A proposal, to make changes to the Universities Superannuation Scheme Ltd (USS), has been carried by the Joint Negotiating Committee (JNC).
The JNC is the formal and legally established forum for deciding changes to USS, one of the largest private pension schemes in the UK.
Universities UK (UUK) and University College Union (UCU) representatives on the JNC have met over 30 times to discuss potential changes to the scheme following the last valuation in 2017 which showed that the pension was in deficit.
The JNC considered two proposals, one from employers and another from UCU. The UCU proposal was the same proposal as tabled on 19 December 2017. To adopt UCU’s proposal would have required raising employer contributions (by 5.5% of salaries) and member contributions (by 2.9% salaries) to unaffordable levels.
When it was put to the vote, both sides aligned with their own proposals. The independent JNC chair, who holds a casting vote, voted in favour of the employers’ recommendation making it the formal JNC proposal.
The University of Southampton recognises the importance of being able to support high quality pension schemes and understands that this is an extremely important issue of great personal interest to many of our colleagues. The University has made clear it wants to reach the best possible outcome for staff whilst continuing to pay its contribution of 18% of salaries towards USS.
What is the formal JNC proposal?
A detailed outline of the benefit reform proposal is on the Universities UK’s website. The main changes are summarised below:
Employer contributions
- Employers will continue to pay a contribution of 18% of salaries towards USS, and it is proposed that this important commitment is extended from March 2020 to March 2023. Employer contributions are to pay for both the past service deficit and the 13.25% contribution proposed for the future DC scheme.
Member contributions
- Members will continue to pay 8% of salaries towards USS.
- A new option is being proposed which would allow members to pay less (4% is proposed), whilst still benefitting from the full employer contribution of 18%.
Main benefit change
- The main JNC proposal is to move from a Defined Benefit to a Defined Contribution arrangement. Members will earn defined contribution (DC) benefits on all of their salary from April 2019. Currently DC benefits are only earned on salary over £55,550, with defined benefits (DB) earned on salary below the threshold.
- DC and DB benefits are quite distinct, and both have their advantages.
- In a DC scheme, members have individual saving pots (or funds) that both they and their employer pay into. At retirement, members draw their pension savings from their fund which consists of all of the contributions paid in plus the investment returns that have been earned. They can then choose whether they wish to take out all their retirement savings as a lump sum, or to opt for alternative options such as a pension (known as an annuity) or drawdown (where cash is drawn from the fund periodically).
More on DC and DB schemes can be found on the UUK website.
Features of the Defined Contribution scheme
- The DC offer proposed would represent exceptional pension provision, containing important and valuable enhancements, and all delivered using the existing USS Investment Builder.
- Employer contributions directly to members’ DC accounts is proposed to be 13.25% of salaries. To put this into context, this is almost double the median employer contribution rate to DC savings by employers generally in the private sector.
- USS employers would fully subsidise investment charges – meaning that more of your money is invested to grow your pension savings – and in addition USS’s DC investment funds continue to perform strongly.
- One of the most attractive features of the JNC’s proposal is that it opens up new choices for members on how they might use their pension savings, and when these savings can be drawn. DC pension saving offers much greater freedom and choice, and employer wants to give members much greater flexibility, and control, over their financial options as they move from work into retirement.
Death and incapacity benefits
- Death and incapacity benefits will not be changed. They will continue to be awarded on a defined basis to provide certainty to members and their families in the most challenging of circumstances – this is another important measure in building genuinely exceptional future pension provision.
Longer-term USS
Defined benefits, or alternative scheme structures, could be re-introduced in future if the scheme’s funding situation improves.
Why is this happening?
Around the world DB pension schemes have become increasingly expensive due to slower economic growth and lower investment return expectations. Over the last decade employers have paid almost 30% more towards USS benefits. However, at the latest valuation employers were not in a position to pay even higher contributions, and it is believed that many members would struggle with higher contributions too.
What will happen to any pension already built up by members?
No changes will be made to the pension members have already built up. Any changes to benefits will only affect pensions earned after a future implementation date (suggested to be 1 April 2019),
I’m a member of USS what do I need to do now?
If you are member of USS, you don’t have to do anything at the moment. The proposal will now be considered by the USS Trustees and, if they agree, a formal 60-day consultation will be started in March 2018.
How can I engage with any future consultation?
More details about any consultation will be available in the coming weeks and USS members will be given an opportunity to give their views about the proposal so that they can be reflected in any final reforms that are decided on.
The University is committed to supporting its staff with pension consultations and will provide briefing sessions and workshops for members to help them understand what the proposed changes mean to them. More information about these will be sent to members’ home addresses and published on SUSSED in the coming weeks.
The following articles on the USS website set out the underlying facts and principles that have come into play with the latest valuation:
2017 valuation funding review: the challenges
Investment challenges: the facts
Further information can be found on:
All SUSSED posts on pensions can be found here.
