Keele UCU Response to UUK Document – Five Key Questions: USS Pensions

On 16th February Rachel Adams, Keele’s Director of HR, circulated a UUK document, ‘Five Key Questions: USS Pensions‘.

Here is the Keele UCU response to UUK’s five questions and answers:

‘Question 1. Are the funding challenges to USS being overstated?’

The deficit is the product of three unnecessary decisions:

  1. The use of a discount rate based on gilt rates (the interest rates on government bonds) to value USS’s liabilities. There is an extremely close correlation between the 30-year gilt rate and the value of the liabilities (the correlation coefficient over the past ten years is -0.98). Gilt rates are at exceptionally low levels, and this has inflated the valuation of the liabilities, producing a quite artificial deficit. If gilt rates return to their values of 2-3 years ago the deficit will disappear.
  2. The USS board proposes to shift its investments from its present balanced portfolio, a mixture of equities, property and
    bonds, to one that is heavily weighted towards bonds. This is known as ‘de-risking’; it will produce returns that are more
    predictable, but will be too low to pay for our pensions. The present portfolio is likely to be sufficient to pay for our
  3. Last September, USS consulted the employers on the terms of the valuation. A minority of universities (it was
    reported to be 42%, but we understand that the true figure is lower) ticked the option ‘My institution wants less risk to
    be taken, acknowledging the implications this might have for the benefits and/or costs’. USS complied with this minority
    view and adopted a more rapid ‘de-risking’ policy. This raised the deficit from £5.1 billion to £7.5 billion, and
    produced the present dispute.

‘Question 2. Can the benefit reforms be reconsidered?’

UUK claims that ‘UCU has unfortunately been unable – or unwilling – to alter its position’. In fact, UCU made a
number of proposals, without prejudice, aimed at retaining a defined benefit pension scheme. One was to revert to the
valuation assumptions prior to the September consultation (see 1(3) above) and to close the deficit by a small increase in contributions and a small reduction in the accrual rate.

UUK claims that defined benefits might be reintroduced in future if the scheme’s funding position sufficiently improves. This is disingenuous. Once contributions to the defined benefit section of the fund have ceased, it must pay its benefits by selling its investments; this requires it to shift its investment stance immediately towards low-return investments, and this makes the deficit increase. The same thing happens to all pension schemes when they close to new contributions; e.g., the Keele Superannuation Scheme’s deficit has ballooned from £18 million to £35 million since it closed to new contributions in 2013. If USS closes its defined benefits section to new contributions it will be very hard indeed ever to restore it.

‘Question 3. Will members lose up to £200,000 in retirement due to these reforms?’

UUK repeats its highly misleading claim that ‘current members should continue to receive retirement incomes equivalent to
80-90% of those that would, hypothetically, have been received under the current benefits.’ This is taken from calculations by its actuarial advisors, Aon Hewitt. In fact, the detail of the Aon Hewitt report shows that USS pensions earned under the employers’ proposals will be reduced by 46%-50%, for salaries in the range £20,000-£50,000; see our January 2018 newsletter at

‘Question 4. Is defined benefit (DB) better than defined contributions (DC)?’

The short answer is yes. The international experience is that DC schemes give very poor value for money and increased
risk for employers and employees; see R.L. Brown & C. McInnes (2014) ‘Shifting public sector DB plans to DC: the experience so far and implications for Canada’, Canadian Public Pension Leadership Council. Available at

UUK claims that DC schemes provide ‘greater flexibility and choice’. In fact, they provide flexibility for employers to escape the burden of paying guaranteed pensions; they provide no advantages to employees. When it comes to planning for retirement, we want a guaranteed pension, not a ‘flexible’ one.

‘Question 5. Is it true that employers will pay less towards USS pensions?’

It is true that the employers are not proposing to change their own contribution rate. Rather, the main change is a great shift of risk from employers to employees. In future, we will bear the brunt of fluctuations in investment performance, which are at present pooled between members, averaged over time, and shared with the employers.