As I’ve explained in previous updates, USS are continuing to press ahead with massive contribution increases which they claimed were necessary to make our pensions secure. They have comprehensively ignored the 4176 responses which they received to their consultation on these changes from members, despite the fact that 35-40% questioned the reliability of the valuation on which the changes are based, and more than 1300 responses used the highly critical template which I encouraged members to adopt in a previous update. This means that from April to October 2019, member contributions will go from 8% to 8.8% of salary; from October 2019 to April 2020, up to 10.4%; and from April 2020 onwards, to 11.7%.
Needless to say, this will have a serious detrimental impact on the salaries of members who are already struggling under the cumulative weight of years of real-terms pay cuts. Even worse, the Joint Expert Panel (JEP) has shown that these increases are unnecessary. The JEP’s findings were further reinforced by UCU Superannuation Working Group member Sam Marsh, who showed that USS had committed a serious error in their valuation processes by failing to recognise that the Scheme was projected to be in surplus if it continued with its current investment strategy and contribution rates.
Marsh’s analysis was recently upheld by UCU’s professional actuarial advisers, First Actuarial, in a hard-hitting report on the flaws in USS’s valuation methods and governance mechanisms. First Actuarial found that USS’s attempts to rebut Marsh’s claims were incoherent, ‘ill-founded’, ‘poor quality’, and not a valid basis for completing the 2017 valuation. They concluded that the 2017 valuation could have been completed in a way that satisfied the current regulations without requiring any increase in employer or member contributions. Finally, and perhaps most importantly, they charged USS with adopting an unnecessarily deferential stance with respect to The Pensions Regulator (TPR), and thereby failing to represent the interests of Scheme members and sponsors.
First Actuarial’s point about the Regulator will need to be borne in mind during the next stage of the dispute, because USS and TPR are now the main obstacles standing between members and an acceptable resolution. Employers have accepted all of the proposals made by the JEP. USS have said that they are willing in theory to replace the 2017 valuation with a 2018 valuation that could take the JEP’s findings into account, and replace the 2017 valuation’s contribution increases before the worst of them are scheduled to kick in. Crucially, it was recently revealed that if the JEP proposals were to be applied to a valuation based on fresh 2018 data, USS would actually be in surplus, and the current contribution rate could be reduced. However, recent pronouncements by USS indicate that they are unwilling to accept all of the JEP’s proposals. They keep repeating familiar claims about the level of risk it would involve, despite the demonstrations by the JEP, Marsh, and First Actuarial that the risk in the Scheme was being overstated and even exacerbated by USS’s methods.
We may well see USS respond to these criticisms by speculating about what the Regulator will or won’t allow them to do. It is true that the Regulator’s interventions in the dispute thus far, including its most recent letter to USS, have caused problems. They have been inappropriately timed, poorly informed, and short sighted, as the JEP, First Actuarial, and other commentators have pointed out. But that is all the more reason for USS to listen to members and employers, present the JEP’s case to TPR, and force TPR to defend its position. We will see whether USS is willing to do this in a matter of weeks or even days, when it opens its consultation on the new, 2018 valuation.
At that point, our employers’ response will be crucial. What if USS tells employers they cannot accept all of the JEP’s proposals? We must remember the JEP’s statements to the effect that they would recommend a much more comprehensive overhaul of the Scheme if they had more time: the proposals which they put forward in their first report were intended as a short-term compromise which all parties could easily accept. In the longer term, the JEP promises to help members secure the affordable, high-quality pension provision which we have enjoyed up to now. For USS to reject the JEP’s very restrained preliminary proposals would be very disappointing indeed. At that point, employers will need to put their foot down and declare a lack of confidence in USS’s managers. There is nothing to stop them from doing this, since it is their representatives who hold the balance of power among the USS trustees. But we are getting ahead of ourselves. Hopefully USS’s managers will be able to swallow their pride, admit that they made mistakes, and accept the reasonable and constructive criticisms offered by the JEP. It is only if they refuse to do so, and employers fail to hold them to account, that UCU members will have to start planning a fresh round of industrial action.