Published: 19th December, 2019
The Joint Expert Panel (JEP), which comprises nominees from UUK and UCU and which is chaired by Joanne Segars, chair of the Local Government Pension Scheme, has completed its second report on the USS pension scheme. This report looks in greater depth at how the scheme is run and how the dispute around the cost of the scheme to members can be resolved. You can download the full report here, but here is a quick guide to its recommendations.
Before outlining in slightly more detail the findings of the report, here are some key take away points. JEP2 finds that:
Broadly speaking, JEP2 addresses two questions. First, how might we agree a method of working out costs to scheme members that is satisfactory to employers and employees as well as acceptable to the Pensions Regulator (tPR)? Second, how might we avoid further repeats of this dispute through governance reforms at USS? We outline here some further detail on addressing these:
Shared Valuation Principles
JEP2 recommends that a set of principles be established to ensure that the valuation is completed in a timely way. Put simply, dispute should be prevented by establishing mechanisms whereby the methodology behind triennial valuations can be worked out in consultation with, and reported to, scheme members prior to its commencement. This would be in contrast to members having to react to the announcement of the valuation methodology, educate themselves in its complexities, and then undertake industrial action to reverse a perceived wrong on the part of the scheme. (This is what happened in the last few valuation cycles, to the detriment of all involved, including students.) The panel recommends that the scheme now establish these principles, and mechanisms for agreeing them, so that they underpin the 2020 valuation.
Establishment of Funding and Valuation Subcommittee
Surprisingly, USS does not have a subcommittee that examines issues surrounding funding and valuation of the scheme (it is normal for such schemes to have such a committee). JEP2 calls for the establishment of such a committee so that it can work with the Joint Negotiating Committee (of UUK and UCU representatives) to ensure effective communication with members.
Resource for the Joint Negotiating Committee
The JNC is presently serviced by USS and has no resources of its own. This makes it very difficult for the JNC to commission reports that might assist in negotiations with the Trustee. The report calls for such resource to be made available.
Establishment of a Steering Committee
As noted above, JEP2 has concerns that USS is not thinking about its priorities in the long term but rather focussing on the triennial valuation cycle. It calls for the establishment of a Steering Committee to look at long term issues relating to the scheme and that a member of this committee be represented on the USS board of trustees.
At present, UUK represents the employers on the USS Trustee Board and the JNC. JEP2 questions the logic of this, noting that it forces UUK into an antagonistic role towards scheme members when its mission statement is to encourage cross-sector collaboration. JEP2 suggests replacing UUK in the negotiating structures of the scheme with either UCEA or with the USS Employers. JEP2 also asks UCU to consider how best it can represent non-members.
Dual Discount Rates:
At present, USS plans to ‘de-risk’ the scheme by gradually moving into ‘safe’ assets such as Gilts for its investments over the next 20 years. JEP2 argues that this is not necessary given the nature of the scheme (its relative youth and its unique size and scope). It recommends moving the investments relating to retired members to these safer assets (although whether or not Gilts are particularly safe has been contested) whilst retaining more profitable, if slightly riskier, investments for funds relating to those not yet drawing benefits. Such reforms could see the 2019 contribution rate decreased by up to 4.6%.
The JEP recognises that the scheme has expanded to cover not only universities but also other organisations. Whilst JEP2 considers whether or not these other organisations should be allowed to opt out into a separate scheme within USS providing different returns for different contribution levels it rejects such a proposal.
What is crucial is the speed by which the above will need to be established in order for them to be effective in the present valuation cycle. UUK, UCU and individual institutions themselves will need to bring great pressure to bear on USS in order to get these reforms adopted in a timely manner. To this end, locally we will be calling upon the University of Leicester to add its voice to the call for:
We also call upon the University’s senior leadership to: