USS: Interim monitoring report April 22 update

USS have released their Interim Monitoring of the Financial Management Plan report as at February 2022. It shows an indicative improvement in the funding position at February 2022 compared to the 31 March 2020 valuation, writes Rebecca Dodd, Head of Mercer’s Higher Education Group.

USS Interim Monitoring Report

The report is used by the USS Trustee to track the financial development of the Scheme.  It is not intended to answer the question, “what are the contribution requirements if a valuation was undertaken at the monitoring date”, but the report gives an indication.  Indicative figures from the report are:

New benefit structure (and covenant support measures)

No benefit changes (no covenant support measures)

* The lower deficit recovery figure assumes deficit contributions continue for the remainder of the existing recovery period (18 years) with an assumption for assets to outperform the discount rate by 0.25% p.a. The higher deficit recovery figure assumes a 10 year recovery period with no outperformance.

UCU Response

• On 31 March 2022, UCU stated on their website that they “demanded vice-chancellors order UUK to revoke brutal cuts to pensions after a drastic improvement to the USS finances was revealed by the trustee”.
• Dr Jo Grady, General Secretary of UCU, has written to UUK to ask for the cuts to be revoked and that they instead support the package of measures proposed by UCU, i.e.

1. A sensible valuation as at 31 March 2022 (or other appropriate date)
2. Increase in contributions to 11% member/23.7% employer until 1 October 2022 and 11.8%/25.2% thereafter
3. Contributions from 1 April 2023 do not exceed 9.8% for members and 25.2% for employers for best achievable benefits

• In that same letter, Jo Grady suggests the reforms have now been “proven to be completely unnecessary”.

UCU urged members to write to their vice-chancellor to ask for the reforms to be revoked.

UUK Response

• UUK published their letter of 31 March 2022 to Jo Grady.
• UUK reiterated that they have no mandate to revoke the reforms – and if the reforms had not come in, the back-stop contributions would have come in.
• They state the USS Trustee has a legal duty to conclude the 2020 valuation and has now determined the contributions payable by both employers and members. These contributions are set out in the schedule of contributions and are legally payable until superseded at a future valuation.
• UUK state that Jo Grady’s comments about the ‘reforms having been proven to be completely unnecessary’ are not true. As well as indicative total contributions being shown to be nearly 45% in USS’s monitoring report if no covenant support measures were agreed, UUK point out that USS said the rate would still be in excess of 40% for pre-reform benefits even with the employer covenant support measures.
• UUK agree that it is good news to see an indicative improvement in the funding position, but this is monthly monitoring and not a full actuarial valuation.

Mercer comment

• In their letter to the USS Trustee on 14 July 2021, the Pensions Regulator said that their tolerance of the recovery plan length (18 years) and the recovery plan investment outperformance assumption (0.25%) for the 2020 valuation was influenced by the unusual circumstances at 31 March 2020 and was supported by positive post-valuation experience since then.
• When commenting on a possible 31 March 2021 valuation, the Pensions Regulator said they would expect to see a shorter recovery plan with lower investment outperformance.
• Therefore, a new valuation at 31 March 2022 might not yield the outcome any party is expecting or hoping for unless perhaps a different stance from the Pensions Regulator is taken.

 
What can you do?

Here are some things you might want to consider that we are doing with some institutions:

• Support with the responses to requests from UCU members to revoke the reforms
• Presentation to employees to explain the current discussions and the changes that have been implemented
• Council/Board/Exec Team guidance

Important notes

This note has been prepared for UHR to give an update on the USS valuation discussions. Mercer does not accept liability or responsibility to any party in respect of this note. You should not take or fail to take any action based on this note without advice. The information provided is my interpretation of the changes based on publicly available information at 7 April 2022.

Rebecca Dodd
Head of Mercer’s Higher Education Group
rebecca.dodd@mercer.com
0113 394 7675