• ucusussex

Rough transcript of Sussex VC's open forum on USS



On 6 May 2021, staff at Sussex were invited to register for an ‘open staff forum on USS’ held on 13 May. Staff were told


If you are unable to attend, a recording will be made available as soon as possible after the event.


As of 17 June 2021, despite repeated requests, the recording is still not available and we understand that a recording may not even have been made.


Around 90 members of staff were reported as attending the open forum. There are at least 2,000 staff at Sussex eligible to join the USS pension scheme and many more who have been impacted by the issues around USS over the years. A large number of USS members continue to contact us to express concerns over USS, particularly around communication, trust and transparency.


Following an appeal to members and beyond to share their notes on the meeting, we publish below a rough transcript of the open forum for the benefit of the community.


Sussex UCU Exec and Reps


Rough transcript of the Sussex open forum on USS held on 13 May 2021


VC: The USS pension issue has a long running and as we all know, not particularly happy history, but in the last 12 months things have got worse as a result of a range of factors including the impact and pressures caused by COVID19, by Brexit, by the decision of one of the Cambridge Colleges to leave the pensions scheme a few years ago and by the wider financial context. I genuinely, I know that many people who are here today will feel weary and feel dismayed that we are yet again having a conversation about the future of the pension scheme. I have to say I feel weary about it, I feel dismayed. Nobody that I have spoken to at, either at Sussex, or elsewhere feels anything other than that we are in a terrible state.


I have to say for me pensions, and a good pension scheme is one of the reasons that we attract good staff, and trying to maintain as much of that as possible is something that I, and I have to say that everybody I know, is committed to. Unfortunately though the challenges to the scheme that flared up four years ago or so have not gone away. There has been some protracted joint working between employers and UCU. And UCU, as I’m sure you know, represents all members of the pension scheme, whether they are a member of UCU or not. And nationally a minority of individual members of USS are in the trade union, although that’s not the case here at Sussex.


But we are faced with a very difficult position now. I think it is vital that we address the situation that we are in, the consequences of decisions taken in the next few months will affect all USS eligible staff, as well as impact on the overall institution on every member of staff in the institution whether they are a member of USS or not, and potentially on students. None of us want to be back here having the same conversations in two or three years time. There is a sort-of weary regularity about kicking the problem down the road again and again.


As things are getting more difficult I think we need to remember that USS remains one of the most generous private pension schemes in the country. It provides retirement income, ill-health benefits and life-cover to hundreds of thousands of university staff, and unlike many other schemes, which it is compared with, there is also a lump-sum available to people on retirement.


Government and ONS data show that the average USS pensioner receives almost three times the average for similar pensions compared to similar pensions in this country. Every few years the financial health of the scheme is assessed to make sure there is sufficient money to cover all of the benefits that have been promised and all the benefits that will be developed in the future. So there are two ways that is done. Up until today every penny that you pay towards USS is guaranteed in terms of the pension contribution, the pension offer that you have been made. It would be illegal for USS to say, well things are a bit difficult, and so everything you have earned in the pension up to now, we are going to make a reduction on any of that. That makes a significant chunk of the deficit.


The other component of USS is the so-called future service contributions. That is the pension that you could expect to get based on work that you haven’t yet done. And that can be changed, but it can only be changed prospectively rather than retrospectively, or after the fact.


There are a number of quite complex factors that mean the scheme is becoming more expensive and less affordable for both employers and members. And it is worth remembering if you don’t know, that there are 340 employers who are members of USS and University of Sussex has about 0.7% of active members and that makes us a relatively small voice in the pension scheme overall.


Over the past decade contributions from employers and contributions from employees have risen by 50%. Five years ago as an individual member of USS you would be making a contribution towards your pension of 6.5% of your salary. And employers would be making a contribution of 16% of your salary. Last year members paid 9.6% or currently in fact members pay 9.6% and the university makes a contribution of 21.1% of your salary and it is due to go up again in October based upon the valuation that took place a couple of years ago.


These are very high levels for a pension scheme. They are already leading to staff deciding not to have any pension cover and opting out of the scheme altogether. I will say a little bit more about the University’s position shortly. Our overall aim here is to find a lasting and affordable solution that sustains the scheme for all eligible staff, now and into the future.


