Response to the consultation on the indicative outcomes of the 2020 USS valuation - 01/06/21

Read our response to a consultation by Universities UK with employers on the indicative outcomes of the 2020 USS valuation.

The University's employer response was approved by the University Executive Board, a sub-group of Council and our internal USS Actuarial Valuation Technical Group. It was submitted on 25 May 2021.

Response from Cardiff University

The response provides views and direction on key areas covered in the consultation by Universities UK with employers on indicative outcomes of the valuation. We support the principles identified by the Russell Group of universities as being key to any future discussions around the USS pension scheme and these are reflected through our response.

In summary, we agree the sector should seek to maintain a hybrid arrangement, along with the introduction of a flexible lower cost option to ensure the pension scheme is affordable to all. To achieve this, we are prepared to support UUK’s alternative covenant package but would wish to see an independent governance review.

We have undertaken three staff briefings (provided by an independent actuary) to a total of 241 staff. The overwhelming feedback is that staff have lost trust in USS, they do not want to pay more for less and that the March 2020 valuation is flawed.

1. Covenant Support Measures

Given that the requirement for the covenant support measures are based on a valuation methodology on which we have concerns, as expressed in our response to the October 2020 technical provisions consultation, we would wish the Trustees to reconsider the level of prudence in the valuation. In particular we continue to question the discount rate and the overall assessment of the employer covenant noting that the relationship between covenant and discount rate need not be a linear one. We would also suggest that the favourable post-valuation market experience should be taken into account. However, in order to bring the valuation to a conclusion we would support the alternative covenant support package suggested by UUK. We would not be supportive of contingent contributions or asset pledges.

2. Contributions

We don’t see any of the three USS Trustee scenarios as acceptable or affordable, nor in keeping with the aims of the scheme.

We need to be able to provide a good pension to all staff. It is the responsibility of the Trustee to provide a scheme that allows all to participate and increasing the contributions is essentially counterproductive to that. We are particularly concerned that further increases will lead to higher numbers of opt outs which could increase the risk to the long-term sustainability of the scheme.

We acknowledge and recognise that rates are due to increase in October 2021 to 34.7% in total. We would be prepared to accept that as a permanent arrangement if there were no changes to benefits and would also consider this to be the absolute maximum level of affordability for both individual members and employers. However, we would strongly encourage the Trustee to pause the October increase until we have a long term solution.

We would not wish to see agreement for future increases in contribution rates reflected in this valuation outcome.

3. Future Benefits Structures

We support a scheme that provides value for money for employers and individual members. We want to retain the hybrid benefit structure and to keep benefits at their current level to ensure the scheme remains competitive relative to alternatives.

We would also support exploration of conditional indexation as an alternative solution and would encourage UUK to work with UCU and Aon to investigate this further.

4. Addressing the high opt-out rate and flexibilities

As indicated in previous responses, we would like to see the introduction of flexibility in benefit design for employee members, matched by appropriate commitments from employers, to allow members to select the contribution level and future benefit that suits their individual circumstances. This could be achieved with the current Investment Builder DC scheme being used to auto enrol certain categories of staff for a fixed period of time until transfer to the Retirement Income Builder DB scheme.

We would urge UUK to revisit the JEP proposal on flexible contributions and engage with UCU.

5. Governance

We would strongly support a post-valuation independent governance review of the scheme. We would also draw your attention to our previous views on governance in our response to the JEP 2 consultation, including:

• there is a large group of individual scheme members that are not members of the UCU and therefore are not represented in the discussions. The scheme should look at appropriate mechanisms for more inclusive and effective engagement with all its members to ensure that those for whom joining UCU is not an option and those who chose not to join have representation;
• that the Trustee create a new valuation board, as recommended by JEP, building on the work of the VMDF. This should also provide an opportunity to consider alternative representative bodies. We would welcome UCEA taking on that role, since they are recognised as a sector body that undertakes collective bargaining on behalf of employers. Should UCEA take on that role, they would in turn have to recognise the relative commitments of the employer members. UCU’s role as designated individual scheme member representative body should also be considered.
• we would like to see the introduction of a proper governance system that means that when there is a deadlock a resolution can be sought without the need for the Trustee to impose an outcome.

A post-valuation independent governance review of the scheme should include the role of the JNC within its scope, specifically to ensure that decisions on benefit or contribution changes are not determined by the Chair’s casting vote. Any new governance framework should seek to facilitate a more transparent approach to valuations whereby the evidence for valuation assumptions and calculations, including underpinning data, should be made publicly available to ensure proper engagement of stakeholders.

6. UUK’s Alternative Approach

In order to bring the valuation to a conclusion, and despite our previous reservations about covenant support, we would support the alternative covenant support package suggested by UUK – moratorium of a minimum of 20-years with debt-monitoring and a pari passu arrangement for secured borrowing above c15% of gross/net assets.

As indicated in point 3, we would also urge UUK to engage with other stakeholders, especially UCU, to explore conditional benefit schemes as a further possible way forward.