USS valuation process ‘no longer fit for purpose’, says panel

The valuation governance of UK higher education’s biggest pension scheme is “no longer fit for purpose”, according to a group of experts who have examined the fund.

The second report of the joint expert panel, which was set up after university staff went on strike in 2018 over planned changes to the Universities Superannuation Scheme, says that changes are needed to the scheme’s valuation system and that they must happen swiftly.

The panel says this will involve changes not only to the way in which the interested parties – the University and College Union, Universities UK and the USS itself – work together, but also to the scheme’s rules.

“The scheme needs an approach to valuation governance that supports a clear and shared understanding of how the parties will together approach valuations,” according to the panel members.

This would include adopting a simpler valuation methodology, as the current approach is “overly restrictive” and does “not appear appropriate for an open, strong scheme”.

The report recommends the establishment of a new, jointly agreed purpose statement and shared valuation principles. It also suggests reconsidering UUK’s role as the employer representative in the dispute because the position is “at odds” with UUK’s responsibilities to lead cross-sector collaboration and to influence policy.

The report also recommends that the union, employers and the USS consider tiered contributions to the scheme to prevent younger members from opting out if they feel the scheme is unaffordable.

The USS has maintained that both employee and employer contributions must rise because of risks to the scheme. However, the report says the trustees’ current approach to risk is “overly prudent”.

The panel’s first report, published in 2018, suggested that existing benefits offered by the USS scheme could be preserved if members paid an extra 1.1 per cent of their salaries into the fund.

However, the union and employers have remained steadfast in their positions on contribution rises in the disagreement, and staff went on strike for two weeks at the end of November. More strikes are likely to happen in 2020.

The panel says the collective failure to go forward with these recommendations was “a missed opportunity to resolve the dispute and provide room for a discussion of the longer-term issues facing the scheme”.

According to the panel, “failure to urgently address the issues raised in this report would be a disaster for members, employers and the sector”. It urges the trustees of the scheme and the Pensions Regulator to factor in the reforms before the 2020 valuation.

The UCU general secretary, Jo Grady, welcomed the report, saying that it “makes some strong recommendations that, if implemented, should give scheme members greater confidence about how the scheme is run. We are particularly pleased that the report highlights the importance of mutuality.

“This report sets out a path which may provide an opportunity for lower contributions than USS has scheduled. We need all parties to now engage with the report in order to secure members’ pension benefits in an affordable way and to ensure the scheme’s long-term sustainability,” Dr Grady said. “While implementation of the JEP recommendations won’t solve all the issues at stake in the dispute, this report provides a strong starting point for further discussions.”

Julia Buckingham, UUK president, said the panel had made a helpful set of recommendations to strengthen the scheme, adding that she hoped the report would be a “catalyst and platform for developing a joint approach between the union, the scheme’s trustee board and employers for the 2020 valuation of USS”.

“We will shortly seek employers’ views on the issues and options suggested by the panel to inform our joint working with the University and College Union and USS trustee to reform the scheme. We know that employers want to progress discussions as quickly as possible,” Professor Buckingham said.

“Priorities include jointly agreeing a refreshed scheme purpose and valuation principles; reforming the governance; and exploring different approaches to the valuation methodology for 2020.”

Joanne Segars, chair of the JEP, said the recommendations “are rooted in the belief that the USS is of crucial importance to members, employers and to the health of the higher education sector”.

“We propose significant changes to governance and valuation methodology, each of which may be difficult for individual parties to accept,” she said. “However, as work on the 2020 valuation commences, employers, unions and the trustee must urgently come together through a facilitated process to make them work.”

anna.mckie@timeshighereducation.com