Thread by @cupofassam

A Sunday afternoon thread 🧵on the history of USS and the disputes, for those that are interested. #USSMess; How we got here.

The USS pension scheme was established in 1975. It was a ‘final salary’ defined benefit scheme, and remained so, and was stable in that, until 2011. The pension was based on (not identical to) the salary at retirement. So far so good.

Until 1997, employers paid a small surplus to fulfil pension promises that USS had inherited from the previous scheme, the FSSU. From 1997 until 2009, they paid 14% of salary (we paid 6.35%) for that FS DB scheme.

This was a 69%/31% spit of contributions between 1997 and 2009, with no commitments beyond the USS benefits.

This 69/31 split has been in position for the share of total contributions toward our benefits since 1980, with some brief exceptions where the employers paid a little more (though 2011-16 was a 68/32 split).

The change to pension regulations in the mid 2000s brought about new approaches to calculating risk and, crucially, new ways of defining if a scheme was in surplus or deficit, i.e. if it had enough funds or not to pay all pensions that were so far promised.

The 2008 financial crash was the first real test of the new legislation and reporting for DB schemes, from 2009 to 2011 the employer contribution was raised to 16% form 14% of salary (members stayed at 6.35%).

Between 2007 and 2010, HEFCE gave £627,000 of funds to the Employers’ Pension Forum (a lobby group representing the university employers) to put together a 10-year plan for reform of our pensions. The reports from this publicly funded research were never released.

We might reasonably assume that this 10-year plan included an ambition to pivot the scheme toward defined contribution, as that is certainty something that was attempted in 2017. But we’ll come to that.

The current #USSMess has its roots in the 2011 valuation, and the first posting of a claimed deficit. At this time, we became first aware of the questionable manner in which the valuation reached this conclusion.

As a consequence of this 'deficit' from 2013 new entrants to the scheme were brought in on a ‘career average’ defined benefit, while existing members retained their final salary defined benefit. UCU warned that the final salary would be put at risk.

A ‘soft cap’ was also brought in at this point on inflation uprating. Until this point, all the pension you accrued each year was uprated each April against the previous year’s September inflation figures.

This was appropriate, because the value of your pension as you earn it should be able to buy the same things once you access it in retirement.

But from this point the pension was uprated against inflation only up to 5%. CPI over 5% was matched at half the rate, up to 15%. So inflation at 15% would mean a 10% uprating. Fortunately, September CPI stayed below 5% for the decade.

A study at this time concluded that the reduced wealth of new entrants to the scheme was equivalent to an 11% drop in their total pension.

Then came the 2014 valuation, and another questionably reached 'deficit'. On the back of this, the final salary element was then closed fully, from 2016, and all members were moved to a career average defined benefit.

Contributions changed to 18% employer and 8% employee (again, the traditional 69/31 split of contribution costs that has been in place since 1980).

The scheme was then made hybrid from 2016, so henceforth there was a defined benefit scheme only up to a certain salary cap, starting at £55k salary.

Above that and your contributions would go into a defined contribution scheme (you know what you pay n but not what might come out). The DB scheme had a 1/75th accrual (each year you accrue 1/75th of your salary as a slice of your annual income in retirement).

The salary threshold would go up each year by the same uprating as used for the inflation cap.

Those members who had been contributing to the final salary scheme had their pension in that consolidated. This can be seen in ‘MyUSS’ by clicking on further details in the DB element (income builder).

This amount is uprated against the full CPI each year (contributing to ongoing inter-generational unfairness). All accrued pension continues to be subject to the rules place at the time it was accrued.

Then the 2017 valuation. Where to begin? At the same time as posting a now £5.1 billion deficit, the USS commissioned PWC to assess the strength of the Universities’ covenant (the universities’ ability to sustain the pension scheme) and PWC found that the covenant was strong.

USS declared ‘A comprehensive, updated analysis carried out for the 2017 valuation has reinforced the confidence the trustee believes it can place in the covenant for at least the next 30 years’.

The USS did not feel the £5 billion deficit was big enough to warrant any significant changes to the scheme, and were confident that the adjustments to the scheme established after the 2014 evaluation (brought into effect in April 2016) should remain in place.

Later in 2017, the Pension Regulator assessed that the employers’ covenant was not ‘strong’, but ‘tending to strong’. This decision on the part of the Regulator was not because there was not enough money in the sector to cover all eventualities – PwC had indicated there was –

but because tPR recognised that the Universities had priorities that were potentially in competition with their priority of keeping their pension promise to their employees:

“affordability is not unconstrained in this period as there is competition for cash from the institutions’ other expenditure priorities.”

At this point the Universities UK put round a survey to its members, and also to other USS employers. The survey asked if they wanted to a.) accept the amount of risk being proposed by the USS trustee b.) accept more risk or c.) accept less risk.

UUK then announced that 46% of respondents wanted less risk than the USS was itself proposing, and argued this was a strong enough mandate for changing the amount of risk built into the valuation. This change had the effect of increasing the ‘deficit’ from £5.1 bn to £7.5 bn.

Now that they had a ‘deficit’ that needed addressing with a solution, UUK formulated the Defined Contribution pension proposal that was at the root of the explosive 2017/18 dispute.

They were suggesting that employees should take all the risk, and lose all sense of certainty of what they might retire on. USS members were having none of it, and UCU hit the picket lines.

To arrive at this figure of 46% responses, UUK had included responses from organisation which it did not represent. It included, we learned, responses that were clearly marked as completed by people who were not authorised to represent their institution.

It was calculated that in fact 80% of USS members were at institutions that replied that they were happy with the level of risk that the USS trustee proposed. The shift to DC was unnecessary and unwanted. But it was pursued. And we fought it.

An ACAS brokered deal to retain defined benefits was considered inadequate by members and rejected, because the accrual rate and inflation cap were so brutal as to imply a 40% cut to members’ pensions. It was DB, but broken and beaten. We continued striking.

UUK then offered Joint Expert Panel be established to agree how future valuations should be approached, and a commitment to drop DC plans.

USS asserted that to retain benefits contributions would need to increase, which they did to 19.5% and 8.8% (the traditional 69/31 split once again). USS agreed to come up with a replacement 2018 valuation.

The consequence of the 2018 valuation, pushed through by UUK with the supporting casting vote of the JNC chair, was that contributions went up again to 21.1% and 9.6% (That 69/31 split once more).

And so to the 2020 valuation, calculated using the same questionable methodologies and at a time that was at the nadir of the covid-related drop in the markets.

Another deficit was constructed, and UUK again pushed through their proposed solution with the casting vote of the JNC chair again.

The cuts to the benefit were calculated as meaning as much as 35% cut in pensions in retirement. The accrual rate was dropped again, now to 1/85, the salary cap was dropped to £40k, bringing more people into the DC element of the hybrid scheme,

and a cap on inflation proofing was set in place meaning that inflation over 2.5% would not be reflected in uprated pensions. This was soon after deferred until 2024, and not yet in place.

I had been pensions officer at Leeds throughout this whole period (or acted on pensions as local UCU President). I put myself forward as a USS negotiator, and was elected last year. I now sit on the JNC, where i and my fellow negotiators will work to overturn the 2022 cuts.

I will no doubt have made small errors here and there about when and what changed. I'm happy to hear from those that would correct the detail or the nuance.