We hope you had a restful few weeks and that this email finds you well and safe. As most of you will be aware, there have been very significant developments this week in negotiations with employers over USS pensions. Despite intensive efforts by UCU’s negotiators to find alternative solutions, employers decided earlier this week to force through their plans for severe cuts to your retirement benefits through the USS Joint Negotiating Committee (JNC). Make no mistake: these are cuts of epic and unprecedented proportion. Employers – including our own – have simply decided that, in order to avoid having to pay higher contributions or commit to providing stronger levels of covenant support to the scheme, they would rather betray us and make us poorer in retirement. And not a little bit poorer: the average USS member stands to lose 35% of their take-home retirement income (over £100,000 assuming 15 years in retirement).
There will be many opportunities in the weeks to come to provide a full account of the situation, including an EGM scheduled on Friday 10th September 12-1.30pm (see details below). But the latest email by our Vice Chancellor contains several demonstrable falsehoods and approximations and we thought it important to provide a brief summary of the issues.
This member of the UCU committee – a Senior Lecturer with 15 years in the USS scheme – can now look forward to living well below the poverty line in retirement.
Why is this happening – and why is this happening now?
Every three years, pension funds are expected to undertake a valuation of the viability of their schemes (i.e. a financial health check). In March 2020, the USS trustees ploughed ahead with a scheme valuation using market data from the peak of market turmoil in the first wave of the Covid pandemic. Unsurprisingly, this wiped billions off the value of the scheme’s assets (note: assets have since entirely recovered and now stand at a record £87.8bn). Not content with using Covid-affected data, measured at the worst possible time, USS reworked their fully discredited Test 1 and ramped up prudence much further than in previous valuations, forecasting no real term asset growth in the next five decades, when USS assets have more than quadrupled in the last thirty years and current assets already vastly exceed the forecast. Predictably, this valuation approach – which was entirely debunked by the Joint Expert Panel established after the 2018 USS strikes – produced an entirely artificial ‘deficit’, which USS trustees proposed to meet by hiking contributions somewhere between 42% and 57% of salary (against 26% before the 2018 dispute).
For a very brief period, employers joined UCU in denouncing the valuation as unjustified and asked for a review. Faced with the prospect of a modest rise in contributions scheduled in October 2021, however, they decided that it was much easier to just cut our pensions and rammed their reforms through the JNC with the casting vote of the so-called ‘independent’ chair, a person so independent that they have never voted with UCU against UUK proposals.
What UUK proposals – as approved by the JNC – entail
The changes to the scheme pushed through by our employers are far-reaching and unprecedented in scale. They revolve around three key reforms to the current benefit structure:
- The threshold between defined benefit (DB) and defined contribution (DC) will be lowered from £60,000 to £40,000. A much lower threshold means that a much greater proportion of our contributions will go to the DC component of the scheme. This is significant for a range of reasons, not least because DC offers no guaranteed income in retirement and because employer contributions on salary above the threshold are significantly lower (12% against 21.1% below the threshold).
- The accrual rate – the fraction of your pensionable pay that will be paid to you in retirement – will be slashed from 1/75th to 1/85th. This means that you will earn 12% less annual retirement income from each year you work (note: the cuts to our pensions are much deeper than 12%, for reasons we outline below).
- Indexation will be capped at 2.5%. Under the current regime, pensions are inflation-proofed. Benefits are indexed on inflation, i.e. they increase automatically in proportion to CPI up to 5%, and half of CPI between 5% and 15%. UUK proposals introduce a hard cap at 2.5%. This means that our pensions will no longer be protected for inflation beyond the cap. The latest inflation forecast by the National Institute of Economic and Social Research is 3.9% for 2022. Under the new regime, the value of our pensions would therefore decrease in real terms by 1.4% in just one year. The proposed cap is thus a recipe for automatic year-on-year real term pension cuts.
What does this mean for my pension?
The employers’ package of cuts means that the average USS member will suffer a 35% loss to their take-home retirement income. And that’s not all: a significant proportion of our retirement income will now come from the DC component of the scheme, which provides no guaranteed benefit and where the value of our pension depends on investment performance. UCU has developed a modelling tool that allows members to find out what those changes will mean for their retirement benefits. We encourage you to use the tool (it takes less than a minute) and see for yourself how much your employer values you. You can access the modeller here.
Note: Under the proposed changes, employers are the only party that will suffer no detriment and will in fact see their contributions decrease as a result of the much lower rate applicable above the salary threshold.
What happens next
All evidence suggests that our employers were never interested in challenging the USS valuation and that their intention is now to cannonball these regressive changes as soon as humanly possible. Although UUK claimed that the proposals would now go out to a 60-day member consultation, it has now been revealed that USS trustees have already accepted the UUK proposals and will implement them without delay. If nothing changes, our contributions will increase by 0.2% next month and the full package of reforms will come into effect from April 2022.
Employers have failed to support alternative compromise proposals put forward by UCU and have reneged on their past promise to honour the findings of the Joint Expert Panel, which recommended substantial changes to the valuation methodology used to assess the financial health of the scheme. Instead of working with UCU to force USS to review its approach, VCs on eye-watering salaries have decided they would rather throw their staff under the bus and slash their pensions, after decades of real-term pay cuts. The only realistic way to avoid this catastrophic outcome is to start preparing for industrial action, which now appears inevitable.
A word on the VC’s latest email
Keele likes to boast that it is a ‘leader, not a follower’. It is deeply disappointing, if not entirely surprising, that the VC has decided to communicate to staff through a literal cut and paste job, parroting UUK’s main talking points and official propaganda. The VC’s last message shows a complete lack of respect and empathy for staff. It claims that employers have somehow heroically saved us from contributions increases, whilst entirely omitting to mention the huge cuts to our pensions. It also contains plain and demonstrable falsehoods, such as when it claims that UCU did not table alternative proposals, a claim which has now been publicly and definitely debunked. UCU presented its proposals to UUK at an informal JNC meeting on 4 August 2021 and placed them on the agenda of a formal JNC meeting on 13 August. It was UUK’s decision to not consult employers on the proposals and to refuse at the outset to provide the same level of covenant support to UCU proposals as they did to their own.
It is time for our VC to look us in the eyes and tell us the truth, rather than hide behind UUK press releases.
We will hold an Extraordinary General Meeting on Friday 10th September 12-1.30pm. Please spread the word and attend if you can, as important information will be provided on the state of the USS dispute and planning for industrial action.