Disruption to students is regrettable but we must not become the latest high-profile pension scheme to fail

In our open letter to university staff  published today, we stress that it is in everyone’s interests that a solution is found as soon as possible to the serious funding challenges facing USS.  

This is why Universities UK, representing 350 employers, continues to request talks with the University and College Union (UCU) to try to find an affordable way forward.

The financial challenges facing USS and universities are not unique. Many trustees and employers are making the same difficult decisions across UK-funded private defined benefit schemes.

Trustees of private pensions are required by law to take a prudent approach in assessing future financial contributions required to make pension schemes sustainable for the long term.

Since 2014 the cost of future USS pension commitments has risen by one-third. The scheme is carrying a deficit of £6.1 billion and the increase in contribution from scheme members and employers to sustain the current level of benefit would be £1 billion annually, a vast sum. 

When valuing a pension scheme there are many assumptions to be made by the trustee and it is understandable that differences of view may exist. The USS trustee, informed by independent expert advice, has been guided by the laws and regulations governing private pension schemes, which include requirements on how much risk is tolerable.

Despite a prudent assessment by the trustee, in September 2017 the independent Pensions Regulator raised concerns about the level of risk USS is carrying.

As the representative of the scheme’s employers, we have a legal duty to maintain the health of USS for the long term, and we have a moral duty to members to ensure contributions do not rise beyond what is affordable. If we do not act now, we risk being in an even worse position at the next valuation, which is scheduled for 2020.

Legally we have to achieve a resolution by June 2018, or have a solution forced on us which would see employer and member contributions increase dramatically to tackle the funding gap. 

Employers currently contribute 18% of staff salaries to pensions, while staff contribute 8%. If employer contributions were to increase further the money to pay for pensions would have to be found elsewhere in university budgets, cutting into teaching, research and student services. There would be a high risk of staff redundancies. 

The only proposal as yet put forward by UCU would involve a significant increase in both employer and member contributions. During 35 separate meetings throughout 2017 union leaders have failed to accept the very real challenges facing USS. Nor have they provided the evidence to back up their claim that proposed reforms could leave staff £200,000 worse off in retirement.

We acknowledge that the proposed reforms will have an impact, but we do not believe that it will be on the scale claimed by UCU. University staff will still benefit from a valuable pension scheme, with employer contributions at double the average for the private sector. Any benefit already accrued by staff in the scheme is protected by law.

Moreover, Universities UK has asked for further talks with UCU on the long-term plans for USS. We have suggested talks on developing a shared framework for reintroducing defined benefits should economic and funding conditions improve, among other proposals to secure the long-term health of USS. We have also committed to sustaining the 18% employer contribution until 2023.

These current proposals are not the end of the story. There is a consultation with all USS members starting in March and we hope that many scheme members will take the opportunity to have their say. An equality impact assessment of the proposed changes will run alongside that consultation.

Even at this late stage, were a credible, affordable proposal to be put forward by UCU or from elsewhere, we believe employers would want to consider it. We are by no means entrenched in our position – employers, like USS members, would much prefer a negotiated solution to ongoing industrial action.

Meanwhile, universities are doing all they possibly can to protect students during the strike action, working with student representative bodies and putting appropriate measures in place to minimise any disruption. Early indications from a number of affected campuses are encouraging, suggesting disruption is only moderate. Nevertheless, any disruption to students’ academic studies is regrettable.

Pensions risk is very real. There are too many high-profile examples of schemes failing. Employers and union representatives must address these and act responsibly to protect pensions and students.

Alistair Jarvis is the chief executive of Universities UK