This brings us to the present and the current valuation of USS. The previous valuation concluded in 2018 and that was the one on the back of the long-standing industrial action. This led to increases and as I say it will be leading to an increase in October and I have to say I am currently expecting that that increase will go into the University and into pay packets in October. Because this valuation is so sufficiently, significantly delayed. We do hope that that won’t happen though.


But the USS Trustee is legally required to carry out a valuation of the scheme every three years. It decided to carry out a valuation early in 2020 because as a result of the work of the Joint Expert Panel, and the last valuation, we agreed, we committed, or we, they, committed to doing so. And secondly because we wanted them to do that because the increases that are coming in October will be significantly higher both for you as individual members but also for employers.


At the beginning of March the Trustee published its report on the 2020 valuation and that’s the valuation that goes up to March 2020. So it took a full year for it to publish that valuation.


That valuation report set out the costs that they believed they would need to be imposed in order to keep the current benefits of the scheme unchanged. These were very very high, so the top level, and that is if there was no support from employers towards the so-called covenant, would be 56% of salaries, and that is shared two thirds by employers and one third of that would have to be made by individual members.


At the bottom end. The costs could be as low as - and I say low with ‘scare quotes’ on. As low as 42% of salary. Now bear in mind that currently we are paying 30.7% of salary, so that is further 11% of salary that would be necessary to maintain the current benefits.


But what would happen then is that those could only be achieved if employers committed to very, very significant changes to the support that we give to the pension scheme. And those changes include significantly restricting our capacity to borrow, and significantly extending the period of time before universities are allowed to leave the pension scheme and set up their own approach. I should say there is no plan I am aware of, on the part of any major employer to leave the pension scheme anyway. But those levels of commitment are quite high, and there are quite a lot of employers who are very strongly against some of the provisions.


But even if we were to get to 42% that is beyond the levels of affordability both for individual members and also for many employers. These are frankly eye-watering numbers and I think many, as I say, many people will find them impossible to agree with. There are, I think,a handful and I genuinely think it is a handful of universities who may be able to absorb the cost, but for others this would represent an existential threat. I share, the University shares, the view of UUK that the valuation that Trustee, that USS Trustee, has put in, is unreasonably prudent, that they could allow for greater investment risk, and so the 42% or the 56% is too gloomy a valuation.


And as some of you may know, I wrote together with the Chief Executive of UUK and the President of UUK to make that case very strongly to the Trustee. Having said that, we don’t have the power, the Trustee has the power to determine the price of benefits and neither UCU nor UUK can influence that, or can force that, we can certainly try to influence but we can’t force it. I think we have to accept that we must address that there are real challenges facing USS, but that the collective strength of the HE sector means that we could have a better price if the USS Trustee were to agree to it.


USS are very strongly influenced by the attitude of the Pensions Regulator and if their valuation is not accepted by the Pensions Regulator. The regulator has told them that they will put enforcement action into place.


This means that although the Trustee has the sole power to set the price, if they don’t satisfy the regulator, they themselves will get into trouble and the Pensions Regulator has already published their concerns that the numbers I have already quoted are at the limits of affordability and the limits of acceptability to the Trustee. So we are in a really difficult place where the University and the actuaries that are advising the universities believe that the numbers are too high. But nevertheless we are faced with a situation where unless the Trustee changes their mind, unless the Pensions Regulator changes their mind. Those are the numbers we have to live with. As I say, I really regret this, and this where there is some considerable shared ground with UCU.


We hope that employers can provide additional reassurances to the Trustee about the strength of the employer covenant, and I hope we can get to a place where the numbers are easier, but hope is not the same as expectation.


This is the background to why UUK has been consulting with employers to prepare for talks and a meeting of the Joint Negotiating Committee, which I think is taking place in July. It means that if USS and the Pensions Regulator don’t change their minds, there are only two levers available to us. One is to pay the increased costs and the second is to change the benefits structure of USS. This is unpalatable and unwelcome. And I have to say I can’t emphasise enough I wish we weren’t here.


Now I am aware that some people, lots of people, don’t believe or don’t understand why anything has to change with USS. I know that there are many people who argue that small tweaks to changes to the assumptions can change a deficit into a surplus. And whilst it is true that the exact size of the deficit will always be uncertain. I think it’s fair to say that the overwhelming majority of experts who have looked at the scheme, agree that a deficit exists. But even if the majority didn’t it is the experts who matter above all others, are those who have the legal duty to value the scheme and make sure it’s sustainable in the long term. And that’s the USS Trustee. So ultimately it is their word that matters, it is not that of the actuaries that are working for UCU or UUK or individuals who have taken a look at it.


