concern to members, but it is important to recognise how it is scaffolded by the second. We cover this in the following sections.
2. The UUK commitment to restoration of benefits
There have been two public joint statements made by UCU and UUK, which mark the crossing of threshold points in our negotiations. The most recent one, dated 15 March, is the key one that builds on the commitments outlined in the first, dated 17 February.
What that latest statement primarily outlines is that we have secured a commitment from UUK for full restoration of pension benefits back to the levels they were before April 2022, and that this will be facilitated by a moderately prudent 2023 valuation to ensure sustainable contributions for these fully restored benefits.
The cost for fully restored future benefits from April 2024 has now been publicly estimated by USS as around or below 26% (8% employees, 18% employers).
In addition, estimated costs of the recovery (or augmentation) of those benefits cut from April 2022 to April 2024, have been requested jointly by UUK and UCU. Some of that work has already been published by USS. The estimated costs of augmentation are relatively small compared to the size of the fund, but the complexity of implementation will be challenging, requiring careful exploration and actuarial advice. UUK has agreed to jointly work on this with UCU within the 2023 valuation.
3. The USS commitment to implementation of benefit restoration
The joint statements are now more than just words on paper. On 9 March there was a meeting of the Joint Negotiating Committee, which is a formal committee of USS comprising the UCU vice-president, a UCU official and all three elected members of UCU (your five JNC negotiators) along with representatives of UUK. At that meeting, UCU requested that the full restoration of benefits to pre-April 2022 levels be set in motion as the guiding principle of the 2023 valuation. Crucially, UUK agreed. This has now been actioned by the JNC for USS to implement in partnership with UCU and UUK.
At that moment, everything we have fought for in this dispute shifted across the threshold from agreement to implementation. UUK and UCU both want changes implemented no later than April 2024 and the agreement to position full benefit restoration as the central principle of the valuation is now necessarily in place to achieve that end.
The restoration now has to go through the various parts of the apparatus of the USS 2023 valuation process, as required by regulation. So of course it is true to say we have not seen our pensions restored yet. When you buy goods online you do not expect the postal worker to ring your doorbell the next moment: there is a sequence of necessary operations before what you request is finalised.
It is also reasonable to be aware that things could still go wrong; the agreement is premised on the public assurances from USS that they will approach the valuation on a ‘no surprises’ basis, and we have already seen that the December FMP (a sort of USS ‘dry run’ of the formal valuation) demonstrated that full restoration was not only possible, but that contributions cuts could also be afforded: what you pay for your pension each month from a salary deduction will likely go down.
So, unless markets exhibit such extreme behaviour that the Trustee significantly diverges on likely outcomes (and we address this below), we quite reasonably anticipate a smooth outcome of the same dimensions as the December ‘dry run’: full restoration of future benefits from April 2024, augmented recovery of benefits (those reduced between April 2022 and April 2024), and contribution reduction from April 2024.
4. This is the most progress possible at this stage
Members can be assured that their industrial action has achieved something material here. UUK has gone beyond the stage of making commitments, as these are now set in motion in ways that limit any substantial divergence from what is being implemented. Taking further industrial action at this stage, with the aim of heading off future risks that are not yet manifesting, endangers the implementation of the 2023 valuation timetable for April 2024. Unlike earlier disputes we are working in partnership to accelerate agreed beneficial changes rather than working to prevent detrimental changes we oppose.
Of course, those risks may appear on the way toward full restoration, some of these may be beyond the control of any of the agents involved. However, we are already discussing ways to manage such challenges so that monitoring and valuations, including the 2023 valuation, are less volatile and we can all move away from the dependency on daily market conditions and from the historic cycles of disputes.
Some of this work involves UCU, UUK and USS collectively engaging with the Pensions Regulator and the Department of Work and Pensions. For example the UCU, USS, and UUK joint letter on the DB funding code, and further public comments are expected soon. Some of the work involves unpicking the conceptual framework and assumptions around risk and self-sufficiency that USS use in monitoring and valuations. Some of that work involves establishing guiding protocols to maintain sustainability of contributions while protecting benefits over valuation cycles.
However none of the risks that could cause a substantial increase in cost for the 2023 valuation are yet appearing. There are, as yet, no tangible obstacles endangering the smooth path to full recovery.
Consolidation of all these plans should continue to emerge over the coming months. Between July and September USS will launch and run the Technical Provisions Consultation for employers, which will be produced in partnership by UCU and UUK. The statutory 60-day member consultation will follow, along the same principles, and will enable the salary threshold (a listed change) to be fully restored (to the level it should be including with soft-cap increases) along with restoration of the the accrual rate and CPI soft-cap.
As we meet and pass these points in the valuation timeline we will know with ever greater certainty where we stand. Of course we can’t rule out the need to make use of the threat of Industrial Action in the future, and a trade union should never rule out that power. If we maintain the mandate but stand down (or pause) action now then the potential for further IA acts as a powerful lever that we can use if and when needed. But we believe that there are no further elements to the plan that can be agreed at this stage.
