Durham University

Human Resources & Organisational Development

Proposed USS Changes

Archived updates are available via the link on the left.

A series of consultations relating to the scheme valuations has been held over recent months. The following information provides further details of the current situation.

Latest Update

In response to UUK’s proposals and its overall feedback on behalf of employers, USS has put forward three options for finalising the 2018 valuation. Full details of these options can be found on the USS website (link).

All three options require an increase in contributions and none is ideal for employers or employees. However, to address the ongoing USS deficit, it is clear that additional contributions will be required until at least the next proposed valuation. Our own position is that we believe Option 3 to be the most pragmatic and least detrimental option as an interim solution, although it is subject to further information being provided by USS.

The contribution rates that would apply under Option 3 are 21.1% of salary for employers and 9.6% of salary for members. Importantly, there would be no changes at all in the level of benefits.

These rates should be considered against the higher increases that would be due in October 2019 and April 2020 under the 2017 valuation. Unless an alternative conclusion is reached, employers are legally required to implement these contributions, meaning that the employer contribution will rise to 22.5% of salary from 1 October 2019, and the member contribution will rise to 10.4% of salary (see table below).

If the 2018 valuation is concluded under Option 3, this will still represent a considerable additional cost to the employers. Nationally this is estimated to be an extra £250 million per annum. At Durham it will be an additional £1.2m for each 1% increase in employer contributions.

With Option 3, individuals will still contribute less than 10% of salary and our hope would be that this can be reduced in future as economic conditions improve. The alternative options all require much more substantial contribution increases by both employers and individual members either now or very likely in the immediate future.

Crucially, Option 3 now allows time for JEP phase two to be undertaken and for further discussions between stakeholders. The Employers are working with UCU and USS on JEP 2, and will seek a commitment from the Trustee to engage with its next recommendations in the hope of finding a long-term solution in the interest of employers and members.

UCU have contacted us to seek confirmation that benefit cuts and/or contribution increases will not be implemented. Within the context, we have been unable to agree to this request to reject all the options proposed by USS and to maintain contributions at the current level.

We fully appreciate and share the concerns of our staff regarding the impact of higher pension contributions, being committed to providing a secure, retirement income for staff. The USS remains one of the UK’s most generous large-scale pension schemes.Employers, unions, the USS Trustee and the Pensions Regulator must all now work together to ensure the longer-term sustainability, and affordability, of the scheme for all its members.

Background

Universities UK (UUK) represents higher education employers in discussions over the future of the USS scheme. Following a valuation in 2017 which highlighted a significant funding deficit UUK has been negotiating with the University and College Union (UCU) in relation to proposed changes to address the deficit and ensure a long term sustainable funding solution for USS.

The Joint Expert Panel (JEP)

(The JEP is a panel of independent experts who have been reviewing the 2017 USS valuation since May 2018. It is comprised of six actuarial and academic experts – three nominated by UUK, and three by UCU. The panel is led by a jointly agreed chair, Joanne Segars OBE (USS information on JEP).)

Failure to reach agreement on the 2017 valuation - led by USS - promoted the commission of a Joint Expert Panel (JEP) to independently assess the valuation. The JEP reported its finding on the 2017 valuation and put forward alternative funding proposals for USS to consider. .

To make sure the implications of this development were fully understood USS agreed to carry out an updated valuation of the scheme’s funding position – as at 31 March 2018.

Following the conclusion of the 2017 USS valuation, USS is consulting with UUK and employers on the 2018 valuation. This includes USS’s consideration of the report of the first JEP.

How does the 2017 valuation affect my contributions?

USS has confirmed that the 2017 valuation, which was finalised before consideration of the recommendations of phase one of the JEP, is now closed and has been submitted to the Pensions Regulator. Unless an alternative solution can be agreed as part of the current negotiations, under the 2017 USS valuation the employer and employee contributions will increase as part of the cost sharing process set out in the scheme rules. Increases are as follows:

Effective date

Employer contribution rate

Member contribution rate

Total

1 April 2019

19.5%

8.8%

28.3%

1 October 2019

22.5%

10.4%

32.9%

1 April 2020 (includes allowance for 5% deficit contribution)

24.2%

11.4%

35.6%

In addition, the 1 percent employer matching contribution ended on 1 April 2019; staff can still pay in the additional 1 percent but this will no longer be matched.

It is hoped that a solution can be found through the 2018 valuation consultation to avoid the significant increase in employer and employee contributions in October 2019.

Scheme valuation developments

On 2 January 2019 the USS Trustee Board commenced a consultation relating to the 2018 actuarial valuation. Details are available via the UUK website.

UUK held a consultation on aspects of the USS 2018 Actuarial Valuation and Durham’s response is attached via the previous updates link on the left. The deadline for responses to UUK was 13 March and UUK then responded collectively to the USS Trustee Board. UUK’s response based on input from employers representing 89 percent of the USS membership can be found on the USS Employers website (link).

The USS Trustee Board met on 27 March and the Joint Negotiating Committee met on 3 April and the Trade Union UCU had meetings of its own committees on 5 and 12 April.

In response to UUK’s proposals and its overall feedback on behalf of employers, USS has put forward three options for finalising the 2018 valuation.

What happens next?

USS has written to UUK, UCU and the Chair of the JNC to set out the three options in more detail and gain feedback.

The JEP itself is continuing to meet to discuss the second phase of its work which looks at alternative approaches to future valuations and at how the governance of USS might be improved.

The 2018 valuation once concluded will result in a new schedule of contributions and recovery plan which will override the 2017 valuation versions of these documents. The timescale for completion of the 2018 valuation is by 30 June 2019.

Potential timescales

30 June 2019: Statutory deadline for submitting the valuation to The Pensions Regulator

End July 2019: Date for finalisation of the accounting provision for USS

1 October 2019: 2017 valuation contribution increases (22.5% employer, 10.4% member) implemented unless superseded by a new schedule of contributions

31 March 2021: Next actuarial valuation of USS

Where can I find out more?

You can use the links on the right to find out more from USS, UUK and UCU. Look out for direct communications from USS - a webinar was held in March so more may take place.