Out-Law News 2 min. read
28 Sep 2018, 4:11 pm
However, the report (112-page / 5.11MB PDF), by a joint expert panel (JEP) into the Universities Superannuation Scheme (USS) set up by the University and College Union (UCU) and Universities UK (UUK), may not be welcomed by university finance teams, pensions expert Nick Stones of Pinsent Masons, the law firm behind Out-Law.com, said.
The JEP was commissioned by the universities and the staff to look into the 2017 valuation of the USS undertaken by the trustee and endorsed by the Pensions Regulator after both said that sizeable increases in contributions needed to be made to fund the benefits offered by the scheme.
According to the Financial Times (FT), currently 26% of employees' salary goes into the scheme – 18% from the employer and 8% from the employee. The USS trustee said that total contributions needed to rise to about 32 or 33%, however, while the Pensions Regulator said they would need to increase to 37.4%, the FT said.
The plans to increase members' contributions sparked industrial action earlier this year and led to the UCU and UUK to agree to commission a JEP to look into the scheme's 2017 valuation. The JEP, led by Joanne Segars OBE, concluded that the USS could continue to be funded at current valuation levels with contributions rising to 29.18%, below the 36.6% the USS trustee had proposed contributions increase to from 2020.
The JEP made a number of recommendations in its report, including that there be a "re-evaluation" of universities' attitude to risk and the reliance on the sponsor covenant. It further called for the "smoothing" of future service contributions.
The USS said in a statement that it would seek to agree a way forward with the UCU and UUK in light of the JEP report.
Stones said: "The JEP report is fascinating in that it is critiquing the basic tenets of what the Pensions Regulator has drummed into pension scheme trustees up and down the country about the primacy of self-sufficiency and reducing risk. There would be many finance directors of pensions schemes in other sectors wishing that they had the ability to deploy the resources and academic rigour of the JEP against the regulator and trustees."
"That said, I would imagine some university finance teams are less pleased following the report given that the JEP is asking university employers to take on more risk long term and pay more towards their employee’s pensions. In addition, the report acknowledges that the stronger employers will in essence underwrite the weaker. To some universities this may be troubling and it remains to be seen whether this may see more universities look to establish new models for structuring their diverse operations so as to reduce the number of staff who are entitled to USS membership," he said.
"What is also interesting is some of the finer detail in the justifications from the JEP and whether this may be argued across other pension schemes. For example, the JEP reasoned why USS had a strong covenant, disagreeing with a weaker view adopted by the regulator. Deploying the same rationale as JEP, the sheer size, number of employers and 'last man standing' nature of the Local Government Pension Scheme, which is ultimately underwritten by local taxpayers, might arguably provide a stronger covenant than the university sector," Stones said.