Papers from the meetings of the University's USS Review Working Group:
September 2018 meeting
The Group considered the key findings of the Joint Expert Panel’s (JEP’s) report. The JEP’s view was that:
- Insufficient weight was given to the strength/diversity of the University Sector and characteristics of the Scheme (i.e. open scheme, immature, cashflow positive for many years).
- The framing and context of the questions asked in previous UUK consultations with employers and the timing of the UK Pensions Regulator (tPR) expressing its views (during the employer consultation) steered employers to be more risk adverse than they might otherwise have been.
- Too much weight had been given to the USS Trustees' "Test 1".
- The USS Trustees and employers might be able to agree a larger risk envelop when completing the 2017 valuation and this risk appetite should be reassessed.
If all of the changes to the valuation assumptions put forward by the JEP were adopted by the USS Trustees the total contribution rate for employers and employees of 36.6% (which was currently being consulted upon) would reduce to 29.2%. This would represent. only a 3.2% increase from the 26% currently payable by employers (18%) and employees (8%) compared to the current proposal’s implied increase of 10.6%. The JEP would now move into phase two of its work to consider the process for future valuations. The Group agreed that it would prepare a draft response to the UUK consultation on the JEP report, answering the specific questions asked and that Council would be asked to endorse the recommended response. (The response subsequently endorsed by Council can be seen here.)
The Chair reported on the Council discussion on USS matters at its away day in the previous week. The Group also noted additional modelling undertaken, feedback from the open forum, the employer consultation sessions and the ongoing communication with USS members. It agreed the process for providing feedback to the USS Trustees on the employer consultation.
August 2018 meeting
The working group received an update on the restrictions the USS exclusivity rule places on any alternative pension provision. The update confirmed the group’s own views, meaning the remaining viable possible options were a top up to the USS Investment Builder section on a DC (defined contribution) basis and a cash alternative.
The group, while recognising there are currently no proposals to change the benefit structure of USS, wanted to understand the complexity and sensitivity of providing a top up via a defined contribution to the Investment Builder section of USS and using the funds to purchase an annuity at retirement. The Group reviewed the modelling output of two possible scenarios and asked for two others to be prepared.
The Group also reviewed examples of the cost of additional contributions for employees and the cost to the University and considered the impact of additional contributions, taking into account tax relief and salary sacrifice.
UUK and USS representatives attended the meeting to update the Group on recent developments, outlining the employer consultation process for contribution changes under Rule 76.4 and the next steps in the valuation process.
July 2018 meeting
The University’s USS Review Working Group met on Tuesday, July 17, 2018
The key matters discussed were:
1. A response to UUK seeking views on the USS Trustee cost sharing proposals The group agreed a response to University UK’s request for employer views on the increased contributions proposed by USS under Rule 76.4. The group fed back that the University could afford to pay the proposed employer contributions in the short term, but the additional costs would require difficult decisions on future financial priorities. The group added that while the phasing of employee increases would help staff to plan the impact on their personal finances, a small number of staff, particularly in fixed term and early career posts, might be expected to opt of the system altogether. The full response to UUK can be found here.
2. Agreement not to explore ending the University’s participation in USS
The group considered the likely £2.7bn cost of buying itself out of USS and establishing a new pension scheme. They were informed this was a cautious calculation and there was no guarantee that a £2.7bn payment to USS would be earmarked for Oxford University staff. The group will recommend to Council that opting out of USS is not in the University’s interests and should not be explored any further as an option.
3. Options to prioritise when seeking legal advice on the USS exclusivity clause
The group agreed to seek legal advice on the likely acceptability of four options under the USS exclusivity clause. The clause restricts an employer’s ability to maintain or contribute to any pension scheme other than USS. The group was advised that the only option likely to be acceptable under the exclusivity clause was to continue to participate in USS, and set up a new pension arrangement which tops up members’ benefits using a defined contribution arrangement, but agreed to seek confirmation of this. Further explanations of the option are available under item 8 of the meeting papers.
4. Suitable scenarios to illustrate the effect of a defined contribution top-up
The University’s advisers have been asked to prepare the modelling of a number of scenarios which would illustrate the effects of additional defined contribution top-up.
June 2018 meeting