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Update from USS

23 Nov 2018

An update from Bill Galvin, Group Chief Executive Officer

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Dear colleagues,

Last week UUK provided the Trustee with a report summarising the responses to its recent consultation with employers on the proposals contained in the Joint Expert Panel’s report of September, and the Trustee Board met yesterday to consider these matters and agree the next steps.

I can now set out, in high level terms, the process the Trustee will be following based on this feedback, the key considerations, and the timescales involved.

Current position

After consultation with the scheme’s employers, UUK requested that the Trustee consider the proposals made by the stakeholders’ panel in setting the scheme’s funding requirements.

The outcome of the 2017 valuation was driven in large part by the stated appetite of employers to underwrite the risks involved with funding USS pensions.

We have been clear that the panel’s proposals would require employers to be willing to take on greater risk, and pay higher contributions, than had been stated at key points of the process.

The panel’s report did not quantify these risks.

The path forward

The Trustee is prepared to reopen discussion on risk capacity and appetite with employers but, in order to comply with the laws governing pension schemes, we need to hold an additional valuation to do so.

There is limited opportunity to take any revised views into account in the current 2017 valuation, as (due to the challenges stakeholders met in reaching agreements) the Trustee is already in breach of the statutory schedule for its completion.

The current 2017 valuation must, therefore, be brought to a close, with the proposals for higher contributions that this entails.

The Trustee has carefully considered the responses to the recent cost-sharing consultation with affected employees and their representatives and, while noting the concerns raised,  particularly in relation to affordability around the higher phases of contribution increases, does not propose to make changes to the cost-sharing provisions as consulted on.

These issues were addressed, to the degree possible, in the phasing of the contribution increases.

The summary of responses to the consultation, and the areas of concern raised by affected employees, employee representatives and employers, will be shared with the stakeholders through the Joint Negotiating Committee.

As a result, the Schedule of Contributions (SoC), Recovery Plan (RP) and Statement of Funding Principles are the only matters left to resolve in the current valuation and we will progress these by undertaking formal consultation with UUK as per our schedule (see below).

However, a valuation as at March 2018 will allow discussions to be re-opened should employers now be willing to underwrite arrangements that would allow more risk to be taken in either the short or long term.

Given the timescales of the processes involved, we could not now arrive at an alternative outcome before the first proposed cost-sharing increase comes into effect on 1 April 2019.

This is formally subject to completion of the 2017 SoC and RP but at 28.3% would, in any event, be lower than the rate of 29.2% proposed by the stakeholders’ panel.

Where there is a will on all sides, a 2018 valuation could be completed before the higher proposed cost-sharing contributions come into effect from 1 October 2019 onwards.

The schedule

We will shortly consult with UUK, who will in turn engage with employers, on the SoC and RP for the 2017 valuation. This consultation will start in early December and end in early January, allowing at least four weeks for UUK to respond, and enabling the 2017 valuation to be completed by February.

As soon as possible, we will consult with UUK, who will in turn engage with employers, on the Technical Provisions assumptions of a valuation as at 31 March 2018 – with the aim of the Trustee Board finalising the funding requirements in early February. It is through this consultation that we will assess both the combined impact and acceptability of the proposals put forward by the stakeholders’ panel, and the willingness of employers to support and mitigate quantified levels of additional risk.

Thereafter, the Joint Negotiating Committee (JNC) will consider how to address any changes to the Trustee’s contribution requirements. The statutory deadline for completion of this new valuation will be 30 June 2019. The next scheduled triennial valuation would then be as at 31 March 2021.

Period 2017 valuation 2018 valuation
December to January SoC/RP consultation with UUK TPs consultation with UUK
February Valuation submitted to tPR TPs finalised, JNC discussions
June - Statutory deadline (30 June)

We recognise the pressures of the timescales involved, and are clear that this schedule will require the full support and engagement of our stakeholders if the significantly higher phases of cost-sharing increases are to be avoided.

We have repeatedly expressed the hope that the stakeholders’ panel could provide the basis for UCU and UUK to agree a way forward to this end, and we sincerely hope that comes to pass.

Our objective is to ensure that the defined pension benefits members earn are secure and can be paid as they fall due.

Bill Galvin

Group Chief Executive Officer