Dr Sam Marsh gives a detailed overview of the USS pension scheme, including the history of the scheme, what’s happening now, who’s involved and what might happen next.
Sam is a Teaching Fellow in the School of Maths at the University of Sheffield, Senior Vice-President for the University of Sheffield University and College Union (UCU) and the elected national negotiator for UCU on the USS.
What is the USS?
USS stands for the Universities Superannuation Scheme. It’s the pensions scheme for staff working in pre-92 universities.
It usually applies for staff who are on pay grade 6 and above, and won’t necessarily include all staff at an institution. Most universities have other pension schemes too.
Timeline of USS history
1975-2011: The USS was formed in 1975 and until 2011, was stable as what is known as a ‘final salary defined benefit (DB) scheme’. This means that contributions are paid in by both employers and employees, which build up benefits that the employee will claim in retirement. Up until 2011, these benefits were based on the salary the employee was earning upon retirement.
2011: The 2008 financial crash had an impact on the scheme’s valuation. So in 2011, the USS closed the final salary section to new entrants. Instead, a ‘career average DB scheme’ was introduced in the belief that this would stabilise the scheme.
2016: Based on a new valuation of the scheme, the USS closed the final salary scheme to all and moved those in it to a ‘hybrid scheme’. For higher earners, the hybrid scheme was part DB and part defined contribution (DC). In a DC scheme, pension contributions are put into investment pots, which is less stable, less certain and involves more risk than a DB scheme.
2018: Following another valuation, the USS proposed the closure of the DB section entirely and move to a DC only scheme. This led to a major industrial dispute across the higher education sector over the valuation of the scheme.
2019/20: The DB scheme remained after the 2018 dispute, but further industrial dispute occurred over increased contribution rates.
It’s important to note that all of the changes to the USS over recent years have been as a result of valuations of the DB scheme.
Where are we now and what’s next?
Sam gave a detailed explanation of the state of USS negotiations during a Blackbullion staff webinar in November 2020, but lots has happened since then. We caught up with Sam for an update on the situation.
Hi Sam, so why has the USS pension scheme been in the news recently?
USS have reached the end of their 2020 valuation process, and it has resulted in large proposed benefit cuts for scheme members (again!). This is a valuation dated right in the middle of the chaos of the first wave of the pandemic, and it shows in the outcome. USS claim that they have made allowances for the pandemic in their calculations, but many (including me) are not convinced.
What has happened regarding the USS since we last spoke to you in November 2020?
A lot and very little, all at once! When I spoke to you in November, USS had announced their valuation in draft form. Since then, there has been much wrangling with the Pensions Regulator, who have been actively intervening in a way that seems to have pushed costs up. The representatives of the employers, Universities UK, wrote to USS with concerns over “an unnecessary and unjustified level of reform” being needed as a result of USS’s costings, and called for a review of the valuation. When USS declined that review, UUK instead turned to benefit cuts, which they pushed through at the scheme’s Joint Negotiating Committee via the independent chair’s casting vote.
Who are the JNC?
The Joint Negotiating Committee is the body at USS tasked with deciding on the benefit structure and contribution rates for the scheme. It is formed of 5 employer representatives (nominated by UUK), 5 member representatives (from UCU), and an independent chair. In the event of deadlock on any substantive issue, the independent chair has the ability to break the deadlock with a casting vote. At the end of any valuation process in which it is deemed that the cost of benefits has gone up, it’s up to the JNC to decide how to deal with the problem.
What was the decision recently made by the JNC?
The crunch decision was over a proposal by Universities UK to address the valuation outcome with a package of benefit cuts. UCU opposed the proposal, but the chair used her casting vote to push it through. The proposal will result in the ‘defined benefit cap’ moving down from around £60k to £40k, a reduction in the accrual rate from 1/75th of salary to 1/85th, and, perhaps worst of all, a reduction in the inflation protection of benefits, which could result in significant erosion in expected annual income by the point of retirement. Overall, the combined changes represent a cut of over 20% of future benefits to be accrued.
Where do we go from here?
USS is going through the final stages of its valuation process, and will embark on a consultation of all members about the changes. UCU is preparing to ballot its members for industrial action, as there is little chance of the consultation resulting in a significant change to the proposals. There are also legal challenges in the pipeline, one financed by a £50,000 crowd-funding campaign, another potentially coming from UCU. Unfortunately, it seems the crisis at USS is far from over.
Watch the webinar recording
- Access Sam’s webinar slides
- Check out the USS briefs on Medium and Twitter
- Times Higher Education articles on USS
- Does the USS’ deficit recovery plan unfairly penalise younger academics? (Times Higher Education)
If you have any questions or comments for Sam, you can get in touch with him directly on Twitter.
Originally published November 2020. Updated September 2021