We are acutely aware of the strength of feeling on the ongoing pensions dispute and the impact it is having on our community. We are listening to your concerns and your views have played an important role in shaping the College’s response to the situation to date.
We shall continue to seek transparency from all parties involved in the discussions to resolve the issues surrounding the USS pension funds and to press for decisions based on evidence that is available to everyone.
Consultation on the 2018 valuation - March 2019
What is the consultation about?
USS have 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. Under the 2017 valuation the employer and employee contributions will increase as follows:
|Effective date||Employer contribution||Employee contribution||Total|
|1 April 2019||19.5%||8.8%||28.3%|
|1 October 2019||22.5%||10.4%||32.9%|
|1 April 2020||24.2%||11.4%||35.6%|
USS are now consulting with employers on a 2018 valuation. This valuation includes USS’s consideration of the JEP report. They are willing to accept some, but not all, of the JEP recommendations because they consider full acceptance would stretch the risk parameters for the scheme beyond an acceptable level. Their rationale can be read in detail here.
USS have proposed two options to replace the 2017 schedule of contributions. These are described as an Upper Bookend or Lower Bookend approach. In the Upper Bookend option, the total contribution that would need to be paid to maintain existing benefits would be 33.7%.
This would be cost shared as a 23% employer contribution and a 10.7% employee contribution.
In the Lower Bookend option, USS would set the total contribution that would need to be paid to maintain existing benefits at 29.7% but only if additional contingent contributions were guaranteed to be made available to the USS Trustees if market events caused a further deterioration in the recovery of the deficit that they have assessed within the scheme.
This would vary the rate to a 20.4% employer contribution and a 9.3% employee contribution with the possibility of higher rates if contingent contributions were triggered.
USS have set eleven principles under which they would be prepared to consider contingent contributions and asked UUK to respond to its proposed options for the 2018 valuation. UUK have been invited to develop and submit a proposal in line with the eleven principles, if UUK wishes to pursue the Lower Bookend contribution option. UUK have engaged the actuarial services of AON to review the USS material and to develop a potential proposal for contingent contributions.
It is important to note that the USS Trustee determines the contributions following consultation with UUK. USS does not require the agreement of UUK or the Joint Employer/UCU Negotiating Committee. If UUK and USS do not come to an agreement on the revised contributions for the 2018 valuation, then the 2017 valuation outcome and the set of contributions in the table above will stand.
Imperial’s approach to the consultation
While we have been waiting for the consultation material, we have discussed some principles with the College community and the local branch officers from UCU to support our decision making on this issue. Following feedback on these principles, we are developing a proposed position along the following lines:
- In our response to the 2017 valuation, we said that we do not believe we have seen evidence that justifies the level of deficit contributions set out by USS. We stated that USS should continue to include asset outperformance in its assumptions consistent with the 2014 valuation approach. We have not seen any additional information in the material distributed in the 2018 valuation material to change our view on these points;
- We fully support the recommendations of the JEP and will continue to pressure all parties involved in the 2018 valuation consultation to consider them seriously;
- We do not support any renegotiation of benefits and we will work with all parties to find a way to maintain existing benefits without significant cost increases;
- We recognise that USS associates increased risk with the JEP 1 recommendations, but we consider it important to align contribution rates as close as possible to the JEP 1 report pending further independent analysis by JEP in phase 2 of their work;
- We recognise that implementation of the 2017 default contributions would be unsustainable for many staff and employers and we therefore support consideration of contingent contributions to allow time for JEP 2 to complete their analysis and make further recommendations;
- We have confidence in the collaborative working of the JEP and their ability to make recommendations that ensure a sustainable scheme with excellent and affordable pension benefits for members.
UUK have asked employers to respond by the end of the day on 13 March to the following questions:
- Do we have any specific comments on the proposed assumptions for the 2018 valuation, including views on the proposed upper bookend and lower bookend?
- Do we support UUK putting forward a proposal for contingent contribution arrangements to the USS Trustee as it requested? If not, would we prefer to pay at the upper bookend level, or what would our preferred response be?
- Do we find the proposal for a contingent contribution arrangement set out in the Aon note acceptable, taking all factors into account? If not, which aspects would we wish to change?
How does USS calculate the increases for April 2019, October 2019 and April 2020?
The USS Trustee takes existing benefits, price them and then applies the increasing contribution in a cost shared way 65/35. They have not taken into account any of the recommendations from JEP 1 in this valuation.
How likely is it that the contingent contributions will be triggered?
The analysis undertaken by USS suggests that there is a 26% probability of paying some amount of contingent contributions over the next 3.5 years (measured up to June 2022 which is the latest the next valuation could be completed). There is only a 2% chance that the maximum level of contribution would be paid over that period, taken into account the notification period and the step-ups in contribution rate that are proposed.
How high can contingent contributions go?
Contingent contributions are not currently within the rules of the scheme so there would have to be a rule change which would also go through the Joint Negotiating Committee. USS have said the maximum contribution increase would be the difference between the upper and lower limits of the range.
How do we know USS and The Pensions Regulator will accept the UUK proposal?
There is no guarantee the proposal will prove to be acceptable to the USS Trustee. However, we want to take part in this consultation to try and conclude the 2018 valuation in a way that is acceptable to the parties involved to avoid a significant increase in contributions in October this year and April 2020.
What happens if the 2018 valuation is not completed by the end of June?
The contribution increases as a result of the 2017 valuation will remain in place, giving rise to another substantial increase in contributions for employers and members in October 2019.
How did the College respond to the consultation?
UUK collated the responses they received from employers, and sent their collective response to USS.
The USS Trustee responded to UUK’s submission on the 2018 valuation consultation in May. Read the Trustee's reply [pdf]
College responses to previous consultations
USS consultation on concluding the 2017 valuation – 11 January 2019
On 5 December 2018 the USS launched a consultation on the final steps for concluding the 2017 valuation. The following College response was sent to Universities UK (the employers’ representative body for these purposes) on 11 January 2019:
In responding to the consultation we would like to make two specific points and a more general point:
- Recovery Plan – The draft indicates that deficit contributions of 6% will be required for the 17 year period from 31 March 2017. We do not believe we have seen sufficient evidence to justify this increase as part of the consultation on the 2017 valuation. We note the advice from Aon that recovery plan assumptions only need to be ‘appropriate’ and not ‘prudent’ and we support the recommendation in the JEP Report that we should be consistent with the 2014 valuation approach and continue to include asset outperformance.
- Other employer contributions – We are concerned about the wording in the Schedule of Contributions that suggests the Trustee can simplify notify the employers that further contributions are required that are not set out in the Trust Deed. We assume this is only after appropriate consultation but would appreciate clarification on this point and would ideally recommend the wording should be removed.
The more general point we would like to make is around the perceived risk of creating a ‘backstop’ by concluding the 2017 valuation. We understand why this needs to be done, but would like to re-iterate the financial impact this would have if it was ever called upon and the reputational damage it might cause if it gave the impression that the good work done by the JEP had not been followed through. We are keen to ensure that the JEP continues to its next phase of work as soon as possible and urge the trustee to take this into consideration.
UUK consultation on the JEP report - 29 October 2018
Letter to the chair of the USS Trustee – 10 May 2018
We wrote to the Chair of the USS Trustee, Professor Sir David Eastwood, urging him to give the JEP the time and independence it needs to complete its work in a legitimate and transparent way.