The regrettable answer is that they almost certainly cannot
Please click here — “A mandate ‘to retain a decent, guaranteed pension’” — for an important update to the post below. This UCU mandate supersedes the Manchester resolution discussed below (Mike Otsuka)
At a JNC meeting on the 23rd of January, the Universities UK (UUK) employer’s proposal for USS pensions was approved by casting vote of the independent chair, against the opposition of the University and College Union (UCU). In response, UCU has announced an initial “escalating wave of [14 days of] strikes over a four-week period” from the 22nd of February to the 16th of March. This level of industrial action would be completely without precedent at the national level for UCU or its AUT predecessor union.
As I have set out in a number of previous posts, the anger of scheme members over the actions of UUK leading up to this confrontation is thoroughly justified. If UUK’s JNC-approved shift to 100% individual defined contribution (IDC) pension pot accrual becomes a permanent reality, scheme members will be much worse off in retirement than they would be under a continuation of the current defined benefit (DB) arrangement. Such continuation of DB is, moreover, affordable and sustainable at a prudent level of investment risk for the employer.
The purpose of this post, however, is not to elaborate on how bad and gratuitous the employer’s proposal is. Rather, it is to consider whether the announced wave of strikes can preserve the DB status quo. It is UCU policy “To refuse to accept detrimental changes to the USS pension scheme”. Detrimental changes are now, however, almost certainly inevitable, even if UCU stands by this refusal and calls its members out in February, March, and beyond, on “sustained strike action aimed at massively disrupting lectures, classes and the administrative life of your institution” in order to try to block such changes. Here’s why:
Recall that the original deadline for JNC to come to a decision was 30 November. This was then postponed to 18 December and then, finally, to 23 January. (See point 12 of this linked post.) USS anticipates that, with the delay of JNC’s decision to late January, they will not be able to submit their valuation of the scheme to the Pensions Regulator (tPR) until late July, which is already a few weeks beyond the statutory 30 June deadline.
It is, moreover, unlikely that tPR will accept any further delays beyond late July. As tPR wrote in their now public letter to UUK on 7 December (which was before the 18 December JNC deadline was extended):
while we expect trustees to adhere to the statutory deadlines and reserve the right to take action if those deadlines are not met, we are mindful that in complex and late stage negotiations some slippage in timelines can lead to better outcomes. However, in all such instances, we would expect to be kept fully informed by the trustees of the reasons for any expected delay and also the expected benefits of any such delay. We also expect any such delay would be kept to a minimum. Furthermore, in any such instances where we felt the delay was not warranted, we would consider what actions to take against the trustees. [bold emphasis added]
With the postponement of JNC decision from December to January, the slippage involving minimal delay in meeting the deadline has already occurred. See also the following opening paragraphs of tPR’s letter:
In our meeting with Marion Hersh and Paul Bridge of UCU on 5 December 2017, we stated that TPR cannot waive the requirement under the Part 3, Scheme Funding requirements of the 2004 Act to submit the valuation by the statutory deadline, nor do we have the power to extend the deadline. We also confirmed that this was a hard deadline set out in legislation which we expected trustees to adhere to.
While we acknowledged that there would need to be a 60-day employer consultation on any benefit changes and, furthermore that the USS Executive would need to complete the necessary modelling to assess the impact of any such changes, we highlighted that the requirement to manage the timeline to meet the statutory submission deadline was a responsibility of the Trustee. Accordingly, we confirmed that we expected the 30 June 2018 deadline to be adhered to.
You will note that TPR is taking a firmer stance on late valuations this year. This was highlighted in our 2017 Annual Funding Statement, when we stated: “Looking at 2017 valuation submissions, in particular we will be focusing on fair treatment of schemes and late valuations”. [bold emphasis added]
The above provides the USS executive and trustee with compelling reason to ensure that there are no further delays, beyond late July, in submitting their valuation to tPR. This is because, as tPR spells out in the letter above, USS has the primary responsibility to meet this deadline and ‘where we felt the delay was not warranted, we would consider what actions to take against the trustees’. This fact explains why USS has been so insistent in setting internal deadlines and why they will be insistent on avoiding further delays in meeting the 30 June deadline.
It is also agreed by all sides that USS would need to shift back to at least the September valuation in order to make it possible to realise something that even roughly approximates UCU’s policy of no detrimental changes — where such rough approximation involves, e.g., reduction to 1/80th up to £55.5k, with an increase in employer and member contributions of c. 2% and c. 1% respectively. Nobody would find an outcome acceptable and non-detrimental in which UCU’s tabled proposal of reduction to 1/80th up to £55.5k is implemented on the terms of the revised valuation approved in November, where this would trigger contribution increases of at least +5.5% employer and +2.9% member (but in fact more, given Test 1). (See points 4–8.)
USS would, however, be strongly resistant to shifting back to the September valuation now, especially given that their CEO Bill Galvin has stated that ‘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.’
Therefore an outcome which requires a relaunching of a new 60-day consultation is unrealistic. This is because the need to relaunch such consultation would result in USS’s failing to meet the statutory deadline by months rather than weeks. The fact that USS would need to overrun a deadline by so much, which tPR is on public record as saying they are taking a harder line now in enforcing, creates a significant obstacle. A second obstacle is the fact that USS would need to agree to reversion to the September valuation in order for a relaunching of a new member consultation to be justified. tPR would need to accept both such delay and such reversion rather than exercising its enforcement powers up to and including removal of trustees.
There remains the following means of preserving the DB status quo: aborting the consultation on this proposal without relaunching a new consultation.
Retention of the status quo (of 1/75 CRB accrual up to £55.5k, 12% DC above £55.5k, 18% employer, 8% member contributions) would not require a new 60-day member consultation. Hence, if UCU could bring about that outcome, via industrial action, one might think it would be possible for USS to submit its valuation without requiring further delay beyond late July.
Any scenario in which there is no need for a new member consultation is, however, even less realistic than the prospect of USS and tPR agreeing to the months-long overrunning of the deadline which a new member consultation would require. This is because such a scenario would require that USS propose a new valuation which is even less conservative than the September valuation that is already ‘at the very limit of what [tPR] would find acceptable’ even if the regulator accepts that the employer covenant is strong, of which they are unpersuaded. USS would be highly resistant to doing so, both because they would regard this as against its better judgement regarding acceptable investment risk and because it would be in defiance of tPR.
Moreover if, in spite of these obstacles, USS proposed a new valuation even less conservative than the September valuation, that would require a new employer consultation on the new proposed valuation (and possibly also a new consultation on a change in employer contributions, depending on how much less conservative the new valuation was), which would take time, thereby probably leading to a delay beyond late July in submitting the valuation to tPR in any event, even if the need for a new 60-day member consultation is eliminated.
In conclusion, there is now no realistic scenario in which UCU is able to block detrimental changes to USS at this valuation through industrial action. In order to justify the waves of strikes they have called, UCU will therefore need to communicate a set of realistic and achievable aims to their members, which do not involve the prolonging of their refusal “to accept detrimental changes to the USS pension scheme”.
This blog first appeared on Mike’s own pages here.