Sussex and Institute of Development Studies (IDS) UCU branch present four draft priorities for the USS consultation in Section 5 below. We are seeking feedback including at the All Campus USS Community Forum on Wednesday 9 August 1pm-2pm.
Background nationally: In March 2023 UCU and UUK agreed a joint statement on USS to (i) prioritise full future restoration of benefits on 1 April 2024, (ii) explore augmentation of benefits following the two ‘lost years’ of lower benefits April 2022- March 2024 and (iii) agree a reduction in contributions, where this was demonstrably sustainable.
Background locally: In June 2022, along with many other UCU branches, Sussex and IDS agreed joint statements with the Sussex VC and IDS Director on USS, with IDS being the only UK institution to publicly support the UCU proposals to maintain benefits.
1. Why are we being consulted
There will be two USS consultations. This document is about the first UUK consultation, which is with employers. The current employers’ consultation will shape the structure of the member consultation that runs from 25 September to the end of November. However, it is critical we engage now, with this first consultation, to inform employers' views.
This consultation is run by Universities UK, who are VCs and Principals of UK Universities. It is a consultation on the ‘USS Technical Provisions (TP) for the 2023 valuation’. This USS valuation facilitates the full restoration of future USS benefits on 1 April 2024. Employers’ views on this document will be discussed and approved by Governing Bodies, which is Council at Sussex and the Trustee at IDS.
UCU is the recognised representative of staff for USS. At the Sussex and IDS UCU branch we work across institutions on pensions, and are aiming to reach all USS eligible staff on campus to share our draft views on the current consultation.
2. How to input your views
Sussex and IDS UCU will host an online all campus USS Community Forum on Wednesday 9 August 2023 1pm-2pm to update and discuss. We will publicise details nearer the time, but please save the date and forward this document to your colleagues.
You can also give feedback via this googleform or directly to the branch by contacting the branch pensions officer ucusussex [at] sussex.ac.uk or j.j.grant [at] sussex.ac.uk. We ask that substantive or technical questions are sent in advance with contact details so we can offer to meet as needed, or weave into our response.
3. The UUK consultation questions
There are twelve questions in the UUK USS consultation documents, with one question asking for comments on nine specific objectives of a UUK ‘journey plan’. You can read all the consultation questions here. This is going to be a complex and wide-ranging consultation and we will draft answers to the technical questions.
However, we have started by listing four draft priorities for the branch along with key headlines. We would like your feedback on these priorities and any other comments via the google form or at the USS Community forum, Wednesday 9 August 1pm-2pm.
4. Sussex and IDS UCU: brief views
The headlines: The TP consultation figures are shocking in the variation in funding position as measured by the USS valuation methodology. Against March 2023 assets of £73.1bn the surplus is quoted as £7.4bn, this is an increase of over £20bn from a deficit of £14.1bn in 2020. Costs for fully restored future pensions are given as 20.6%, down by nearly half from 37% in 2020. A reminder that the 2020 valuation figures were used as a basis for employers to push through huge pension cuts in April 2022.
However the USS document is framed around the priority of full future restoration and there are important references to exploring compensation of two years of lost benefits from the surplus. Also quoted is the likelihood of sustainability over three and six years for costs of 20.6% (most likely only sustainable if benefits are cut at the 2026 valuation) and 26% (most likely sustainable while maintaining benefits at the 2026 and 2029 valuations). There is also welcome clarity on the self-sufficiency use and definition and this will provide a good opportunity for feedback on the valuation methodology.
The UUK document is similarly framed around the priority of full future restoration. It considers nine objectives of a journey plan The nine objectives are stability, reduction in contributions, improvement to future benefits, commitment to covenant support, utilisation of surplus, conditional indexation, governance review, changes to long-term investment strategy, and lower cost / flexibility options. Following branch feedback we will draft specific responses based on the four priorities and notes below.
5. Sussex and IDS UCU: our four priorities
The following points are the Sussex and IDS UCU draft four ordered priorities for the 2023 valuation consultation. These are summarised below. Technical notes are drafted in the appendix.
Priority 1: Full future restoration of benefits. We welcome the framing of the TP consultation based on the UCU and UUK priority that full future restoration to pre-2022 levels will be implemented on 1 April 2024.
In detail this priority is that future benefits must be fully restored on 1 April 2024, as part of the accelerated USS 2023 valuation time frame. This includes the three elements:
Restore accrual rate to 1/75 from 1/85
Restore the threshold that divides DB and DC to circa £70k from £40k.
Restore the indexation to the ‘soft-cap’ 5-10% on CPI from the ‘hard-cap’ 2.5%
Further details of these are given in a technical appendix.
Priority 2: Compensation for two years lost benefits. The second priority is that lost benefits from 1 April 2022 to 31 March 2024 are compensated, for example from part of the surplus or overpayments.
Priority 3: Demonstrably sustainable contributions. The third priority is that costs are reduced, but only if done so in a demonstrably sustainable way so that we can avoid further threats to reduce benefits and cycles of disputes.This may involve reducing contributions from the current 31.4% (employees 9.8%, employers 21.4%) to around 25%-26% (employees 7.5%-8.0%, employers 17.5%-18.0%) while testing a corridor to keep to these central values if costs vary over valuations. See technical notes in Appendix.
Priority 4: That consideration is given to reducing contributions before 1 April 2024 if, and only if, priorities 1, 2 and 3 are first agreed and secured.
6. Notes on other key issues
The methodology needs to change: it is too prudent and too volatile. The USS 2023 valuation is being run on an accelerated time frame to fully restore future benefits on 1 April 2024. In order to facilitate this rapid implementation of the valuation, all stakeholders agreed to keep the 2020 valuation methodology with important updates to assumptions. However it is clear that major changes need to be made to reduce both the prudence seen in the 2020 valuation, and the subsequent volatility driven by the changes in gilt-yield. This will include examining the use of the USS-specific definition of self-sufficiency.
Governance reform of USS is needed, with UCU as equal partners in a review. It is clear the Trustee were not taking the long-term view in the 2020 and previous valuations and there needs to be governance reform with UCU as joint and equal partners in a review. This position is already supported by Sussex Council.
The climate emergency is now and USS needs to act now. The University of Sussex declared a climate emergency in 2019. In March 2022 Sussex joined a coalition of universities in asking USS asset managers to vote against directors of companies pursuing or backing new fossil fuel projects and to support all climate-linked shareholder resolutions, particularly those that call for an end to new fossil fuel projects. The full letter can be read here. These positions need to be adopted and implemented by USS. As agreed in the UUK and UCU joint statement: USS needs to examine the case more fully for divestment from fossil fuels and that a greater visibility of climate crisis action and mitigation should be a feature of long-term USS planning.
Sussex and IDS Exec and Reps group, 1 August 2023