As much as some people don’t like it, or agree with the outcome, this problem isn’t going away and the only way through this is to engage with the legally defined process and try to get the very best possible outcome for all members and for all employers. The consequences of our not doing so are dire. If we don’t reach a change which keeps contributions at an affordable level and that is acceptable to USS, then higher contributions will be imposed on us. And I don’t mean the higher contributions that are happening in October, I mean contributions that could take us up to 42%, 48% or 56% of total salary.


If this happens then we know that large numbers of individual members will opt-out of the scheme. At a national level the opt-out rate is already in the region of 20% and we think it’s a little bit lower at Sussex, but not appreciably lower.


If people start leaving the scheme in significant numbers because they just can’t afford to pay in, not only are they left without pension cover themselves, which I think is an unconscionable position, but it puts the viability of the pension scheme as an open scheme under real threat. Because we have fewer people paying off towards the deficit. The deficit becomes a bigger proportion of each individuals’ contributions.


That is why it is so important that we engage with the process alongside making our case to the Trustee. I believe that a reasonable middle ground is within reach, but it will require compromises by everybody, by employers, by UCU and by USS. And as I say we need to remember that the Trustee has the regulator breathing down their neck in the view that they are already being a little bit, already not being cautious enough.


So our priorities as a University at Sussex, we are genuinely very concerned about the high opt-out rate in USS. This leaves people not just with no pension cover, but also no ill-health and death in service benefits for their family. Because of the exclusivity clause in USS we are not allowed to do that elsewhere, we are not allowed to give any employer contributions to them. An opt-out rate of about 20% is about 1 in 5 of eligible scheme members, and the opt-out rate is higher for people who are joining the scheme, for younger, lower paid staff and also for those moving from another job within the HE sector. We know that opt-outs are significantly high for younger people, this means they are missing out on money from their employers, they are not saving for their future, they are not getting life cover. This really just adds to the sense of real intergenerational unfairness that we do have in our society.


In our surveys, both here at Sussex and nationally, the main reason given by those who decide to opt-out, is the high contribution level. USS is currently a one-size fits all scheme. You can only be part of it if you are able to contribute 9.6% of your salary. One suggestion in USS, sorry in UUK’s consultation is that there is an optional lower cost flexible pension scheme, sorry pension payment, that could be introduced to help people at different stages of their life. This will allow colleagues to choose to pay less for a period but still get an employer contribution towards their pension. This would not be a replacement for the main USS scheme. It would be aimed to be an optional and short-term alternative for those who are currently priced out of the scheme.


So what’s happening now? So as I say USS is facing significant long term challenges which need to be addressed. Employers and you, as scheme members, have had to pay increasing amounts of money to keep, to remain in the scheme in recent years and we are currently facing a situation where extremely high contribution increases are needed to keep current benefits. These are frankly unaffordable for employers and for most individual members alike. We really want USS to continue to be an excellent pension scheme, which rewards and recognises the excellence of staff in British universities. We equally believe that the scheme needs to be sustainable and within the boundaries of the money available.


I know that talking about pensions changes is unsettling. Especially after a year when everyone has had to deal with CoronaVirus, and especially actually because people have been worried about this for years and years.


But doing nothing isn’t an option. The Trustee can impose, as I say, much higher contributions without the agreement of employers and the Union. Unless we get an agreement that is what they will do. But we can look at options and alternatives together, as I say, all of your pensions built to date are secure and can not be changed. But with constructive engagement from everybody I genuinely believe that we can secure a valuable inclusive sustainable pension for the long term, albeit not one that looks exactly the same as it is now.



QUESTIONS AND ANSWERS


Q1: If the scheme moved to a Defined Contribution basis, so the investment builder part of the USS. How much contribution would the University make into an individuals’ investment funds?


VC: There are no plans to move USS to a Defined Contribution scheme at all at the moment. So it really is a hypothetical question and not one that we’ve given thought to, because we are not there. What we would need to do, is we would need to consider what would be affordable to the University and what would be, what would ensure that we could retain an attractive benefits package. But as I say, because there are no plans to move to a DC scheme, and I really really don’t want us to get to a place where we move to a DC scheme, we haven’t given that any significant thought.



