Implementing proposals put forward by vice-chancellors would mean that increases in contributions to UK higher education’s biggest pension fund could be reined in, the scheme’s chief executive has said.
In a letter to vice-chancellors, seen by Times Higher Education, the Universities Superannuation Scheme’s Bill Galvin says that options set out by Universities UK in a consultation, which are aimed at staving off large hikes in contributions to the USS, “demonstrate a clear desire to find a holistic solution to the funding challenges facing the scheme”.
The latest valuation produced by the USS said contributions from employers and staff would need to rise to between 42.1 per cent and 56.2 per cent of salaries to protect current benefits.
UUK has said this would be “unaffordable” to both employers and staff, who currently pay a combined total of 30.7 per cent of salaries, and has set out its own proposals to lower the overall contribution amount in its consultation.
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 proposed reducing the threshold for the defined benefit cut-off to £40,000 and 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 were also asked to agree to a 20-year rolling moratorium on employers exiting the scheme without the USS’ consent.
In his letter, Mr Galvin says the USS’ initial assessment was that these proposals could be implemented by April 2022 with a total contribution rate of 34.7 per cent.
Contributions are already set to grow to 34.7 per cent in October 2021, as set out in the 2018 valuation.
University and College Union members have taken part in a series of strikes across the past three years in opposition to the rises. The union has also opposed the USS valuation, but neither does it support UUK’s proposals.
Mr Galvin says the board welcomed the suggestion of a longer 20-year moratorium on employer exits but adds that there is “more work to do” on the assumptions appropriate to the covenant support measures and benefit structures set out by UUK.
The scale of increases would depend on the covenant support measures provided by employers, he says.
He adds that “a more favourable overall rate” than 34.7 per cent could be achieved using the proposed benefit structures, but could not be decided until they know the mandate UUK has been given on its proposals. Its consultation closes on 24 May.
Formal proposals from employers are tabled at the scheme’s joint negotiating committee. “UCU may also want to consider alternative proposals and formally present those at the JNC and we stand ready to support that process,” Mr Galvin says. The USS has given the JNC a three-month extension to consider its proposals, he adds.
“We recognise difficult choices need to be made by all parties; choices that will not be easy for employers, members or the trustee,” Mr Galvin says.
“We believe there are grounds for cautious optimism. A way forward is emerging that could address affordability concerns and put the scheme on a more sustainable footing, but which could also see members continue to build up a meaningful level of inflation-protected income for life in retirement.”