USS members set for refund on lost benefits in £900 million deal

A £900 million top-up to Universities Superannuation Scheme pensions is set to reimburse members for money they lost between April 2022 – when benefits were cut – and April 2024 – when they are set to be restored.

Benefit “augmentation” is a key part of a deal between Universities UK and the University and College Union, which also confirms that – subject to the completion of the ongoing USS fund valuation process – employer and employee contributions will be cut substantially.

In a joint statement, the organisations said that scheme members with any service between April 2022 and April 2024 would get a one-off top-up, worth £215 for active members, and with an associated £645 retirement lump sum for active and deferred members. Pensioner members should get £26.

These payments, funded by the USS and worth around £900 million in total, according to UCU, should reimburse members for money they lost after vice-chancellors pushed through cuts to benefits last year amid warnings that the fund faced a multibillion-pound deficit.

UCU estimated that the cuts, if left in place permanently, could have reduced employees’ guaranteed retirement benefits by as much as 35 per cent, costing them thousands of pounds annually once they stopped working.

Long-running industrial action followed but, in the wake of significant shifts in financial markets, the USS is now projecting a £7.4 billion surplus.

Under the deal, UUK and UCU expect benefits to be restored to pre-April 2022 levels from April 2024, meaning an increase in the accrual rate for defined-benefit pensions, an increase in the defined-benefit salary threshold and the removal of the 2.5 per cent per annum cap on pension increases.

And contribution rates – currently running at a combined total of 31.4 per cent – would come down to 20.6 per cent, split between 14.5 per cent from employers and 6.1 per cent from staff.

UUK has estimated that this should mean that a scheme member earning £50,000 will pay £1,750 less a year – £145 less a month – for their pension.

In a joint statement, UUK and UCU say they are “committed to continuing to work together to ensure the stability of benefits and contributions at future valuations”, including “working to achieve a moderately prudent evidence-based valuation as a driver of stability in time for the next valuation, as well as investigating other approaches to ensure ongoing stability, such as an optimal investment strategy for an open, immature, and long-term scheme such as USS”.

The organisations will also jointly explore, they say, “options to make mutually acceptable adjustments to scheme design to further enhance stability of the scheme whilst retaining a predominantly defined-benefit scheme”.

UCU’s higher education committee was due to vote on 5 October on whether to ratify the agreement, which is subject to an ongoing consultation. The proposals are set to go before the USS’ joint negotiating committee – made up of employer and union representatives – on 30 October.

Vivienne Stern, UUK’s chief executive, said she was “delighted” with an agreement that would “bring down costs for both members and employers”.

“This has been possible largely as a result of dramatic changes in economic conditions since the last valuation, including high interest rates, combined with the commitment from employers for additional financial backing – or covenant support,” Ms Stern said.

“When the scheme was in deficit in the past, we took steps to stabilise it. Now that it is in better shape, we are pleased that we can agree to pass on the benefits of the improved position through lower contributions and improved benefits. It is vitally important that we stabilise the scheme to avoid future fluctuations in its fortunes.

“The projected surplus in the scheme is an important protection, but we need to continue to work, with renewed momentum, towards arrangements which will provide longer-term stability.”

UCU said that members had taken 69 days of strike action over USS pensions since 2018, including 14 in 2018 over threats to close the defined-benefit element of the scheme and 55 since 2019 over contribution increases and benefit cuts.

Jo Grady, the union’s general secretary, said it was a “historic victory” for members, who had won their pensions back.

“This is just the start for our union. We have pension justice. We now move on to delivering justice on pay and job security. We will not stop until we create a higher education sector that properly values its staff,” she said.

chris.havergal@timeshighereducation.com