Consultation on proposed changes to the USS pension scheme
Background:
The USS pensions scheme has recently published a valuation report in which substantial increases in contributions are proposed to maintain benefits at current levels and to address the scheme’s deficit.
UCU’s position is that an increase in contributions would simply be unaffordable, both for you and for the university. They would have a significant and unacceptable adverse impact on our community and our ability to deliver QUB’s academic mission. The risks are especially urgent for early career colleagues, who risk being priced out of the scheme altogether.
UUK, which represents the employing universities in USS, has now opened their employer consultation on the recent valuation of the USS pension scheme. At this stage, they are only seeking responses directly from employer institutions and there will be a separate member consultation later in the year. However, the registrar would like to hear what you think about the proposals so that this can inform Queen’s institutional response: you can access the survey here.
The questions in this survey are taken directly from the USS consultation document and are quite leading. The purpose of the survey is to provide an evidence base that employees are concerned about USS’ proposals. There is no scope within the survey, however, to express concerns about the way that the scheme is being managed by USS. We should be concerned by USS’ management of the scheme.
The USS consultation documents you can access all of the relevant documents via the USS Employers website.
Below please find our suggested responses to the survey.
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Covenant Support Measures
The first two questions are about your personal circumstances
3. I consider the USS pension to be a valuable part of my overall employment reward package: Strongly agree
4. When I started in my role, I considered the USS pension as an attraction of working at the university: Strongly agree
5. Do you consider the USS pension as an attraction of working at the University currently: Somewhat agree
6. Would you be willing to support a flexible option which would allow members of the scheme to pay in less than the required member rate (currently 9.6% of salary) for a short period of time, for a lower level of benefit: No
Explanation: This is not how pensions work and there is a cost associated with reorganising the pension scheme this way. If you want a guaranteed income in retirement you need to commit to regularly contributing money into the scheme. If USS sees that many employees want flexibility they will use this as an argument for a transition to a less secure defined contribution scheme.
7. Do you think the level of contributions to USS at the current rate of 9.6% of salary per-month is readily affordable or concerning? Readily affordable
Explanation: Again these questions about whether the costs are there so that USS can build a case that staff do not have confidence in the current scheme.
8. Would you be concerned about affordability if your contributions to USS were to increase? Somewhat concerned
Explanation: See answer to question 8
9. Are you aware that the university also contributed over one-fifth of your salary (21.1%) into your pension? Yes
Explanation: We should be insulted by this sort of question. Of course we know how the pension works.
10. The USS pension scheme offers value for money: Somewhat agree
Explanation: The USS pension does offer value for money but can be made stronger if the valuation is less dubious.
11. Do you consider the promises provided by the defined Benefit part of the scheme (the USS Income Builder) to be worth retaining going forwards regardless of the cost to you? Yes
Explanation: This is what we want. A guaranteed income in retirement.
12. Do you know that the Defined Contribution (DC) provision (the USS Investment Builder) forms part of the scheme design and that it can offer extra options and flexibility? Yes, I was aware of the DC part, and the extra options and flexibility
Explanation: This question is about making the case that the problem of our attachment to the DB scheme is simply a consequence of the fact that we don’t understand what DC is. We understand DC and we don’t want it. We want to make clear that we want DB.
13. Death and incapacity benefits, and leaving something for my family and other beneficiaries is important to me: Strongly agree.
14. Other comments:
Below is a suggested response to this open question, please feel free to adjust and reword:
I am very concerned about the methodology that is being used for this survey. There are numerous problems with the 2020 valuation of the USS scheme. The fact that we are sent a survey to fill in that does not allow us to comment on the issues that there seem to be with the management of the scheme is highly concerning. It gives the misleading impression to staff that there are no issues with the valuation and the management of the scheme.
To be clear, employees have a right to consider their pensions as deferred wages, and not speculative investments. They therefore have the right to a pension covenant protecting the value of their pensions, and not be expected to pay additional contributions due to failures in the management of the scheme. In any case, as noted above, in the context of a low-to-negative value scheme, where contributions outstrip benefits, any flexibility is liable to lead to further reduction in DB income.
I do not believe that the March 2020 valuation is a credible or viable starting point for consultation about the future of the USS Defined Benefit scheme. Whereas even the most overly-prudent (i.e. pessimistic) assumptions of previous valuations projected asset values rising over the medium to long term, this valuation projects asset values as falling in real terms, and then demands future contributions to compensate for this projection.
Valuations are not sacrosanct. The September and November 2017 valuations were set aside in favour of a new one in 2018. I believe UUK must continue to press USS to do the same to the 2020 valuation, both by challenging the valuation methodology assumptions and by using more up-to-date data on the value of the actual assets and updated mortality figures due to Covid.
Queen’s must remain committed to the scheme. The scheme has provided good value for money in the past, permitting staff to retire on comfortable pensions. The scheme has accrued £80bn in assets. It is an “immature” net cash positive growing scheme. The fact that this particular valuation is so pessimistic raises serious questions about the competence, methodology and evidence base of the valuations being undertaken.
In the light of my low confidence in the valuation methodology and outcome I find it hard to accept that Queen’s should put aside its assets or make contingent contributions to meet a shortfall that appears to be an artifact of the valuation. The suggestion in this survey that staff contributions must increase is also premature. I do believe that the sector is financially healthy, despite Covid-19. It has proved successful in adapting to the current circumstances, and has delivered huge societal benefits in the pandemic. This should be reason enough for the Government to stand with the sector and shoulder some of the risk, however putative this risk might be.
There is no good reason to seek higher contributions from employees. To do so could exacerbate rather than solve scheme finances. Staff salaries have fallen by 20% in the last decade. Given that 1 in 6 eligible employees are already opting out, I do not believe that higher employee contributions are sustainable.
I think Queen’s should explore the potential for a temporary increase in employer contributions as part of a package of measures to ensure a new valuation is conducted.
The existence of a hybrid structure has been controversial, and Defined Contribution remains unpopular. Were it to become a greater part of the pension, as the result of lowering the cap as UUK propose, it will expose staff to a greater risk of yielding low value at the point of retirement, due to both stock market volatility and costs arising from conversion to annuities. I do not believe that it is reasonable for staff to be expected to gamble with their retirement.
