How will the changes affect me?

Who is involved?

Universities UK (UUK)

UUK is the collective voice of 136 universities in England, Scotland, Wales and Northern Ireland. It is the nominated formal representative for over 350 employers participating in the USS pension scheme. 

Visit the UUK website

University and College Union (UCU)

UCU is a trade union that represents staff at UK universities. It is the nominated formal representative for USS scheme members. 

Visit the UCU website

Joint Negotiating Committee (JNC)

The JNC decides how increases in costs to the scheme should be met after the USS scheme has established the contribution rate required for the current level of benefits. The JNC’s options are to increase contributions or change future benefits or a combination of both. The JNC can also feed in its views on a number of other areas in the scheme, including the level of risk to take when calculating the contribution rate required.

The JNC is made up of five representatives from UCU, five representatives from UUK, and an independent chair.

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. Access the terms of reference for the JEP

The JEP’s current work

The JEP has now started phase two of its work. This will be divided into two interlinking parts:

  1. The valuation process and governance.
  2. How the long-term sustainability of the Scheme might be secured through the development of a shared set of principles. The JEP will revisit the valuation of technical provisions and other aspects of the valuation methodology, including Test 1.

The JEP is now due to provide its second report later in 2019. Read the update from the JEP

The JEP’s first report – September 2018

The JEP published its first report on 13 September 2018. The report includes an assessment of the methodology, assumptions and process underpinning the 2017 valuation. The report also explores the scope for possible adjustments to the methodology which would allow the valuation to be concluded.

You can read the full report online. In summary, the JEP unanimously recommended four areas where adjustments to the valuation should be considered:

  • A re-evaluation of the employers’ attitude to risk, which would result in a re-evaluation of the reliance on the sponsor covenant.
  • Adopting a greater consistency of approach between the 2014 and 2017 valuations, which affects the scale and timing of deficit recovery contributions.
  • Ensuring fairness and equality between generations of scheme members by smoothing future service contributions.
  • Ensuring the valuation uses the most recently available information which means taking account of recent market improvements, new investment considerations and the latest data on mortality, for example.

In the statement releasing the report, the JEP said:

“Adjustments in each of these areas would have a material impact on the valuation and resulting contribution increases. The level of benefits is a matter for the stakeholders to negotiate. However, it is the Panel’s belief, based on independent actuarial analysis, that the full implementation of these adjustments could mean total required contributions estimated at 29.2% to fund current benefits (minus the 1% match). This compares to the current rate of 26% (18% of salary paid by employers, 8% by employees) and the rate of 36.6% from April 2020 which is proposed by USS, based on the valuation as it stands.”

UCU, UUK and USS have responded to the report:

We have created a modeller so that you can enter your own salary and see the potential impact of the JEP proposals (were they to be accepted by all parties). Download the modeller [Excel]

The Pensions Regulator (TPR)

The Pensions Regulator is a public body, sponsored by the Department for Work and Pensions, set up to protect people’s savings in workplace pensions. One of the Regulator’s key priorities is to reduce the risk that pension schemes will require taxpayer support to meet their obligations.

USS Trustee

The Universities Superannuation Scheme pension is used by 350 employers nationally and it is the second largest private pension scheme in the UK by fund size. At Imperial, all staff in the academic and research job family, and staff at levels 4 and above in the professional, technical and operational job families are eligible to join the scheme. 

The legal obligation on the USS Trustee is to ensure that the pension fund is financially stable in accordance with rules set by the Pensions Regulator. 

Other pensions questions

Can I join another pension scheme, like the NHS, TPS or SAUL?

If you are currently a USS member, then you cannot change to a different pension scheme because of the exclusivity rules set by the USS.

Is the USS like the Teachers’ Pension Scheme and NHS pension scheme?

Academics at some universities (particularly post-1992 universities) are in the Teachers’ Pension Scheme (TPS) rather than the USS. If you are medical staff working in the NHS you may be in the NHS pensions scheme rather than the USS. These two schemes are very different from the USS.

TPS and NHS are public sector unfunded schemes backed by the UK taxpayer. In contrast, the USS is a private sector scheme directly backed by higher education institutions with a fund set aside (from employer and member contributions, plus investment return) to pay pensions. This means that USS employers carry the risk if the fund is insufficient to deliver the agreed pensions, whereas TPS and NHS pensions are ultimately underwritten by HM Treasury. Unlike the USS, TPS and NHS are not reliant on investment performance, and are not subject to the same regulations that the USS must follow. Although these schemes do still offer a defined benefit pension, the cost to employees in the scheme is higher than those paying into the current USS scheme.

NHS contribution rates

TPS contribution rates

Is USS a Defined Benefit or a Defined Contribution scheme currently?

The USS is a hybrid scheme, meaning that it is partly a Defined Benefit scheme and partly a Defined Contribution scheme. Members currently earn a Defined Benefit pension on salary up to £57,216.50 and Defined Contribution benefits on salaries above this threshold. The USS is one of the largest private pension schemes in the UK that currently still allows new Defined Benefits to be built up.

What did the 2014 valuation show and what actions were taken?

The 2014 valuation showed a funding deficit of £5.3bn and a rise in the cost of future defined benefits. UUK and UCU agreed a package of reforms to address these funding challenges. The plan at that time was to recover that deficit over a 17-year period.

As part of the reform, both members and employers agreed to pay more towards the USS and changes were introduced to pensions’ provision from April 2016. The USS became a hybrid scheme, offering defined benefits (currently on salary up to £57,216.50) through the USS Retirement Income Builder, and defined contribution-type benefits on salary above the threshold through the USS Investment Builder.

What did the 2017 valuation show?

The 2017 valuation showed that the USS scheme had a £6.1bn deficit. Since the last valuation in 2014, economic conditions for defined benefit pensions have worsened. As a result, the position at the 2017 valuation was much worse than expected.

Every three years, the USS carries out a valuation to establish at a particular point in time whether it can reasonably expect to have enough money to pay the pensions that all members have already built up in the scheme, and how much is needed to continue to provide the current level of pensions in future for members still actively paying in.

As well as being a specific legal requirement, the valuation gives the USS, UUK and UCU representatives the opportunity to formally take stock and, through the JNC, consider whether the findings mean any adjustments need to be made to future contribution rates, to future benefits – or both.

The USS is required to sign off the valuation and submit its report to The Pensions Regulator (TPR) within 15 months of the valuation date.

What is the difference between a Defined Benefit and a Defined Contribution pension scheme?

In a Defined Benefit scheme, the employer agrees to provide a specified, fixed, annual pension payment and/or lump sum at retirement, which is calculated through a formula based on a member’s salary and length of service. The amount usually increases with inflation and is guaranteed until death.

In a Defined Contribution scheme, members have individual saving pots that both they and their employer pay into. At retirement, members draw their pension savings from this fund, which consists of all the employer and employee contributions paid in over the years, plus investment returns that have been earned by investing the scheme in, for example, stocks and shares.

In this kind of scheme, employees can choose whether they wish to take out all their retirement savings as a lump sum, or to opt for alternative options such as an annuity or drawdown. An annuity is a fixed sum of money paid to someone each year, typically for the rest of his or her life. The annuity option provides a guaranteed regular retirement income from your individual saving pot. Drawdown involves keeping your individual saving pot invested but regularly drawing an income from it rather than purchasing an annuity.