Q2: You said in your presentation that the Trustee has the ‘Regulator breathing down its neck’. Is this appropriate behaviour for the Pensions Regulator? Will you be writing publicly to challenge them and the USS Trustee, for example in the FT or the University or Pensions Industry press?


VC: Well legally and statutory it is of course, it is entirely appropriate behaviour from the Regulator, because the Regulator has a statutory, a legal duty to make sure that pensions that have already been paid for can be, will be paid. And the Pensions Regulator, if they don’t do that, gets into serious trouble, and all of the scandals that we have seen so far, around that are when the Pensions Regulator got into trouble, is when they have not discharged that statutory duty or when, pensions have to be paid by the so-called Pensions Protection Fund or the life-boat. I have met with, because I am Chair of the Employers Pension Forum, I have met with the Pensions Regulator on a number of occasions over the last year, and very strongly made the case that their belief about the pension scheme is too prudent, and that they underestimate the strength of employers. I don’t really know what else we can do. I can say that when, that the Regulator is very taken by the decision by Trinity College Cambridge to leave the scheme three years ago or so. For them that significantly undermines the employer covenant. When employers are seen to be weak and not supportive of the Regulator or USS, actually what happens is that the Regulator concludes that the employers are not able and willing to pay the pensions that have already been paid.


So actually sometimes speaking out can be counter productive in terms of what we are trying to achieve.



Q3: What options to changes to future benefits are there?


Finance Director: Colleagues will hopefully be aware of our web pages which we have jointly put up. And that information points very clearly at the USS employers website which contains a lot of the individual documentation for the current consultation. So the different outcomes of the scheme are actually shown and particularly under the amount of covenant support that the employers are prepared to give, and there are three different variations on that. And that paper covers what the impact would be if we accepted USS’s proposals at the various levels of covenant support that we give, and all of those it is fair to say that without giving the highest level of covenant support would mean that the DB portion of the current benefits scheme would move to a much lower accrual rate.


The key piece that UUK are consulting on, on behalf of all employers, is to try and go back to USS with the negotiating position which encourages them to take a less strong prudent view and which puts out, which therefore maintains more of the benefit.


It is worth saying and you know that there is probably too much detail to cover here. But I will encourage we are being as transparent as we possibly can with the information and pointing clearly to those documents.


So the benefits package that UUK have asked for comments on in the consultation, effectively tries to keep the cap on the DB portion, because people will be aware there is a DB portion and then contributions over that rate go into DC contribution scheme, rather than in a DB. To try to keep that threshold high, and the obvious corollary to that is the accrual rate actually falls from where it is to where it is at the moment down to a lower number.


And so hopefully that explains largely where it is, largely where the proportions come from and I’ll probably stop there.



Q4: What can we as employers do to change the situation? Does the university encourage going on strike?


VC: Of course we don’t encourage going on strike. I think the challenge is one that I mentioned briefly in passing in my presentation. As a University we only account for 0.7% of the assets. Zero point seven percent of the assets.


The overwhelming majority of the voice in USS is the Russell Group, and the large Russell Group members. But I have to say I really fear that if UCU take people into, down the line where they seek Industrial Action I think we need to think really carefully about what you are trying to achieve. Because employers are not in a position to change the view of USS. The only way we can change the approach of USS is to say we will give you more and we will take away some of the risk from the scheme, in order to bring the price down.


If there is Industrial Action, then the question is ‘what is the aim?’ and what are you trying to get employers to do. Because you could say, well we want employers to pay more money. For us, each 1% is just around £1,000,000. If we have to pay an additional 1% then actually that would have to come from our overall staffing budget. If we have to pay another 10%, which is quite conceivable under their scenarios, then that takes us into really, really dangerous territory.


But at the same time it’s saying, not only do employers have to make additional contributions, but employees would have to make that. So the question is: do UCU want employees contributions to go up to 15%, 16% or higher. That is the challenge. If the answer was in our hands, if we could resolve this, either as employers or as employers and UCU working together, then believe me that would have been done. That is what the Joint Expert Panel, that was set up in the wake of Industrial Action tried to do.


But unfortunately what happened was that although USS took on board some of the recommendations, their assessment continues to be that there is a very big hole in the pension scheme, and that hole needs to be filled somehow. So I am really sorry, I would love there to be a simple answer that as employees or indeed as the University of Sussex we can solve the problem. We can only solve the problem by making changes, and by persuading USS to look differently. [Finance Director] do you think that’s fair?


