USS Employers back changes to the pension scheme

15 Jun 2021
  • Employers representing 95% of USS membership respond to UUK consultation.
  • Significant additional employer covenant support measures put forward to save the Defined Benefit part of the scheme.
  • Employer support for fully investigating the feasibility of conditional indexation, a governance review of the USS pension scheme, and a new flexible cost option for scheme members.

Employers in the Universities Superannuation Scheme (USS) are backing a series of proposals for medium and long-term reform of the pension scheme.

They are also willing to support a series of significant covenant support measures proposed by Universities UK (UUK) and which are deemed necessary by the USS Trustee to lower its pricing in the current valuation - if it results in a good level of Defined Benefit pensions and avoids damaging, unaffordable contribution hikes.

Without changes to the scheme, employers and scheme members face escalating contribution rates: for employers, from the current level - 21.1% of salary – to 23.7% in October 2021 and at least 28.5% next year. Similarly, members would see their payments rise from 9.6% of salary, to 11% in October 2021 and reach at least 13.6% next year – and risk pricing more and more members out of pensions saving.

UUK received 141 responses from employers to its recent consultation, outlining their support for the following package of reforms:

  • Employers to offer further, stronger covenant support measures including a moratorium on exit, debt-monitoring and ensuring that pension promises are even more secure through protecting the USS Trustee’s status as a creditor.
  • No increases in member contributions or employer contributions.
  • Maintaining the scheme’s Defined Benefit/ Defined Contributions hybrid with changes at this valuation to keep contributions at the current level with a proposed salary threshold of £40,000.
  • A major new review of the scheme’s governance.
  • Work to begin immediately on developing proposals to explore a move to a conditional indexation model - which pegs a part of annual pension provision to the performance of scheme funds - through the suggested establishment of a joint member/ University and College Union (UCU), employers, and USS working group to collaboratively design a proposal.
  • Addressing the high opt-out rate, which sees around 20% of members choosing not to join the scheme and losing out on the 21.1% employer contribution, by giving eligible members the choice of a new lower contribution option.
  • A commitment that should the scheme’s financial situation get better then improvements to benefits can be considered rather than reducing contribution rates.

These proposals will now be discussed over the coming weeks with the UCU, representing members, UUK, and USS at the Joint Negotiating Committee, which is responsible for approving any scheme rule changes and concluding the 2020 valuation. 


Commenting on the outcome of the consultation, a spokesperson for USS employers, said:

“We are grateful for the very high response rate to our consultation with many employers engaging extensively with their governing bodies and members of staff. There is a strong desire for changes to the scheme, some of which will take time to fully explore including governance reform and conditional indexation, which requires legal changes and significant work to get right.

“This still leaves employers and scheme members with an immediate challenge. Action is needed to avoid unpalatable contribution increases for both employers and members or the number of staff leaving the scheme will become a stampede and there will be cuts to teaching, research and jobs at many institutions as employers would be forced to pay extraordinarily high pension costs.  

“We continue to press USS and The Pensions Regulator to achieve a fair price for the demanding additional support measures employers are offering to keep the hybrid alive and maintain a good level of defined benefits in the scheme. The USS Trustee’s initial response to the UUK proposal, which has received the backing of employers in this consultation, is that it is willing to adjust its assumptions to lower scheme costs, but not far enough to be able to offer the level of Defined Benefits for the contributions and covenant support proposed by UUK. Further consultation is therefore planned with employers to see if they can give stronger assurances on covenant, and then with the USS Trustee to see how any final gap can be bridged.

“We hope the union will work with us and suggest ways of tackling these immediate financial challenges to avoid ruinous contribution increases, and to explore longer-term changes, including a governance review, a flexible option for members and conditional indexation.”


Notes to editors:

Further detail on the responses of employers on the issues consulted upon will be published later this month.  

The initial response of the USS Trustee is outlined in a letter and covenant support package term sheet from Dame Kate Barker, Chair of the USS, in reply to a letter from Alistair Jarvis, Chief Executive of Universities UK.

The 2020 valuation of USS highlighted significant financial challenges. The Pensions Regulator and the USS Trustee have made clear that these must be addressed.

Employers would prefer a situation where no reform was necessary, however the USS Trustee has confirmed that much higher contributions (between 42.1%-56.2% of salary) will be required from next year unless reforms to the scheme are made. With the opt-out rate already too high, USS employers want to avoid unaffordably high contribution levels for both members and employers.

For a university staff member earning under the salary threshold of £40,000 per annum, the UUK proposal would lead to a headline reduction of about 12% in future pension benefits (benefits earned prior to any change are secure and unaffected). Members would also receive a generous (by market standards) 20% DC contribution above the threshold. Under the lowest cost USS Trustee scenario, there would be a reduction of around 25%.

To keep current pension benefits, in the lowest cost USS Trustee scenario someone on a £41,526 salary would have to pay in at least £1,660 a year more under the default employer/member cost sharing ratio - 42.1% in total, 13.6% for members, 28.5% for employers.

Another way of looking at this is acknowledging that we will all have to work a little longer to get the same level of pension as before to reflect that on average we are living a little longer and guaranteed pensions have become much more expensive.

It is too early to say how exactly pension benefits will change. Several factors will influence this, including the approach taken by the USS Trustee, the support measures employers can provide, and the response of scheme members and the union. It is important to remember that pensions built up to date are safe and can’t be changed retrospectively.

The USS Trustee states that it considers that the indicative benefits can be provided for an overall cost of 31.2% of salary (therefore 0.5% higher than current contributions).  However, in order to do this the USS Trustee seeks further strengthening the overall covenant support package. Employers have welcomed that progress had been made on the valuation assumptions and some of the detail of the covenant support measures (see the USS letter of 9 June 2021 for more detail) but are disappointed with the 0.5% difference in the pricing. Nevertheless, UUK will need to consult with employers once again on the further strengthened covenant support package the USS Trustee says it needs. In parallel to the consultation, UUK will be writing to the USS Trustee again to request that it provides justification for the additional requirements and specifically why the 0.5% is necessary and/ or material.