It’s a consultation that is likely to end in agreement.
The USS Trustees are starting the process of working with Universities UK (in this cas as a USS employers representative rather than as a wider sector representative body) to agree where the 2023 valuation will end up in terms of benefits and payments.
Success, it is said, has many parents – both UUK and UCU (representing scheme member interests) are keen to take credit for the raw actuarial logic that dictates that a terribly-timed valuation will be followed by a better one.
In trustee board chair Kate Barker’s introduction she notes:
we are expecting to report a surplus [of £7.4bn] for the first time since the 2008 valuation. With a favourable financial position, we consider that a reduction in the contribution rate is likely to be appropriate at this valuation
This is, of course, unlikely to be a surprise to anyone. Neither will the projection of a 20.6 per cent contribution rate to restore pre-April 2022 benefits – comfortably below current rates and equivalent to 6.1 per cent of salary for members and 14.5 per cent of salary for employers.
And there’s a very welcome commitment from stakeholders to examine the options for improving benefits in the light of the lost benefits between 2022 and 2024.
The consultation process will conclude in late September – employers responding to UUK by 22 September, and UUK responding to USS by 29 September. Following this we’ll see an employer-led consultation on benefit changes (late September through to the end of November), with a (UUK/UCU) Joint Negotiating Committee deadline in late December.
All this means that new rates will be effective by 1 April 2024 – an accelerated implementation that most will likely be very pleased about (achieved by retaining chunks of the valuation methodology agreed for the 2020 valuation). UCU’s Jo Grady has written to ask if the process can move even faster on contribution reductions, something that would help employers and scheme members.
This would address cost of living concerns – though the irony is the higher than average rate of interest is the fuel that is powering this improvement in the scheme’s position. As the consultation document puts it:
Higher long-term interest rates tend to increase our overall expected investment return. This means we need less money today to meet benefit payments in the future.
One good valuation is great news, but ideally we’d be able to put USS on a less volatile footing – meaning chaos like 2020 won’t have to happen again. There are changes afoot at the Pensions Regulator to change the funding code of practice (that underpins the way pension valuations work) and USS is arguing for special consideration given the “unique nature” of USS among UK defined benefit schemes.
This – notes USS – could mean that “our existing approach to funding the scheme can substantially continue under the new regime.” However, I can’t help but think the existing approach to valuation that got us into the 2020 mess might need some attention.