Finance Director: I do think this is fair. This is not an ideal position, but the legal position that the Trustee have under the Trustee and the support from the Pensions Regulator for prudence assumption, is really quite difficult to get over. If it, and I agree with you, if there was an obvious way to make a legal challenge to make people change their minds, then, you know, of course we would be there doing it. But these terms are, you know, are defined in law, and the advice that all of us have, is that we would have real difficulty, just sort of making a difference of opinion.


I think one of the things that it is worth drawing into context, is that this is one of the only large schemes that is still open to future accrual under DB basis. But that every scheme including, to be frank, our own local pension scheme, the USPAS scheme. It is very common for Trustee and employers to have a different opinion on prudence. With employees often arguing that either their business is going to be damaged, or that the Trustee is being overly cautious in their assumptions. So this is a dynamic that happens in every single DB pension scheme.


It can be argued that as both employers and employees have jointly argued, jointly and separately argued, it can be argued that Higher Education is in a slightly different place. But the reality is that when it’s out in the public domain, that many of us are going to struggle with contribution rates that are higher, then both the Trustee and the Pension Regulator are going to get rather nervous about protecting benefits.


Just a final point really. About the Pension Regulator. I am a trustee of our local scheme. The Pensions Regulator is there to do a specific job to protect the pensions benefits that have been accrued so far, and I think it’s one of the common misconceptions that the Pension Regulator is there to protect future pension benefits. TPR is there, specifically there to protect what has been earned so far, and in many cases and in many employers that hasn’t been the case. The employers have not been able to make good the deficit and those pension schemes have ended up in the Pension Protection Fund, with pensioners not receiving all of their benefits.


Now, we can all argue that HE is not going to be like that. And that we are of a unique status, but that is quite a difficult argument to run with the Pension Regulator, who has seen a number of what appear to be relatively unique schemes and different industry groups run into serious problems. So the Pensions Regulator is there to protect your and my pension that we have earned so far over the future benefits and that is one of the difficult dynamics of the current situation that we have to work very hard to convince the Regulator and in particular the USS Trustees to be, to be reasonable in their prudence assumptions and allow us to carry on paying to earn future benefits for all of us to earn into the future.



Q5: Does the VC still have confidence in the way the USS scheme is being run? Could he outline thinking behind his view on the governance of USS.


So all I can say is that as part of the consultation we have had a, UUK have asked us whether we support a governance reform [review] proposal, and we do, I think that’s common ground between employers and employees.


I genuinely don’t know whether it’s being run well or not, other than to say that actually their, the investments returns are not the problem. Investment returns from USS are actually pretty good. The problem is we are living longer, the employer covenant is thought to be weaker than we believe it, it should be, and critically weaker than it was weaker than it was deemed to be and markets are unpredictable. And with the size of the deficit and with the employer covenant then the Trustee is forced actually, or believes they are forced into, having prudent assumptions of the way the that markets will perform in the future. But I think it’s common ground with everybody that we are asking for a governance reform, sorry governance review once this valuation is complete.



Q6: The valuation point of March 2020 was when financial assets crashed at the start of the pandemic. Since then most assets have recovered, and in many cases very strongly. How does this affect the numbers?


VC: the answer is, we don’t yet know. USS are, I believe, they are completing a post-valuation assessment, so what they do is they look at what has changed between March 2020, and March 2021. We hope there will be some improvement, but the challenge is likely to be that the size of the deficit, ie. the size of the deficit on your already earned pensions, the pensions already accrued, is likely to fall, but the size of the Future Service Contributions might rise, because as markets outperform then you can’t, then what they will do is they wont, they are likely not to price in much further improvement against what is already gone. But we don’t know. What USS have already said, and have committed though, is if the numbers look better, then clearly in assessing the size of the change needed they will take that into account.


It’s not going to be a full valuation, but if we get to a stage where things have improved by n percent, then the scale of the gap is narrowed by that percentage.



Q7: It sounds as though accepting lower benefits is the only solution. Is that what you recommend?


VC: I believe that the only solution that will be, without unaffordable contribution levels is a change in the benefits structure. As the FD said there are details of the USS, sorry, UUK proposals available via our website. Those were designed in order to put more of the, put less of the pain on lower paid staff, the Defined Benefits would be paid up to £40,000. The accrual rate will change, so you will have to work a bit more to earn the same amount of pension. There is a suggestion of changing the CPI cap.


