The magnitude of the challenge facing University staff – Mike Otsuka

Normally, an employers closing a DB plan for future accrual wouldn’t be that controversial, but our universities aren’t normal employers and these are not normal times, Mike Otsuka gives the background to the impending dispute between the Universities, its staff and their pension scheme.

Mike 27Why union policy requires “massively disrupting” strikes

How difficult will it be, in their dispute over USS pensions, for the University and College Union (UCU) to realise their stated aims by means of industrial action in February, March, and possibly beyond? In the 20 points listed below, I spell out the magnitude of the challenge now facing the union. As anyone who has read previous blog posts will be aware, this challenge arises from a series of unjustifiable decisions on the part of our employers.

1. UCU’s official policy, as adopted in special conference resolution on 9 November, is “To refuse to accept detrimental changes to the USS pension scheme”. At that conference, an amendment was proposed to replace “refuse to accept” with “strongly resist”. This amendment was defeated. Conference also endorsed the principle that “The protection of a defined benefit pension scheme [is] essential for members and the sector”.

2. At their meeting on Monday the 22nd of January, the union’s governing body reaffirmed the above approach.

3. Guided by such policy, UCU JNC negotiators refrained, at the meeting on Tuesday the 23rd of January, from tabling any proposals that involved anything beyond a modest downward departure from the current defined benefit status quo of 1/75 CRB up to £55,550. Anything beyond such a modest departure would clearly flout UCU policy “To refuse to accept detrimental changes to the USS pension scheme”.

4. At JNC on the 23rd, UCU tabled a proposal to retain the £55,550 DB/DC salary threshold, but at a slightly reduced accrual rate of 1/80 CRB.

5. Under the current valuation approved by the USS trustee in November, the tabled UCU proposal would give rise to at least an increase of +5.5% in employer contributions (from 18% to 23.5%) and an increase of +2.9% in member contributions (from 8% to 10.9%).

6. Given the implications of Test 1 described on p. 31 of the September consultation document, it is likely that the required increase in employer contributions would in fact be much greater than +5.5%.

7. Given the 65%-35% cost-sharing provision in the proposal that UCU tabled, the upshot of any increase in the employer contribution beyond +5.5% would be a proportional increase in member contributions beyond +2.9%.

8. In order to prevent the tabled UCU proposal — or any other that conforms to UCU policy — from triggering such huge increases in employer and member contributions, the USS trustee would need to significantly revise the valuation they approved in November.

9. The USS trustee might be pressured to revert to the less conservative valuation they proposed in September.

10. Under the September valuation, the UCU proposal could be funded via an increase of a little more than +2% employer contribution and +1% member contribution.

11. According to a USS document dated 17 November and signed by USS CEO Bill Galvin:

tPR (the Pensions Regulator) has … confirmed the proposed assumptions [of the September valuation] are at the very limit of what it would find acceptable. This view is based on the covenant of the employers meriting a top quartile ranking (based on tPR’s own criteria) — and to date tPR is not convinced that the covenant is in this bracket.”

12. On 21 December, USS posted the following:

…USS is expected to demonstrate to the Pensions Regulator no later than 30 June 2018 that the scheme is sustainable.

The USS trustee needs to conduct the valuation with regard to that legal deadline.

…To maintain a credible valuation schedule, the JNC needed to have made a decision on future benefits by 30 November, to allow sufficient time for employers to consult with 200,000 affected employees on the benefit proposals and, in turn, the trustee to consult 350 employers on the required contributions.

To this end, parties agreed in June to commit resources to reaching a decision before 1 December. However, as at 19 December, the JNC had not reached a decision. UUK [employer] and UCU representatives have agreed to formally reconvene on 23 January 2018.

13. JNC came to a decision on 23 January, by casting vote of the chair, Andrew Cubie, in favour of the proposal the employer (UUK) tabled, rather than the UCU proposal. Given the large increase in contributions implied by the UCU proposal under the valuation that USS had approved (see points 5–8), it came as no surprise to anybody that Cubie sided with UUK. USS is now preparing a 60-day member consultation on the UUK proposal.

