University of York Institutional Response to USS 2023 valuation technical provisions consultation

View the full response on the PDF

To UUK (USS Employers) colleagues

Please find enclosed the University of York's response to the USS 2023 valuation technical provisions consultation.

Below, we have created a summary of our key points, which reflects both our appreciation for the positive valuation results and benefit restoration, and progress made by seeing USS, UUK and UCU working together so closely.

However, it also highlights the areas of concern that we believe require action to secure the future stability and sustainability of the scheme.

Contribution rates and benefit restoration

We welcome the good news from the 2023 valuation, and support restoring benefits to pre-April 2022 levels and lower contribution rates (split 14.5% employers and 6.1% members).

We know higher interest rates, however difficult in other ways, are positive for defined benefit pensions schemes like USS. But whilst changing macro-economic factors have been instrumental in securing this more positive situation for the 2023 valuation, they have also driven a cost of living crisis.

We are therefore keen to see that contribution rates are reduced as soon as possible, even before April 2024 when changes would normally come into force. We suggest reductions start from 1 January 2024, or even earlier, so that our staff see this difference in their take-home salary as soon as possible.

Ensuring sustainability

We have concerns about how approaches to risk affect our scheme and the sustainability of the valuation methodology.

We do not wish the USS to adopt a low risk investment strategy. This is why we propose a post 2023 valuation review on long-term sustainability, without introducing undue prudency to our investment strategy.

Whilst we may envisage a world of future valuations where the scheme remains in strong health, we also want assurance against the volatility that has plagued USS valuations in the past decade.

To this end, we are keen for conditional indexation to be agreed and introduced to bolster long-term stability. We would like to see a detailed timetable of such an approach, and an early starting point, including an understanding of legislative requirements, to offer reassurance that such a review will progress at pace. Until conditional indexation is implemented we would support the "corridor" approach to introduce more stability, although we recognise this may cause minor increases in contributions.

Guarding against over-cautious regulation

We also know the Pensions Regulator will continue to play a critical role. Even with the 2023 valuation bringing better outcomes, tighter regulation may reverse these improvements in the future. It is vital that we keep pressure on the Pensions Regulator to consider the distinctive attributes of the sector when setting parameters for future valuations.

We believe the uniqueness of higher education simply must be taken into account: USS is a multiemployer scheme, in a sector that has been resilient over centuries, and one which plays such an instrumental role in innovation and skills for the nation. This surely justifies a distinctive regulatory approach for its main pension scheme.

The USS Trustee, employers and unions must therefore continue to collectively press the UK Government and the Pensions Regulator not to impose tighter, over-cautious regulation in the future. The gains we are seeing from the 2023 valuation must not be lost if markets revert to less favourable conditions - we should be doing all that we can to guard against future instability.

Governance review

We call for swifter progress in reviewing the governance of the scheme. Transparency is key for long-term stability and trust.

Work on governance should be given equal priority to other actions following the 2023 valuation. Ensuring that the scheme is appropriately governed will be an important aspect of underpinning the sustainability of the scheme, and increased transparency in how it is governed will improve the confidence and trust of all current and future members.

We urge that all parties come together to progress against this commitment, as to date this has not been good enough.

Addressing flexibility and employee needs

Although a member contribution rate of 6.1% will go a long way to ensuring affordability, it does not address the flexibility issue.

We undertook an extensive engagement exercise about USS with our employees between 2020-21, receiving feedback that the one-size-fits-all benefit structure did not meet employees needs or expectations.

Lower-cost options must be considered, especially to address high dropout rates, and to acknowledge that the scheme is not suitable for all, such as early-year academics or international academics who may not be intending to spend their career in the UK. All of this contributes to the lack of intergenerational fairness and potentially equality issues, which should be highlighted through USS undertaking an equality impact assessment; it is not sufficient that individual HEIs undertake these. We are disappointed such little progress has been made.

We therefore agree with UUK that this workstream remains important and would like to see this considered more fully, and at greater pace, following the conclusion of the 2023 valuation.

Scheme expenses

Whilst we have shared detailed feedback on various technical aspects in our consultation response, we particularly also wish to draw attention to the proposed, and very significant, increase in the level of scheme expenses. This is clearly unacceptable. We ask that the USS Trustee provide more detail and the reason for this increase, as well as reassurance on what measures are being pursued to control costs.

Debt monitoring framework

We understand the need for covenant support measures to ensure ongoing support from employers and are pleased that the Employer Covenant assessment of the sector remains strong. However the current debt monitoring framework was created at a time of market extremes and when the financial circumstances of the Scheme were far more challenging than they are now. Our view is that without a change, the framework will become anachronistic. The onerous nature of these commitments on employers, combined with the punitive sanctions possible for non-compliance, will serve to lessen, rather than enhance, the Employer Covenant by adversely affecting institutions strategic agency. In particular, the choices available to the Governing bodies of the employers are diminished by the measures. We request that the Trustee considers whether, without impacting on contributions rates, the onerous metrics contained in the debt monitoring framework could be partially eased and that the consequences for triggering the metrics could be made more transparent and less punitive.

Consultation

Thank you for the opportunity to respond to this consultation. We will certainly also be encouraging our employees to comment on proposed changes to USS benefits during the 25 September - 24 November 2023 member consultation period.

And lastly, we commend the recent collaboration between USS, UUK and UCU. It is vital that we build on this and seize the opportunity presented by the 2023 valuation to ensure longer-term sustainability and a secure future for our pension scheme.

Yours sincerely
On behalf of:
Professor Charlie Jeffery
Vice-Chancellor & President

Dr Alice Maynard
Chair of University of York Council

View the full response on the PDF