USS pensions dispute: The state of play
Number 65: #USSbriefs65
This is a USSbrief that belongs to the OpenUPP (Open USS Pension Panel) series. It was originally published on the University of Birmingham UCU branch website on 19 December 2018.
This term has seen a lot of important developments in the dispute over USS pensions, some positive, some negative. Thanks to the hard-won first report of the Joint Expert Panel (JEP), USS members are within touching distance of a settlement that would be better than any of us dared to imagine this time last year: a new, 2018 valuation which would involve no contribution increases or benefit cuts whatsoever. However, there is a chance that we will have to take industrial action again in order to secure this outcome, because USS are hinting that they will reject some of the JEP’s conclusions. Ultimately, whether we need to go on strike will depend on our employers. Will they hold the increasingly stubborn managers of USS to account and press them to implement the JEP? Or will they give USS a free pass, and try to cut our benefits instead?
USS are continuing to press ahead with massive contribution increases which they claimed were necessary to make our pensions secure. They have comprehensively ignored the 4,176 responses which they received to their consultation on these changes from members, despite the fact that 35–40% questioned the reliability of the valuation on which the changes are based, and more than 1,300 responses used USSbriefs’ highly critical template. This means that from April to October 2019, member contributions will go from 8% to 8.8% of salary; from October 2019 to April 2020, up to 10.4%; and from April 2020 onwards, to 11.7%.
Needless to say, this will have a serious detrimental impact on the salaries of members who are already struggling under the cumulative weight of years of real-terms pay cuts. Even worse, the Joint Expert Panel (JEP) has shown that these increases are unnecessary. The JEP’s findings were further reinforced by UCU Superannuation Working Group member Sam Marsh, who showed that USS had committed a serious error in their valuation processes by failing to recognise that the Scheme was projected to be in surplus if it continued with its current investment strategy and contribution rates (click here for a brief, non-technical explanation).
Marsh’s analysis was recently upheld by UCU’s professional actuarial advisers, First Actuarial, in a hard-hitting report on the flaws in USS’s valuation methods and governance mechanisms. First Actuarial found that USS’s attempts to rebut Marsh’s claims were incoherent, ‘ill-founded’, ‘poor quality’, and not a valid basis for completing the 2017 valuation. They concluded that the 2017 valuation could have been completed in a way that satisfied the current regulations without requiring any increase in employer or member contributions. Finally, and perhaps most importantly, they charged USS with adopting an unnecessarily deferential stance with respect to The Pensions Regulator (TPR), and thereby failing to represent the interests of Scheme members and sponsors.
First Actuarial’s point about the Regulator will need to be borne in mind during the next stage of the dispute, because USS and TPR are now the main obstacles standing between members and an acceptable resolution. Employers have accepted all of the proposals made by the JEP. USS have said that they are willing in theory to replace the 2017 valuation with a 2018 valuation that could take the JEP’s findings into account, and replace the 2017 valuation’s contribution increases before the worst of them are scheduled to kick in. Crucially, it has now been revealed that if the JEP proposals were to be applied to a valuation based on fresh 2018 data, USS would actually be in surplus, and the current contribution rate could be reduced. However, recent pronouncements by USS indicate that they are unwilling to accept all of the JEP’s proposals. They keep repeating familiar claims about the level of risk it would involve, despite the demonstrations by the JEP, Marsh, and First Actuarial that the risk in the Scheme was being overstated and even exacerbated by USS’s methods.
We may well see USS respond to these criticisms by speculating about what the Regulator will or won’t allow them to do. It is true that the Regulator’s interventions in the dispute thus far, including its most recent letter to USS, have caused problems. They have been inappropriately timed, poorly informed, and short sighted, as the JEP, First Actuarial, and other commentators have pointed out. But that is all the more reason for USS to listen to members and employers, present the JEP’s case to TPR, and force TPR to defend its position. We will see whether USS is willing to do this in a matter of weeks or even days, when it opens its consultation on the new, 2018 valuation.
At that point, our employers’ response will be crucial. What if USS tells employers they cannot accept all of the JEP’s proposals? We must remember the JEP’s statements to the effect that they would recommend a much more comprehensive overhaul of the Scheme if they had more time: the proposals which they put forward in their first report were intended as a short-term compromise which all parties could easily accept. In the longer term, the JEP promises to help members secure the affordable, high-quality pension provision which we have enjoyed up to now. For USS to reject the JEP’s very restrained preliminary proposals would be very disappointing indeed. At that point, employers will need to put their foot down and declare a lack of confidence in USS’s managers. There is nothing to stop them from doing this, since it is their representatives who hold the balance of power among the USS trustees. But we are getting ahead of ourselves. Hopefully USS’s managers will be able to swallow their pride, admit that they made mistakes, and accept the reasonable and constructive criticisms offered by the JEP. It is only if they refuse to do so, and employers fail to hold them to account, that UCU members will have to start planning a fresh round of industrial action.
This is a USSbrief that belongs to the OpenUPP (Open USS Pension Panel) series. This paper represents the views of the author only. The author believes 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 hashtags #USSbriefs65 and #OpenUPP2018; the author will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.