The management of USS over the past few years has been atrocious. Just how damaging can be seen from a thread produced yesterday on twitter, a thread that suggests that the new management is learning a little about member management.
The scheme’s 2023 valuation is now, to all intents and purposes, complete and lower contribution rates will be introduced from 1 January 2024.
We will be emailing members with more details.
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— USS (@USSpensions) December 20, 2023
The contribution rate for members of being in the USS is falling immediately, the benefit of staying in or re-joining the scheme follow,
The Joint Negotiating Committee and the Trustee Board met this week to consider responses to the employer-led consultation with affected employees & representatives. The responses have been overwhelmingly positive, and no modifications were made: https://t.co/Gk6wVVyJXK
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— USS (@USSpensions) December 20, 2023
The new management at the USS has clearly created a new atmosphere quite unlike the bitter disputes that have characterised recent negotiations.
The formal valuation paperwork – the official Actuarial Valuation Report, the Statement of Funding Principles and the Schedule of Contributions – will be filed with The Pensions Regulator, and published on the USS website in the coming days.
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— USS (@USSpensions) December 20, 2023
The previous rancour between employer, member and the USS is gone. There is now clarity of purpose and celerity of action
Deeds of amendment for the improved benefits set out in the employer-led consultation, and the one-off uplift to benefits earned between 1 April 2022 and 31 March 2024, are on course to be completed in February 2024 and implemented from 1 April 2024.
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— USS (@USSpensions) December 20, 2023
Benefits that were needlessly taken away, with such terrible consequences for industrial relations (and scheme membership) are now being restored to a clear time-table.
As much as a fifth of eligible members opt out of the scheme altogether, and the most common reason for doing so is affordability.
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— USS (@USSpensions) December 20, 2023
Whether from disillusionment with the scheme’s VFM or because of unaffordability as a result of the rising cost of living, one in five potential members are not currently in the USS. Among a highly literate audience , this is hard to credit.
We hope member contribution rates coming down (from 9.8% of salary to 6.1%, from 1 January ’24) will prompt people to look at whether the scheme now works for them. They may also benefit from the one-off uplift if they join / re-join by 31 March ’24: https://t.co/UsArVvItxn
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— USS (@USSpensions) December 20, 2023
With the scheme reporting a healthy surplus and positive post-valuation experience, lowering contribution rates and improving benefits, it’s a positive backdrop for USS as we enter the 50th anniversary year of its establishment.
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— USS (@USSpensions) December 20, 2023
This is indeed a Christmas good news story for our largest private pension scheme . a scheme that only 6 years ago was at risk of being closed and replaced not by a pension scheme but a DC retirement savings scheme.
That it has been saved from that fate, is to a large degree to do with a few pension experts (not me) and many who have become pension experts over the past few years. The UCU has harnessed this expertise and mobilised it against powerful vested interests that could not see the longer term but became ensnarled in local issues to do with accounting and financial economics.
What is important , going forward, is that lessons are learned. The USS must be allowed to run on for generations to come and be an example to other schemes about what can be done with scale , good management and good governance.
The damage that has been done to the reputation of pensions among those one in five eligible staff who are not currently members of the scheme, can be undone, though they may miss further accrual until they feel it is safe and affordable to go back in the water.
Pension strikes must be a thing of the past. Quite apart from the impact on their education, a generation of students have gone to university and found that pensions equate to disruption and disharmony. This is shocking.
Finally, the Pensions Regulator can redeploy the resource it had to devote to this scheme, because of the futile rowing over pseudo-valuations that created all the trouble. The member’s interest have not been served well, nor the employer’s nor indeed the image of pensions. This has been a sorry regulatory episode.
But let’s close the book on this , with two tweets , I didn’t expect I would read, but am most happy to publish.
We want to thank UCU and UUK for the positive and collaborative approach they have taken to the 2023 valuation. This has been fundamental to us being able to introduce these changes as quickly as possible.
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— USS (@USSpensions) December 20, 2023
We will look to carry that momentum and spirit through to longer term discussions on how we can achieve greater stability – be that in the funding position, the benefit structure, and/or the required contribution rate.
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— USS (@USSpensions) December 20, 2023
The great universities of this country rank at the very top of the world lists of educational institutions, many have been with us for over 500 years. It seemed in 2017 , inconceivable that their covenant could not support the payment of pensions to their teaching staff.
I am very pleased that common sense has prevailed and that we have a pension scheme fit for the teaching staff that make these institutions world-renowned.
The end result for the USS members is great news. The commentary however sadly ignores quantitative easing (QE), the lack of meaningful quantitative tapering (QT) and the political expediency behind it. Should we thank Liz Truss? With the economic dominance of “supply and demand”, the comparable impact on house prices is not very likely.
For the newer universities, the unfunded Teachers Pension Scheme provides an interesting contrast. The April 2024 employer contribution rate increases are part of a bigger defined benefit saga, part of a mostly surreal £7bn pa deficit reduction contribution to 2039.
It would be a mistake to think that there was substantial change to the methodology used for the valuations between 2020 and 2023: they were almost identical . It is therefore a big mistake to talk about the 2020 valuation as being specially flawed. The 2023 valuation is just as flawed.
The turnround in the valuation has only happened because the USS use a discount rate to calculate the liabilities figure linked to long term gilt rates. In 2020 they were near zero due to the Bank of England monetary policy of quantitative easing whereas in 2023 they are much higher as a result of the BoE ending of that policy and attempts to control inflation by interest rate increases.
So in 2020 with a discount rate of around 0.5% the present value cost of an annual pension of £1 would have been £200. In 2023 with a discount rate around 6%, that would have gone down to £16.67.
To see how massive this effect has been look at page 6 of the 2023 Actuarial Valuation Report that has just been published:
https://www.uss.co.uk/about-us/valuation-and-funding/2023-valuation?search=abc6f93d-ce14-4aaf-b91f-cc06f4001d09
It shows the reconciliation of the 2020 deficit of £14.1 billion with the £7.4 surplus in 2023. The effect of changed discount rates is a staggering £44.5 billion. ”
It also says:
“Had experience since the previous valuation been in line with the assumptions adopted for that valuation, and allowing for contributions paid over the period, the
Scheme would have been expected to have a deficit of £14.6bn at this valuation date – broadly similar to the position at 31 March 2020.”
It also shows how much of a problem inflation is for the USS with a £17 billion increase in liabilities due to underestimating it in 2020. This looks like a huge risk factor for members going forward given the way pension indexation is capped.