Why the JEP should not consider alternative scheme designs for USS
Number 75: #USSbriefs75
This is a USSbrief, published on 24 July 2019, that belongs to the OpenUPP (Open USS Pension Panel) series. The contents were submitted to the UCU-UUK JEP (Joint Expert Panel) on 14 June 2019 by Tim Wilson on behalf of UCU’s National Dispute Committee for the USS pensions dispute.
In this submission to the Joint Expert Panel, we argue that any consideration of alternative scheme designs:
- would be premature until a just and credible valuation of USS is established
- would allow USS and UUK to ignore recommendations pertaining to the governance and valuation of USS
- is likely to be seen as a betrayal by members who saw the formation of the JEP as a step towards protecting their existing scheme, and
- would be fundamentally inappropriate, given the status of the JEP as a panel of independent experts rather than as a negotiating committee between representatives of the respective interests of UUK and UCU.
We therefore advocate that the JEP refrain from any consideration of alternative scheme designs so that all parties can focus on restoring trust in the existing scheme.
Paragraph 6 of the ACAS agreement and section 2 of the JEP Terms of Reference both make it clear that consideration of alternative scheme design options was outside the remit of the JEP, as agreed by all parties when the JEP was established. The task of the JEP was ‘to agree key principles to underpin the future joint approach of UUK and UCU to the valuation of the USS fund’. Yet the JEP announced on 23 May 2019, in an update from the chair, that the call for evidence for JEP 2 is to include ‘questions of how risk is shared in the scheme, including approaches to contributions and mutuality’, which can only mean alternative scheme design. We envisage that conflating scheme valuation and scheme reform could have several undesirable consequences.
The USS strike arose from the attempt by UUK to impose scheme reform on members on the basis of a highly contentious valuation, and post-strike developments have bolstered the evidence that the reforms were and remain unjustified. One obvious consequence is that UCU members have lost all trust in employers and USS, and any proposal for scheme reform will be met with extreme skepticism and quite probably outright hostility. There is no possibility of scheme reform being acceptable to members until a just and credible valuation of USS has been established. This is a prerequisite for any detailed numerical modelling of a proposed reform (which UUK conspicuously failed to provide in 2017–18 in proposing to ‘reform’ the scheme by replacing the Defined Benefit [DB]) so that members could assess the costs and benefits. It therefore seems premature to make recommendations regarding scheme reform in the forthcoming report.
The responses of USS and UUK to the first JEP report give us no confidence in their willingness to embrace changes recommended in the second report. USS has been intransigent and UUK refuses to challenge them. Both ignore criticisms and have shown a somewhat flexible attitude to evidence, cherry-picking that which agrees with their predetermined objectives, which we believe remain unchanged from 2017. The National Dispute Committee fears that on publication of a second JEP report containing recommendations on governance, valuation and, alongside those, scheme reform, both USS and UUK will seize upon the suggested scheme reforms and ignore criticisms and recommendations pertaining to governance and the valuation, just as they ignored key recommendations of the JEP’s first report. This would be a most unsatisfactory outcome for members, and poor reward for the conscientious efforts of the panel.
UCU members were generally very pleased that the first JEP report gave authoritative voice to many of their criticisms of the 2017 valuation. Members felt vindicated, but also very angry towards USS and UUK, and these emotions remain strong for many. Expectations of the second report are high. Members expect it to provide the basis for rescuing their pension, though they expect to have to fight to achieve this. The JEP should be mindful of paragraph 4 of the ACAS agreement (which is reproduced almost verbatim in the JEP’s Terms of Reference): ‘Recognising that staff highly value Defined Benefit provision, the work of the group will reflect the clear wish of staff to have a guaranteed pension comparable with current provision …’. Any recommendation by the JEP that is perceived to be in opposition to this objective is likely to be seen as a betrayal of members and to increase the probability of industrial action.
We wish to make a further fundamental point. The ACAS agreement made a clear separation between scheme valuation and scheme reform, and placed a discussion of the latter outside the remit of the JEP, for good reason. Any scheme reform is bound to impact differentially on employers and members, and therefore any discussion of such reform can only legitimately take place directly between those appointed to represent the interests of employers and members. It is not acceptable for such a discussion to be led by a panel who were not appointed as representatives of these interests but rather as independent experts charged with providing an objective assessment of the validity of the existing valuation methodology. Of course any UUK–UCU negotiating committee set up to discuss alternative scheme design would need to draw on independent expert advice, but that is very different from asking a panel of independent experts to lead the discussion.
For these reasons we strongly recommend that the JEP refrain altogether from investigating alternative scheme designs and different approaches to risk sharing in the scheme in its second report.
This is a USSbrief, published on 24 July 2019, that belongs to the OpenUPP (Open USS Pension Panel) series. The contents were submitted to the UCU-UUK JEP (Joint Expert Panel) on 14 June 2019 by Tim Wilson on behalf of UCU’s National Dispute Committee for the USS pensions dispute. 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 hashtags #USSbriefs75 and #OpenUPP2018; the authors will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.