There are significant changes. They are not welcome, these changes are worse than they would, than the changes that were proposed and were agreed with UCU at ACAS when I was involved three years ago. The fundamental reason for that is that, the main reason for that is the weakening of the covenant, and the main reason for the weakening of the covenant is the Trinity College Cambridge decision.


As I say, I really don’t welcome this and I do genuinely believe that if we are to maintain any viable pension scheme then we have to make those changes.


Finance Director: could I just add a couple of pieces, and when we put the reply out, the specifics of what UUK is asking employers whether they support it, is on page 25 of the UUK consultation, we will send a reference out to that. So that is one key point.


I think the other key point is that people should really be aware of that the UUK proposal involves going back to the Trustee and saying you are being too prudent in your assumptions and we want some recognition for that and we want a longer recovery period so you are being too pushy in asking for us to pay.


Although any reduction in benefits is obviously unwelcome to all of us as members, I would just like to stress that UUK are in this, are attempting to push the Trustee quite a lot further than the Trustee’s own initial proposals that they have put forward in the document. As [the VC] said, UUK will be working with their actuaries to make sure that if the change in investments less the change in the liabilities works in our favour we will also pushing the Trustee to actually recognise that and again any benefit would go back onto the accrual rate in the scheme.


VC: I should have emphasised something I said in passing in my opening remarks. Employers are offering more than we currently offer in order to give confidence in the strength of the covenant. Those are not just rhetorical offers, they are offers that will impact on the kinds of things that we are able to do over the next few years. Really as [Finance Director] says, it is a tripartite thing, where we do need movement from everybody. There is no pain-free solution to this horrible situation.



Q8 UCU has shown considerable flexibility in calling for Conditional Indexation as an option for benefit reform. Can you talk about this?


VC: I am very happy to. My understanding is that UCU haven’t actually, and I would really welcome it if the UCU leadership, I genuinely welcome it, if the UCU leadership, in the form of the General Secretary were to call for it, but there are some influential voices within UCU who are supportive of Conditional Indexation.


I will say for many people who do not know what Conditional Indexation is. So I will just say a little bit about that. CI is a scheme whereby what would happen is we would move from a situation where we have now, to one where benefits would increase inline with the markets, so if the market, the financial market improved, then the assessment of the viability of the scheme was better than expected, then benefits would go up. They could go up by quite a lot. So if benefits for example, in some of the more optimistic valuations of the scheme arise, then pension benefits could go up really quite a lot, and once you have got them, then they can’t be taken away. So it’s not like a DC scheme, you are really dependent on what the markets look like when you retire, it is a bit like a ratchet, so you get the benefits sort of baked in and then if the markets outperform next year is that they get baked in. The down side of CI though is that if the markets underperform then there will be no increase in benefits at all and at the moment there are increasing benefits inline with CPI, with the rate of inflation. Under CI, then there would be no increases, so it is not a pain free solution.


There is no pain-free solution. I actually think it is definitely worth exploring. I know, because I have been involved in conversations with the USS Trustee about this, and I have been involved in conversations with the employers about this, that to move to a CI is a very complex, technical and actually behavioural thing, so it, what feels like an attractive prospect, I think if we really asked members whether they want to have no benefit increases for a decade, which would be worse than the situation we are in now, then you might get a different answer to the one says let’s put rosey glasses on and you are guaranteed it and you are not guaranteed anything. And the other thing about CI is that it would require Primary Legislation. That would involve them talking to the Department for Work and Pensions because at the moment there are minimum levels that pensions have to go up under in the law. Now as I say I think it’s definitely worth exploring, I think it would be, it is a potential long-term solution, and I do personally verge on the USS really is too cautious in their approach, so a CI scheme would be more attractive and probably give people better benefits in the current scheme. But because it is so complex it will take at least 3 years to introduce, the reason for saying that is three years will not, means we can not do it in the context of the current valuation. What I would really like is us to find the solution to this valuation, which is acceptable to everybody as the least worst option. Then immediately to start working on a long-term solution of which CI could be one solution. There are others which are also quite attractive, and which may be more attractive, or which may be less attractive, such as so-called Post-office scheme, which is very common in the Netherlands, where everyone is collectively in a DC scheme, which allows the trustee to take different and more riskier approach to assets.


So there are lots of medium term solutions, but there is not a short term solution. CI unfortunately CI is really not a short term solution for this valuation.

