Universities UK (UUK) has proposed making pensions provided by the sector’s biggest fund less generous in order to stave off “unaffordable” planned increases in contributions.
The proposal is a counter offer to the latest valuation produced by the Universities Superannuation Scheme (USS), which said that contributions from employers and staff?would need to rise?to between 42.1 per cent and 56.2 per cent of salaries in order to protect current benefits.
Both UUK and unions have said that such an increase would be unaffordable for institutions and staff, who pay a combined total of 30.7 per cent of salaries.
After the USS?rejected UUK’s request for a review of the valuation, vice-chancellors have produced an alternative option.
“We fully appreciate that benefit changes will be unwelcome for members of the scheme. However, unless both employers and members agree to pay much higher contributions, we cannot see another solution to this valuation,” UUK says.
The USS scheme has a hybrid structure, with defined benefits – which offer a guaranteed amount of pension – accrued on earnings up to a salary threshold, currently set at just under ?60,000. Twenty per cent of earnings above that threshold is invested into a defined contribution scheme, under which incomes are tied to stock market performance.
UUK’s consultation proposes reducing the threshold for the defined benefit cut-off to ?40,000. The organisation said that two-thirds of members would still have defined benefits applied to 80 per cent of their salaries.
The plan also proposes changing the accrual rate – the proportion of earnings received as a pension for each year in the scheme – to 1/85th?of salary, instead of 1/75th of salary.
Employers are also being asked if they can offer additional financial assurances, referred to as covenant support. These would include a 20-year rolling moratorium on employers exiting the scheme without the USS’ consent.
Another proposal, designed to address the high opt-out rate from the USS among university staff who feel that they cannot afford to participate in the scheme, would allow staff to choose to pay less for a period but still benefit from employer contributions if they are at the start of their career or on a lower pay grade. Up to one in five eligible university workers are thought to have opted out.
The proposed changes to benefits and increased covenant support “should enable the USS trustee to take a less cautious approach to their valuation assumptions”, UUK says, enabling “a significant defined benefit element to be preserved at current contribution levels”. The USS fund has an estimated deficit of between ?14.9 billion and ?17.9 billion.
“We are not arguing the scheme status quo can be maintained with the deficit at the scale reported; some reforms will be needed,” said Julia Buckingham, UUK’s president. “However, we must ensure that any reforms are proportionate, justified and in the best interest of scheme members.”
A USS spokeswoman described UUK’s proposal as “constructive”.
But Jo Grady, general secretary of the University and College Union, said that it was “almost identical” to UUK proposals dropped in the face of strike action in 2018 and came “at an even higher price in terms of employer and member contributions”.
“Employers have offered very little to dissuade members from voting for another round of industrial action,” Dr Grady said.
“USS is a uniquely robust defined benefit pension scheme, backed by many strong employers in a financially healthy and world-renowned sector of the UK’s economy.
“University staff deserve much better than the weak commitments and half-baked proposals which employers are putting forward.”
UUK has asked universities to engage with members and gather their views on the proposals. The deadline for responses is 24 May.