In March 2021, the USS Trustee said that the cost to maintain current benefits would need to increase substantially; by at least 11% and possibly up to 25% of salary.
Alongside the seven-week consultation, UUK will continue pressing the USS Trustee to reconsider its valuation assumptions, having recently expressed concerns to both the Trustee and The Pensions Regulator over the high level of prudence applied to the 2020 valuation.
The consultation outlines options for tackling the scheme's increasing costs, sizeable deficit, and high member opt-out rate. An alternative approach to the 2020 valuation is proposed which, if adopted by the USS Trustee, should reduce headline costs and provide scheme members with valuable pension benefits at sustainable and affordable contribution rates.
Employers are being asked if they can offer additional financial backing – or covenant support – to lessen the rise in contributions. Considered alongside other reforms, this could enable a significant defined benefit element to be preserved at current contribution levels. Employers are also asked whether they would support the introduction of a new, short-term flexible option for the growing number of early career staff who are currently being priced out of the scheme.
Employers are being encouraged by UUK to discuss these issues with every staff member eligible for USS, to ensure their views are heard as the consultation progresses.
A spokesperson for Universities UK, on behalf of USS employers said:
"We remain concerned that the USS Trustee's approach to the 2020 valuation is overly prudent and risks unnecessary levels of reform, so we will continue pressing them to reconsider their pricing. As part of this we are seeking employers' views on a proposed alternative path that could persuade the USS Trustee to review their assumptions, reduce headline costs, and preserve a significant element of defined benefits at current contribution rates, as part of a valuable pension scheme for staff.
"We are also proposing the introduction of a flexible option, which wouldn't be a replacement for the main scheme, but would give staff at different stages in their careers the choice to pay in less and still benefit from employer contributions. While affordable for many, the current member contribution rate of 9.6% of salary is pricing numerous staff out of USS. They are missing out on money from their employer towards their future and are prevented from getting valuable life cover and other benefits."
Iona Bain, Founder of The Young Money Blog said:
"It is very encouraging that more flexibility is being considered for USS that would allow younger staff to continue contributing to their pension at a level that may be more realistic, given the various financial pressures they face (especially in the Covid era).
"It's far better for younger staff members to save something, even if it's less than the ideal amount for a short period, rather than nothing. In a world where we've seen a significant move from DB to DC provision, a balance must be found between making schemes sustainable and achieving the best possible outcomes for members. A crucial part of this effort will be engaging with members and understanding what affordable contributions look like, and whether there's any scope to modify them to bring more staff into the enormous benefits of long-term saving."
Notes to editors
All consultation documentation, including a Q&A for employers, is available on the USS Employers website
www.ussemployers.org.uk is UUK's dedicated channel for pensions-related issues