Again [FD] have I missed anything?


Finance Director: I think is perhaps just linking this to a question earlier on, about what employees can do, and I think it would be of interest, so I agree with all the VC said about this potentially something that could help the scheme, but that it’s not quick. But I think this is one example where it is really important that employees engage and give UCU a very clear steer. This is a way of sharing the risk of the scheme. Effectively, in return for a potential lower price, there is a chance that employees benefit from Indexation in the future and therefore get more benefits than they are strictly promised.


But the VC has made clear, this will be a change in benefits. You know, you will not be guaranteed all of the inflation that you are at the moment, so I think for anyone to think this is a one way street it does involve employees accepting the risk that they will not share the benefits of the scheme. But I would emphasis that both, as with the VC, I do some work at sector level and I have worked with UCU on this and I think it is worth saying that there are elements of UCU and UUK that are very keen on a bit more of this joint sharing of risk that we have, so that’s both in terms of sharing the risk on increasing contributions, as we are seeing at the moment. But also potentially through the benefits, and this is the most obvious way and members of the scheme can take some risk to actually take some pressure off the scheme.



Q9: Why has Trinity College leaving the scheme caused such a huge problem. Surely they paid their exit fee, which would have been costed properly. Also if UUK commit to a 20 or 30 year moratorium, then the exit problem is solved. So the USS position seems unjustified. Can you comment?


Fundamentally I agree with that analysis. The reason Trinity was, I mean USS is a so-called ‘Last Man Standing’ scheme. What that means is that if the University of Poppleton goes bust, then all the other members of USS have to pay the pension deficits and pay the pensions of all the employees of the University of Poppleton. In the ‘Last Man Standing’ scheme it means that you can have 340 members, you have, could have then go under, you could have 30 go under, you could theoretically have the whole university sector go under. But as long as long as the last member has assets that are greater than the deficit of the pension scheme, then there is not a problem. Now that may sound like a ludicrous thing to say. But that is the nature of the scheme.


Now, as it happened, Trinity was the very last, of the very last of the institutions that in the ‘Last Man Standing’ scheme, because it is, Oxbridge colleges are, as you know, often very, very wealthy. Trinity is the wealthiest of them all, so the fact that they crystallized their debt and paid off their very small amount of debt, means that for them the debt wasn’t the issue, the deficit wasn’t the issue. And for USS it wasn’t the issue. What was valuable about USS wasn’t the contributions they were making in real time, it was the fact that there was the comfort that if University of Birmingham, UCL, and Imperial College go under, then we have still got the land-bank of Trinity.


Now that is, If you put it like that, it’s absurd. Because if Manchester or UCL or Imperial College go under, then there are much bigger problems than just the ‘Last Man Standing’ nature of USS. So I absolutely agree that there has been a disproportionate fear on the back of the departure of the very atypical institution. But nevertheless that is the very strong view of the Regulator, I mean the very strong view of the Regulator. That view of the Regulator has undeniably influenced the Trustee in their assessment of the strength of the employer covenant.


In moving to the other half of the question. UUK’s proposals do, we do propose to significantly increase the length of the moratorium on any institution leaving. It is precisely for this reason to give comfort that the covenant is actually really strong. Other universities and other Oxford and Cambridge colleges won’t leave. We think that the limit to that really, is about the limit of the benefit is really where we are at the moment which is about 16-20 years. That is because the deficit has to be paid down over that period. There is no point in saying that you can’t leave after the deficit has been paid down. There is no benefit from doing that. So I absolutely agree with the premise of the problem. I think that the Regulator and the Trustee have overestimated the challenge, but as I have said, and as we have both said a few times, what we think does not matter, we have to persuade the Regulator that things are not as bad as they think. I think we stand some chance of doing that.



Q10: The scheme is cash-flow positive for decades and the short-term solution is seriously problematic. But a medium solution can be found. Why do we need to rush the October rises on a valuation that is unjustified and unevidenced.


VC: I mean it is the same answer as we have given. It is because that is the legal and regulatory requirement, because the Regulator and the Trustee have decided that is what they are going to do. That is what we are going to do. We don’t have agency or control.


Because the valuation was published late, it already looks as if the USS will be in breach of their statutory duty to complete their valuation on time. So these are just external factors that we have no control over.


Well thank you very much for joining. Do engage with the materials that are available and I just regret that we are in this place. But thanks very much for coming to this.

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