Update on USS victory and ongoing member consultation

Oct 6

As of 2023-10-06

We currently are on track for full restoration of our USS pension benefits. It seems very likely that, as of 2024 April 1, our USS pension benefits will be restored back to the level they were at before the cuts that took effect on 2022 April 1. This has been reaffirmed, with more details worked out, in the latest joint statement negotiated between our union UCU and the employers' association UUK [1, 2]. Important factors in getting here have been the correct analysis by UCU and the dedication of our members in taking industrial action.

In addition, there will be both an "augmentation" to the pension benefits to compensate for the reduced benefits between after the cuts were imposed on 2022 April 1 and when they are restored on 2024 April 1. The augmentation will consist of adding £215 to our annual income in the defined benefit portion of our pension [2]. For those earning under the defined benefit/ defined contribution (DB/DC) threshold (about £40,000/year), this more than compensates for the cuts between 2022's April and 2024's April. For those earning above the DB/DC threshold, this compensates for the cut to the accrual rate on the portion of our income below the reduced DB/DC threshold, while we retain the DC benefits accrued above the reduced DB/DC threshold in this two year period.

As USS scheme members, we are currently being consulted on the proposed restoration of our benefits. USS scheme members, including UCU members and nonmembers, can respond to the consultation at:

https://ussconsultation2023.co.uk/members

To respond to the consultation, you will need your USS membership number and (some digits from) your national insurance number, name, and postcode. There are 5 questions, on restoring the DB/DC (defined benefit/defined contribution) threshold, restoring accrual rates, restoring inflation indexation (the "cap"), other suggestions, and the extent of reductions in contribution rates.

The current consultation of USS scheme members is an important part of the timeline for restoring benefits.[1, p8] Employers have already been consulted by the USS pension company. In addition, changes to USS legally require a consultation of members. The consultation opened on 2023 September 25 and will run until 2023 November 24. The USS decision-making body, the joint negotating committee (JNC), will meet at the end of October and again in mid-December. It is hoped that preliminary decisions can be made at the first meeting and then finalised at the meeting in December. This will give enough time for decisions to be implemented by the start of the next "benefit year" on 2024 April 1. After this, USS will formally submit the 2023 pension valuation to the pension regulator, based on data about the state of the pension fund on 2023 March 31, the subsequent analysis of that data, and the decisions that were taken based on that analysis. Valuations are typically submitted every three years.

The USS pension fund is now saying that the restoration of our pension benefits can be funded while also reducing the contributions paid by us as employees and by employers. The pension fund is now deemed to have a surplus of £7.4B, and the current estimates for the cost of providing our pension our significantly lower than previously [3, p4]. Currently, members pay 9.8% of salary as contributions into the pension fund, and employers pay an amount equal to 21.6% of salaries into the pension fund, so that the total contribution rate is 31.4% of salaries. USS now estimates that our restored benefits can be funded for 21.6% of salary. However, they also estimate that if contributions were reduced to this level, then there is a greater than 50% chance that they would not found to be sufficient in 2026 or 2029 [3, p29; 4, p10]. While it is clear that contributions can be reduced now, there is a risk that they will be reduced to far. UCU and UUK have agreed to request that contributions be reduced from 2024 January 1.

Many factors have contributed to us being in a position to restore our pension benefits, some beyond our control and some as a result of our action. One factor is that in the UK and globally, interest rates are significantly higher than they were in recent years. This has contributed to the calculation of the surplus, since interest rates are a major factor in projecting whether the current value of assets is sufficient to pay our pensions in the future. Secondly, at the time of the valuation on 2023 March 31, we are not in the first week of a national lockdown with financial markets panicking. UCU has always maintained that the figures from the previous USS valuation on 2020 March 31, which were used to justify the cuts to our pension benefits, did not accurately represent the long-term health of the USS pension. Thirdly, USS has returned to the levels of prudence used in the 2017/18 valuation, rather than the high levels used in the 2020 valuation, which played a major role in the calculations of a deficit then and which even the employers' own actuaries had described as "overly prudent" [5, p2]. It is right that, when a pension fund projects assets and liabilities into the future that it doesn't simply use the estimate of what is most likely to occur, but looks somewhat on the pessimistic side, so there is a greater certainty of having sufficient funds. This is what is referred to as prudence. However, overly pessimistic projections can make a healthy fund appear in deficit or exaggerate the extent of problems. In our last round of industrial action on USS, our demand was a "moderately prudent, evidence-based valuation". Our success in winning this has has been crucial in getting a more realistic valuation and in getting us on track to have our pensions restored.

How does our pension work and what were the previous changes?

Each year we work, a fraction (the accrual rate) of our annual salary is added to our retirement income, which we will receive per year from retirement until death. For example, someone earning £38,250 this year with 1/85 accrual would increase their annual retirement income by £450. This is the defined benefit (DB) component of our pension. USS calls this the Retirement Income Builder. The amount of retirement income is also increased to keep up with inflation (inflation indexed) unless inflation goes above the inflation cap.

The above only applied to income up to the DB/DC threshold. Above this, money is put in an individual account invested in markets that might go up or down. This is the defined contribution (DC) component of our pension. USS calls this the Investment Builder.

We and our employers pay retirement contributions for this.

This doesn't provide all the details of the scheme. You can contact USS or the University of Edinburgh pensions office for more information.

The levels of the accrual rate, inflation-indexation cap, and DB/DC threshold before 2022 April 1 and after the cuts imposed to take effect on that date were respectively:

 
    Prior to 2022 April 1
    From 2022 April 1
  
    Accrual
    1/75
    1/85
  
    Cap on inflation indexation
    5% plus half of further inflation to 15%, to a maximum of 10% indexing
    2.5% (to take effect from 2026)
  
    DB/DC threshold
    £59,883.65 in 2022
    £40,000 in 2022

It is proposed that all of these revert to the levels prior to the cuts. The DB/DC threshold would then be increased in line with CPI inflation retroactively back to 2022, subject to the cap on inflation indexation.

Update on USS victory and ongoing member consultation

How does our pension work and what were the previous changes?

Further reading

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Update on USS victory and ongoing member consultation

How does our pension work and what were the previous changes?

Further reading

UCUE Letter to UoE on Israel/Palestine

UCU Edinburgh on strike 25-29 September

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