Looks at the consultation on the 2017 valuation of the Universities Superannuation Scheme (USS) and the proposed reformsJump to full report >>
Recent valuations of the USS have shown an increasing deficit, the main cause being “lower expected levels of future investment returns and lower yields on index-linked gilts” (2017 Annual Report).
In September 2017, the USS Trustee launched a 4-week consultation with Universities UK (UUK) on the assumptions it would take for the 2017 valuation. It proposed a “prudent” approach to the assumptions on investment returns. An important factor in this was that although investment returns had been higher than expected, these were likely to reduce in future. Other things being equal, a prudent approach to the assumptions on investment returns would require a higher level of contributions (from employers and employees) because the return on assets is expected to be lower. (USS, 2017 Actuarial Valuation, 1 September 2017, p7)
However, UUK’s response indicated that the Trustee should take a more moderate approach to risk. The Trustee therefore agreed to “retain the 2014 approach to de-risk the scheme’s investments over the next 20 years.” In practice, this would result in a marginally lower income from investments, requiring a higher level of contributions and increasing the estimated deficit (UUK responds to USS consultation on funding proposals).
A report by First Actuarial for the University and College Union (UCU) challenged the Trustee’s approach. It argued that a focused on the cash-flow needed to pay benefits showed that there was “no need to change either the contribution rate or the benefits to have a prudent funding plan.” The Trustee’s approach risked a vicious circle: on the basis that the trustees had responded to the employers’ concern that they did not want an increase in contribution rates by setting “a higher funding target and lower “investment risk”, two actions which are guaranteed to put the employers’ contribution rate up.”
On 17 November 2017, Universities UK proposed closing the scheme to the build-up of future benefits, which would be provided instead through a defined contribution (DC) scheme. Employers would continue to maintain their total contribution at 18% of salaries.
UUK put forward revised proposals, which were agreed to on 23 January 2018 by the Joint Negotiating Committee (made up of equal numbers of representatives from UUK and the UCU and an independent chair), on the casting vote of the chair. This decision results in an estimated funding deficit of £6.1 billion, which means the scheme is 91% funded (USS website, proposed changes to future USS benefits).
On 12 March 2018, an agreement was reached between UUK and UCU. Key aspects were to retain a defined benefit scheme for three years from 2019, during which:
However, the proposal was rejected by UCU members on 13 March 2018. UUK expressed its disappointment. On 14 March it said it was "consulting with the scheme's employers to get their views on the joint proposals developed at ACAS" and planned "more, urgent talks with UCU to end the dispute."
Commons Briefing papers CBP-8156
Author: Djuna Thurley