The UUK offer: context and analysis
Number 14: #USSbriefs14
UCU members across the country received an email on 4th April 2018 with a link to a ballot. The ballot is about a unilateral offer from UUK, made on 23rd March, which does not appear to have had any input from the UCU Joint Negotiating Committee. The presentation of the ballot ignores the importance of proposing a negotiated offer. The preamble from Sally Hunt, UCU General Secretary, frames the ballot with the (mis)leading question, ‘What gains have we made?’
To allow USS beneficiaries to engage intelligently, knowledgeably and fairly with this pensions debate, this brief therefore examines the key themes of the UUK offer of 23rd March and positions it within the broader context. Along the way, this brief points to evidence and analysis that may help you to make your ballot choice. We have organised the brief around four key themes.
1. Flawed calculations and valuations
Our first contention is that the changes to our pension plans have been introduced and sustained on false premises and that the current narrative does not pick up some of the big issues. In addition to challenging both the valuation of the scheme (see USSbriefs7) and the investment strategy being overseen by the USS trustees, we need to grapple with these fundamental questions before we can accept any offer.
The Universities Superannuation Scheme is funded by employer and employee contributions as well as investment returns. We have been bystanders to a decade of what we would term ‘underpayment’ (euphemistically termed by UUK as ‘significant contributions of 14%‘). Between 1997 and 2009 the employers reduced their contributions to the scheme from 18.55% to 14% of employee pay. So our first question is: how was the prolonged period of underpayment by employers permitted by trustees, and, importantly, how has this impacted the scale and size of investible funds? How did the underpayment contribute to the purported deficit and how will it be made up by employers?
Specifically regarding the current offer, our concern is that any settlement may not take into account the effects of this underpayment resulting in a projected shortfall. Thus, we need a clear commitment that this underpayment will be urgently scrutinised, quantified and rectified.
It is also worth pointing out that UUK specified in their ACAS-negotiated offer of 12th March that their temporarily increased figure — whatever that may be — would be reduced by ‘deficit recovery contributions’. When adjusted for this, although the cost to employers will cosmetically rise to 19.3%, employer contributions are invisibly altered into two underlying segments — an estimated 4.5% will go to deficit recovery contributions and the true contribution to the pension will be 14.8% less any other costs. We will need further clarity on whether this 14.8% would generate sufficient investment returns sufficient to avoid a future deficit.
The scale of this ‘deficit recovery contribution’ will only be deliberated after the employee consultation has concluded. We still need a voice and (or the ability to marshall strike action) if the deficit recovery contribution was unwarranted. Arguments that we can simply strike again, or say ‘no’ at a later date ignore that a lot can be lost in the meantime, and rely upon us being able to mobilise with such strength on a single, fairly technical issue.
2. Employer affordability
The second question is: are employers in a position to make contributions greater than the current offer of 19.3%? HESA (Higher Education Statistics Agency) data and accounts suggest that employers are in a position of surplus. Total income to the HE sector 2016–17 is approximately £36 bn; total unrestricted reserves as at 31st July 2016 were circa £27.8 bn. It is of course likely that any contributions over the current 18% employer contribution rate may not need to be made, if previous underpayments by employers are addressed / recouped, and changes are made to the way in which the employers ‘de-risking’ approach towards the scheme’s investment portfolio and valuation are currently undertaken.
We also contend that there is a moral imperative to press for employers to contribute in a fair and meaningful way to guaranteed pension benefits. This is because our pensions are not a luxury or a gift given to us by employers; they are an essential and valuable part of our accrued and future remuneration at a time of declining living standards and real wages for many in Further and Higher Education. Transferring the risk away from employers to employees when the underlying rationale and methodology are suspect is — to our mind — grossly unfair.
3. The bigger picture
The third question is: are the efforts towards closing the DB (Defined Benefit) segment of the scheme a result of factors in the wider context, and is employers’ (and their advisors’) opportunism in recent years responsible for eroding what was a sustainable scheme?
Per HESA, bank loans and borrowings total were circa £9.6 bn as at 31st July 2016. It is worth noting that the covenants to these loans and future plans of universities to raise finance for capital expenditure and other management strategies may be driving the move towards de-risking the employers’ position in USS. These may also underlie other efforts towards commodification of higher education, casualisation of employment and commercialisation of our relationships with each other and with our students. These issues need to be understood in context as USSbriefs3 explains.
It seems likely that UUK plans to move at least partly to DC (Defined Contribution) and there are indications that CDC (Collective Defined Contribution) is also being touted as a viable option. Both DC and CDC transfer risk away from the employer to individual members (DC) or the broader group of members (CDC) and are likely to adversely affect employees’ pension provision. It is worth pointing out that the parties who truly de-risk as a result of the scheme moving to DC or CDC are the employers. These changes suggest that we need to ask allied questions about the quality of oversight by trustees. Such questions will no doubt be addressed by the legal campaign for pensions justice that intends to hold trustees to account for the current debacle.
We suggest that reliance cannot be placed on UUK to develop the detail of the balance between DB and DC/CDC with USS in good faith, without the threat of industrial action and oversight by a sufficiently robust UCU representation. Our unease has been exacerbated by their interactions with scheme beneficiaries through the period leading up to, and of, industrial action. We have noted that vital information has either been lacking or distorted throughout the process leading to the proposal to reduce DB provision.
USSbriefs have demonstrated well-embedded efforts by UUK and others (many of whom are deeply conflicted) to accelerate the transition from DB to DC pensions (see USSbriefs1). These efforts by UUK are particularly worrying, as they appear to have been supported by the use of substantial university and/or USS funds to pay for consultants and PR advisors (see USSbriefs5) who have contributed more widely to advancing the case for DC and CDC (see USSbriefs8).
4. Other points worth noting
Firstly, as USSbriefs4 explains, the changes will disproportionately hurt those who are already victims of inequalities in Higher and Further Education sector.
Secondly, the non-binding nature of the Joint Panel’s recommendations, given that USS and the Pensions Regulator are not obliged to agree to it, continues to expose us to the threat of an unfairly calculated valuation.
Thirdly, this is not the first USS change. The scheme has been changed to our detriment after every valuation since 2011. In that year, the final salary section of the scheme — which is generally recognised as superior to the career averaged defined benefit we currently have — was closed to new entrants, thus immediately reducing eventual pension income for those at the beginning of their careers. In 2016, after the equally flawed 2014 valuation, everybody was moved from final salary to career averaged, reducing eventual retirement income for many present and future beneficiaries by a significant amount.
Accepting UUK’s unilateral offer at this stage, and not taking strike action during the examination period (see USSbriefs9), implicitly forfeits the leverage that we have and any advances we have made. Therefore we think it would be better to decline this offer now and seek a negotiated outcome with explicit guarantees, rather than seeking to regain lost momentum in 12 months time, while our pensions pot deteriorates in the background.
The authors wish to thank the USSbriefs team, especially Andrew Chitty, Nick Hardy, Chris Millard and Leon Rocha for their assistance. Deepa Govindarajan Driver would like to thank Linda Arch and Charles Sutcliffe at the International Capital Market Association Centre (ICMA) in Reading.
This paper represents the views of the authors only. The authors believe all information to be reliable and accurate; if any errors are found please contact us so that we can correct them. We welcome discussion of the points raised and suggest that discussants use Twitter with the hashtag #USSbriefs14; the authors will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.