Thread by @JosephineCumbo

BREAKING: Pension benefits for hundreds of thousands of academics and higher education staff are to be made less generous under proposals to stave off "unaffordable" contribution rises under plans set out by Universities UK.

Details to follow.

Universities UK today proposed a package of measures to the control costs of #pension contributions for 340 employers and 200,000 active members of the #USS pension scheme, which had an estimated deficit in March 2020 of £14bn to £18bn.

In March, USS said that combined contributions from both employers and scheme members would have to rise from the current 30.7% of salary to up to 56%, to fill the deficit which was estimated at to £18bn in 2020, sharply up from £3.6bn in 2018.

UUK today set out a package of measures to keep contributions at the same level, but this would mean less generous pensions for members and employers offering more financial security to back the scheme.

Details to follow

For members, UUK has proposed:

1. Reducing the rate at which pensions build from 1/75th to 1/85th of salary, which means the pension is smaller at retirement.

2. Reducing the salary cap for the DB scheme from £60,000 to £40,000.

3. Capping indexation at 2.5% per annum.

UUK has also proposed allowing lower earners to save into the DC scheme instead of the DB, where contributions are 9.6%.

UUK says this would address the issue of low earners finding the DB pensoin contributions too expensive, and opting out of the scheme altogether.

The new "Flexible Defined Contribution" option could see lower earning #USS members alloweed to more than halve their current contributions to 4% of salary, instead of the fixed 9.6% in the main DB plan.

How will the proposals affect members?

- 57% of USS members earn more than £40,000 so would be impacted by a lowering of the DB salary threshold from £60,000 to £40,000

-UUK says around two-thirds of members have 80%
or more of the salary covered by the £40,000 threshold.

Under the proposals, 43% of #USS members who have earnings of £40,000 or lower, would remain wholly with DB pensions.

Those on a higher salary would have a mix of DB and DC pensions, with earnings above £40,000 threshold saved into the DC plan.

UUK says: "We fully appreciate that benefit changes will be unwelcome for members of the scheme. However, unless both employers and members agree to pay much higher contributions we cannot see another solution to this valuation."

UUK said it was possible that the USS Trustee would not allow its proposed benefit changes, which would mean that further benefit changes would be needed.

"We very much hope that this is not necessary," said UUK.

Could there be further cuts to #USS pensions at the next valuation in three years?

UUK there's a "materially better" than 50:50 chance of being robust at the next valuation However, UUK noted this was also the case in the 2014 valuation.

UUK has also been begun to explore the option of offering members a Collective DC scheme, where pensions are not guarnateed but where investment and longevity risk is shared. Currently there is not the legal framework for USS to offer this model.