We are heading in the right direction and there’s hope, for sure, but we need to be vigilant over the coming year.
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APPENDICES
Here we cover three points referred to in the main text. These are Ai) Who are your negotiators? Aii) Trust in UUK and USS. Aiii) Moderately prudent and evidence based valuations
Ai) Who are your negotiators?
JNC negotiators and alternates: There are five UCU nominated members of the USS JNC, one is the UCU vice-president, one is a UCU official and three are elected from the UCU membership at the annual Higher Education Sector Conference (HESC). There are also two alternate negotiators who observe JNC meetings and will take the place of a negotiator in case one of the HESC elected negotiators is unable to attend. The two alternate negotiators are also elected from the UCU membership at the annual Higher Education Sector Conference.
Anyone who attends UCU HESC 2023 can stand to be a UCU elected negotiator. You can read the self-nomination form with application details here.
Superannuation Working Group (SWG): The UCU SWG is made up of the group as detailed above with the addition of three people who are selected by the Higher Education Committee (HEC) to join the SWG. The additional three people are not negotiators but sit on the USS advisory committee, and in some cases attend and contribute to USS workstreams. Anyone can put themselves forward to be considered for these roles. You will need to contact a member of HEC and ask that they nominate you. You can contact anyone from HEC here.
Aii) How can we possibly trust either UUK or USS?
Given the last ten years, it is understandable that trust in UUK and USS is at catastrophically low levels, and that will only change when their actions earn trust back. But both UUK and USS have shown some evidence of working to rebuild trust, and the agreement to put full restoration at the centre of the valuation is a very clear act of good faith on the part of UUK. There is nothing further they can offer at this stage that will either accelerate or improve the possible outcome of a 2023 valuation.
But what if USS do pull surprises out of the bag when they conduct the valuation, and price restoration above what UUK would tolerate? What is to stop UUK from reneging upon their commitments during the valuation? Why are UCU and UUK caveating the restoration with ‘sustainability’?
The first worry is partially answered below in the response to the issue of a ‘moderately prudent’ valuation methodology, and bracketed in their commitments to UCU and UUK, to all Heads of Institutions, that they will pull no surprises. It is also detailed above in statements about likely costs and discussions around ongoing work to achieve long term stability.
The second worry needs contextualising by the fact that the ambition with this valuation is to get results in operation from April 2024, not April 2025 as might have been expected (the usual cycle is implementation two years after valuation snapshot date). This valuation is adopting a compressed timetable to try to bring positive results forward for all parties. Employers have an eye on the prize of no longer paying deficit recovery payments from April 2024, which they are contracted to do until benefit/contribution changes are in place for the 2023 valuation. We have been reminded multiple times by USS that anything that disrupts the compressed timescale means failure to meet that desired April 2024 target. It is in the employers’ interests, but also UCU’s, not to pull the prioritisation of benefit improvement, as that is a key feature now around which all calculations are orbiting. So, if the first worry were to materialise, then in a worse-case scenario we are back to negotiating elements of restoration, not whether restoration will happen. But so far there has been no sign of such behaviour.
The third concern about ‘sustainability’ has different perspectives. We believe that the USS members we represent want sustainable benefits: they want their benefits to return to pre-April 2022 levels, and stay restored, and even improved further in time; they want their contributions to go down, stay down, and maybe reduce over time. This is the sustainability that UCU would seek, and it is important that we have agency in the definition of sustainability, the mechanisms and scrutiny through JNC it might have, and the triggers that would indicate, for example, benefit improvement were possible. Sustainable contributions should also automatically arise from valuations which are moderately prudent and evidence based.
Aiii) Moderately prudent, evidence based valuation
Collaboration with UUK toward the ambition of persuading USS to adopt a moderately prudent approach valuation was always going to run more smoothly: it is in the interests of all parties to have a lower cost to pension benefits. The huge volatility seen in USS metrics has only served to erode trust in the valuation methodology.
However there are changes in progress. Bill Galvin, USS CEO, will be stepping down shortly. UCU and UUK have been contributing to a ‘Valuation Technical Forum’ over the last months, alongside contributors from UCU’s actuaries, First Actuarial, and UUK’s Aon. We have been singing broadly from the same hymn sheet, and the Chair of USS along with Directors, and representatives of TPR have been attending and contributing. There is good and ongoing engagement with TPR and DWP over the 2023 valuation and more generally over DB regulation and the draft funding code. We believe the results of these consultations have permeated through to USS assumptions for the 2023 valuation and will set the stage for longer term changes to their valuation methodologies.
We would not claim that we are fully satisfied yet, but we are confident that some of the driving aspects of extreme prudence that contextualised the 2020 valuation will not be wielded in the 2023 valuation.