14. This JNC decision has the upshot that, in order to implement a UCU proposal that conforms to their policy, a new JNC meeting would need to be convened, in which JNC overturns the UUK proposal and replaces it with such a UCU proposal, either by casting vote of the chair or by UUK agreement.

15. Given point 12, it will be difficult to meet the 30 June statutory deadline even if this 23 January decision is not overturned and replaced by a new decision in the manner described in point 14.

16. The greater the number of weeks or months beyond the 30 June deadline it would take for USS to submit the revised valuation which a UCU proposal that conforms to UCU policy would require, the harder it will be to convince the relevant parties, such as the JNC chair and the USS trustee, to approve what is necessary in order to abort the 60-day member consultation now in preparation on the UUK proposal approved on the 23rd of January.

17. The longer the delay beyond the 30 June deadline in submitting a valuation, and the more this valuation fails to conform to what tPR has previously described as the limits of acceptability (see point 11), the more pressure tPR is likely to exert on USS, up to and including the exercise of enforcement powers involving the removal of trustees.

18. On UCU’s schedule of an initial 14 days of escalating strikes, the 14th day would fall on the 16th of March at the earliest, at which point a new JNC decision on a UCU-approved proposal would probably give rise to a 2–3 month delay in meeting the 30 June deadline.

19. In the light of the magnitude of the challenges that industrial action would need to overcome, involving…

— the need to revert to the September valuation in order to make any UCU proposal that conforms to UCU policy (see point 1) feasible (see points 5–8),

— tPR’s expressed scepticism regarding the acceptability of the September valuation (see points 11 and 17), and

— the difficulties to which the 30 June deadline give rise (see points 12 to 18)

…it should now be clear why the UCU literature that accompanied the postal ballot declared that “if you vote in favour of action, and there is no settlement, UCU will be calling sustained strike action aimed at massively disrupting lectures, classes and the administrative life of your institution next year” (emphasis in original).

20. It should also now be clear why such “strikes now look like a reality”. This is because it is unclear how anything less than that could bring about a proposal that conforms to UCU policy. A large part of the challenge is that such realisation requires the willingness of tPR and USS as well as UUK. It is, however, much more difficult to influence the former (tPR and USS) rather than the latter (UUK) via industrial action against one’s own employer.

This article first appeared on Mike’s own blog, here.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions, USS and tagged , , , , , . Bookmark the permalink.

1 Response to The magnitude of the challenge facing University staff – Mike Otsuka

  1. Richard Bryan says:

    Thank you Mike for this summary.
    As I commented before, I don’t think even the current CRB is particularly good value for money, and increasing the contributions and/or reducing the accrual rate as the UCU suggest will certainly push it in to the ‘poor’ category. If contributions remained the same, the accrual rate would be about 1/110. Just investing in the FTSE,with a current dividend yield of about 4%, would give a better pension straight off.
    On top of that is the 5%+half to 10% cap on CPI index uprating. Running the figures through the 1970’s would about halve the real value — and that cap applies during both accrual and pension. Whatever the inflation rate now, I can’t imaging that this cap won’t be hit sometime in the next decades.
    So we’re left with
    – a UCU proposal which is poor value, but retains a DB element to the scheme – although some of the language used makes it sound a political point as much as one of pension provision. See the uculeft site, a grouping which has a large representation on the UCU NEC.
    -the adopted UUK proposal which might well provide larger pensions if the investments pan out, and won’t be subject to an inflation cap. However, this possibility is not even admitted to in the UCU literature, which concentrates understandably on risk and uncertainty for members.

    I can’t see the point of a strike if it’s implicitly against the UUK proposal and in favour of the UCU’s. It really does need either a radically different proposal that caps the employers’ potential liabilities and gives a better pension to members than the CRB, or as you suggest at the end, changing the valuation method.

Leave a Reply