Union proposes increase in contributions to plug USS deficit

The University and College Union has proposed an increase in contributions from employers and employees to the UK higher education sector’s biggest pension scheme, in a bid to save the most generous pay-outs.

The UCU’s plan would require employer contributions to the Universities Superannuation Scheme to rise by 5.5 percentage points, to 23.5 per cent of salaries, and member contributions to increase by 2.9 percentage points, to 10.9 per cent of salaries, according to the pension scheme’s modelling.

UCU believes that this would allow the defined benefit element of USS pensions to be maintained, albeit with a lower accrual rate.

The proposal comes as the union’s members are balloted on strike action over Universities UK’s proposal to end the defined benefit element of the scheme, which calculates that it has a £7.5 billion deficit.

At present, the USS operates a hybrid scheme in which defined benefit pensions can be accumulated on salaries of up to £55,550, with earnings above this threshold directed towards a defined contribution scheme, under which retirement incomes depend solely on returns from money invested in the stock market.

UUK’s proposal would move the entirety of members’ earnings on to a defined contribution model.

A UCU spokesman said that it had been forced to propose the increase in contributions because USS’ valuation process, which the union regards as being overly prudent, indicated such a large deficit.

“In the course of these negotiations, while the employers have refused to move from their position that the guaranteed pension must end, UCU has put forward, on a without prejudice basis, a range of options to provide a basis for negotiation, including one, which the employers are currently consulting on, which would retain guaranteed pensions for all salaries up to £55,500, while reducing the current accrual rate,” he said.

“A solution of this kind would mean an increase in contributions due to the way the deficit is currently being calculated and would be funded using the cost-sharing formula previously agreed in 2014, but UCU would stress this is not the only suggestion we have made and we are not yet clear whether the employers are prepared to move at all from their entrenched position.”

However, a UUK spokesman claimed that the UCU’s proposal would result in scheme members paying in excess of 35 per cent more to get fewer pension benefits than they do currently.

He also expressed concerns about universities’ ability to bankroll a further increase in pension contributions.

“UCU’s proposal would mean employers having to increase contributions to unaffordable levels totalling about £500 million every year,” the spokesman said. “This would necessitate large cuts to budgets in other areas such as teaching and research, and put many jobs at risk.

“In fact, increasing employer contributions to the unsustainable level that UCU is currently proposing could threaten the very security of USS, as employers will no longer have the same capacity to shoulder the level of risk being run in the scheme.”

Modelling released by UUK indicates that its proposal would reduce members’ pension incomes by up to 17 per cent. UCU’s analysis of the same option suggested much higher reductions, however, of up to 39 per cent.

The strike ballot closes on 19 January.

sophie.inge@timeshighereducation.com