Majority of universities agree to take on higher risk in staff pensions scheme

Many employers, however, expressed significant caveats to their support

Lent term saw 14 days of escalating strike action due to proposed pension scheme changesLouis Ashworth

by Sarah Orsborne

This article is 5 years old

Saturday November 17 2018, 5:25pm

University employers have expressed support for the pension valuation recommendations made by the Joint Expert Panel (JEP), signalling that a resolution to the pension dispute that prompted strike action earlier this year may be in sight.

In a consultation run by the university employer representative, Universities UK (UUK), 92% of respondents expressed explicit support for the JEP’s recommendations, which include accepting higher levels of risk in the valuation of the Universities Superannuation Scheme (USS), the UK’s largest higher education pension scheme.

However, many employers, “accounting for over half the [USS] scheme’s active membership”, expressed some caveats or conditions to their support.

Explained: What is the JEP?

The Joint Expert Panel (JEP) was formed in April when the UCU agreed to UUK’s proposal to form it, suspending strike action.

The JEP comprises six members – three members appointed by UCU and three by UUK – and an independent chair.

The panel met 11 times between May and September 2018, and heard evidence from the chair, CEO and senior executives of the USS. It also received evidence through email from Scheme members and employers, totalling 55 submissions.

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The recent consultation garnered 127 responses, representing 94% of active USS employers.

UUK said, “it is clear that there is support from most employers for the JEP’s recommendations, subject to further details about risk and a favourable response from the USS Trustee and The Pensions Regulator.”

The Cambridge branch of the University and College Union (UCU) welcomed the consultation, and on Twitter they called on the University of Cambridge to clarify their position on the JEP’s findings: “Most employers are standing behind the recommendations of the JEP. [Cambridge] it’s time to publish your detailed submission to the JEP.”

Widespread disruption was seen in many universities, including Cambridge, earlier this year when an estimated 42,000 staff took to picket lines to protest pension scheme changes proposed by UUK. After a USS valuation in 2017 demonstrated severe deficits, the UUK proposed to replace defined benefit pension schemes, in which employers offer guaranteed incomes upon retirement, with defined contribution pension schemes, the value of which would vary with the stock market.

Explained Why did university staff strike over pensions?

University and Colleges Union (UCU), the trade union for academics and university staff organised industrial action at 65 institutions nationwide in February and March, in protest against pension proposals put forward by Universities UK (UUK), an advocacy body for university employers. UUK proposed in November to replace defined benefit pension funds for incomes under £55,000 with defined contribution pension funds, a move intended to mitigate an estimated deficit of £6.1bn in the Universities Superannuation Scheme (USS).

The value of defined contribution schemes depends on returns from underlying investments in the stock market, as opposed to defined benefit schemes, which offer a guaranteed income upon retirement. UCU has cited analysis which estimates that staff may be up to £200,000 worse off upon retirement under entirely defined contribution schemes.

During strike action in late February, national bodies reached a provisional agreement which ensured defined benefit pension schemes for incomes below £42,000, while increasing employer and employee contributions by 1.3% and 0.7%, respectively. The agreement was resoundingly rejected by UCU members, however, and action short of a strike continued until late March, at which point UCU and UUK jointly agreed to the creation of a Joint Negotiating Committee to assess pensions changes. UCU members have voted to end the strike action, but the terms of future pensions scheme proposals remain unknown.

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These changes provoked outrage, with the UCU arguing that defined contribution schemes could leave staff up to £200,000 worse off. 14 days of escalating industrial action followed, forcing the UUK to rethink their position. The JEP, a panel consisting of both UUK and UCU representatives, was subsequently set up as a condition for suspending strike action.

The first report, published by the JEP this September, identified shortcomings in the original 2017 valuation, resulting in “misleading results”. The panel criticised the way in which employer survey responses were carried out to inform proposals, arguing they were “given too much weight” and contributed to “strong risk aversion”. They also suggested “a re-evaluation of the employers’ willingness and ability to bear risk” as well as “ensuring the valuation uses the most recently available information”.

Analysis What does the pensions strike outcome mean for Cambridge?

The support offered for the JEP’s recommendations in the most recent consultation was, for many, conditional on the provision of a second JEP phase, which the UUK say is, for employers, “essential as part of developing a longer-term position for USS”. There was also hesitation to unconditionally back the valuation recommendations before the perspectives of both the USS trustee and the pensions regulator were known.

In addition, the consultation revealed that 90% of employers would willingly accept higher employer pension contributions, although 43% specified that this increase should only be a short-term solution.

The consultation’s outcome will be used by UUK to inform their discussions with pension scheme stakeholders.

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