So, yesterday the Joint Expert Panel offered its first report on the #USS pension valuation. Here is an attempts at a ‘plain English’ account of what it says.
The history of the dispute up to the point at which the JEP was established is explained in a lengthy but plain English account here: leedsucu.org.uk/a-plain-englis…
The JEP report itself is written in very understandable way, and it is full with helpful appendices and clarifications. Nonetheless, my summary here is intended for those who feel overwhelmed by the detail of the history of the dispute, the various technical terms and so on
Earlier this year, the UCU took lengthy strike action to defend pensions. UCU argued that the valuation being pushed by employers created an exaggerated ‘deficit’. This was being used to justify a reduction in our pension and an increased monthly contribution from salary.
The dispute was suspended by an agreement to set up a ‘Joint Expert Panel’ (JEP) to look into the valuation. The JEP was made up 50/50 of experts from the employers and from UCU.
The panel was asked first to consider the 2017 valuation of the USS pension, by considering the methods and assumptions that USS used in its calculation of the valuation.
As part of this, the panel explored how different methods and assumptions might result in a valuation that would cause a different outcome than the changes to our pension and the costs to us and employers that we were facing, and which caused the dispute.
In addition, as a result of a failure to agree a valuation to date, the USS has been obliged by its rules to start a ‘cost-sharing’ approach which will be very expensive for both employers and employees. The panel's thoughts might also mean that this was not necessary.
Yesterday’s report, then, is the response to this first task set for the panel by both the employers and the UCU.
The report begins by considering the unique qualities of the USS pension scheme. Firstly that it is has more money coming into it than going out (cash-flow positive) and is expected to stay that way for the next 50 years.
Also, the strength and stability of the Higher Education sector, when compared to other pension schemes, means that the USS trustees are able to take a long-term view.
Turning to the valuation, the report first considers the ‘three tests’ that the USS trustees use to consider a.) whether employers can afford pension contributions b.) return on investment and c.) how the employers could cover payments in extreme circumstances.
The panel found no real problem with Tests 2 and 3, but raised concerns about ‘Test 1’, which is designed to see if the pension scheme, 20 years from now, could pay all of its members’ future pensions only from its assets, its savings pot, and no longer rely on contributions.
The panel found that a big problem with ‘test 1’ was that the result it calculated would changed a lot depending on the numbers put into it. Those numbers were anyway open to interpretation. The USS was relying too much on this ‘test 1’ to arrive at their valuation.
The panel argue that ‘Test 1’ should be used as a reference tool in calculating the valuation, but that instead it was acting as a restriction.
The panel said that the USS might take more consideration of the facts that the HE sector is strong and that the USS scheme is large, and has more money going into it than out of it, and is likely to remain that way for at least 50 years.
The panel argue that by paying more attention to these facts, the USS trustees and the employers should be able to agree to worry less about whether or not the pensions could be paid only from assets in 20 years time (‘a larger risk envelope’).
Looking at how the USS is run, the panel thought that the way in which USS decides what employers and employees should pay towards the pension scheme could involve more interaction with members and employers. That would help to gain confidence and support.
The panel understood from some people who talked to i=them that the Pension Regulator had influenced the employers’ decisions.
The panel thought the Regulator had not taken into account the unique nature of the USS scheme: more money coming in than going out, it is long-term and that all employers agree to pay pensions of employees of other institutions if those other institutions should no longer exist.
The panel thought that the USS consultation with employers in 2017 asked questions in such a way that the results were misleading. These results led to proposed changes to the pension, and these changes were not what many employers actually wanted.
The panel thought that the USS consultation with employers in 2017 asked questions in such a way that did not explain all the possible outcomes of their responses, or all of the alternatives that were available to employers.
The panel wondered if the employers were able to give fully informed answers to the 2017 consultation. They weren’t always given enough time to answer to consultations.
Even though members of the pension scheme share the costs of the scheme with the employers, only the employers are asked about their attitude to levels of risk in the investments the scheme makes to grow, and the members are not. The panel thought this might be reconsidered.
Speaking directly to the 2017 valuation, the panel offered a few ideas about methods of calculating the valuation and assumptions used in that calculation. Changing these, the panel suggests, could create a different outcome that would satisfy both members and employers.
The panel made 5 suggestions for change. 1. The employers might change their attitude to ‘risk’, and how much they could afford to support the pension scheme could be assessed. 2. Making the approach to the 2017 valuation similar to how it was done in 2014.
3. Making sure that younger members get a fair and similar pension to the one that older members will. 4. Making sure that when the valuation is calculated, the most up-to-date information is used.
5. Make sure that the unique nature of the USS pension scheme and the HE sector are taken into account when valuing the scheme.
By following these 5 recommendations, the Panel think that a big change to the 2017 valuation could be achieved. This would mean that both employers and employees could come to agreement over the valuation.
The Panel note that their recommendations are in line with what the Trustees and the Regulator are required to do.
The Panel think that if these recommendations could be agreed between employers and UCU they will not only allow both sides to avoid paying more for a smaller pension, but allow us to retain more or less the same pension we have now for only a small increase in monthly cost.
That's it, aside for notes on next steps. If I have mis-represented anything, do let me know. I hope, though, that this summary is helpful.
