We are aware that recent proposed changes to the USS Pension may be difficult to digest. Our National Pensions Official visited our Branch last Friday and plainly outlined some of the issues. You will also have received an all-staff communication from the University today on the current UUK proposal:

UUK proposed that for future service the current hybrid scheme salary threshold will be modified so that there is no further defined benefit accrual. Instead, it is proposed that there will be a “market-leading” defined contributions scheme (through the USS Investment Builder) for all members.

To be very plain, the employer offer currently on the table is to move USS from a defined benefits scheme (determined and guaranteed by your ‘career average’ earnings) to a defined contribution scheme (where your money is no longer guaranteed, but dependent on the stock market investments at the point at which you retire). This means that the employers are intending to move all risk on to you as an employee.

We will also be collating and anonymising your USS related questions for our National Pensions Official to answer, so please forward any queries that you may have to: [email protected]

UCU will be balloting formally on this issue very shortly, please read UCU updates as they arrive so that you are prepared and informed. Surrey UCU will keep you as up to date as possible.

Message from Sally Hunt:
 
I wanted to let you know about the result of the ballot.
 
86.6% of members who voted said they would be prepared to take industrial action to defend USS pension benefits on a turnout of 55.8% of those eligible.

This turnout – if replicated in a statutory ballot – well exceeds the 50% turnout requirement set by the government as the minimum legal requirement.
 
Thank you for your support of the union. Later today, your elected negotiators will begin detailed talks with the employers. No one should be in any doubt about the difficulty of the task they are undertaking on your behalf.
 
Universities UK (UUK), which represents the USS institutions in these negotiations, recognises that institutions have the ability to pay extra in order to safeguard existing benefits. However so far they have said that this is not an option and unless we can change their minds or persuade both UUK and USS itself to adjust their valuation methodology, detrimental change is inevitable.
 
Some employers have even signalled that they wish to move wholly to a scheme in which your pension income will be dependent on what returns if any there are from the investment of your contributions in the stock market – in essence a pension with no guarantees.
 
I hope our ballot result concentrates the minds of your employers. All we want is for them to stand up for staff and help us to protect your interests in the fund rather than look away while benefits are cut.
 
Be in no doubt that I and colleagues will try to solve this difficult dispute but if we need to seek your support for action it is good to know that you are with us in such large numbers.
 

In response to the information circulated by the University recently concerning the valuation of the University Superannuation Scheme, our former Surrey UCU Pension Rep is happy to share his consequent response to the University:

I believe that USS is using the same Gilts plus methodology for valuation which they used in 2014 therefore it is not more optimistic. It is also more pessimistic than USS’s best estimate of future returns on their investments. 

Independent studies, and I believe those of USS’s consultants, have verified that the required funding gap is within the employers ability to pay but may not be in line with employers willingness to pay. It all revolves around how much employers value their employees across the whole range of the salary spectrum.

Report for UCU: Progressing the valuation of the USS. 15 September 2017. The First Actuarial report prepared for UCU as a response to the USS’s consultation document, also concludes:  The current employers’ contribution rate of 18% of pensionable pay, of which 15.1% goes towards defined benefits, is prudent. The asset income which is required, in addition to contributions, to pay the benefits in full is low. Indeed, in a scenario of “best estimate” pay rises, the benefits of the USS can very nearly be paid from contributions, without reliance on the assets. We can be very confident that the scheme is not vulnerable to forced disinvestment. We can be very confident that the cash flow in will meet benefit outgo for the very long term, so in the mean time fluctuations of market value or the pension scheme’s balance sheet are of low importance. The break even returns of 1.36% pa real CPI on past service and 1.85% pa real over CPI on future service are well below the expected returns on equities and property. The likelihood that the USS can achieve the break even returns is high. If the actual performance achieved exceeds the break even returns, the funding level will improve. Any funding level could be achieved eventually, given time. The cost of longevity improvements should be partially covered by the link of the USS’s NPA to SPA. At some point, there may need to be an adjustment to the balance of the contribution rate and the benefits to respond to improving longevity, but this point is not imminent. Subject to this point about increasing longevity, the cash flow analysis does not show any need to increase the contribution rate. The employers should be able to regard their current contribution rate as reliable. Making the same point the other way around, there is no need to reduce members’ benefits. Full report: https://www.ucu.org.uk/uss?utm_source=lyr-campaignupdate&utm_medium=email&utm_campaign=members&utm_term=_all-members&utm_content=The+Friday+email:+22+September+2017

Urgent announcement from Sally Hunt: A major university (Southampton) has become the first to publicly call for current USS pension benefits to be wholly replaced by a defined contribution scheme. Forget the pensions jargon. What this means in simple terms is that rather than being based on scheme rules as now, your annual pension will be completely dependent upon what returns your monthly USS contributions can get from the stock market. If other universities follow suit, UCU will need every member to stand together with the union and say NO.

Please also find the following information on USS which may be of use:

Request a replacement USS e-ballot. The ballot to defend the USS pension is currently open. If you haven’t voted please vote now. It’s crucial that we show that members are prepared to defend their pensions so please check your inbox (and junk box) for the unique link UCU has sent you and let UCU know if you can’t find it: https://yoursay.ucu.org.uk/s3/USS

USS Posters: show your support. If you’ve already voted why not put one of the new UCU / USS posters up on your door. Please download here: https://www.ucu.org.uk/uss?utm_source=lyr-campaignupdate&utm_medium=email&utm_campaign=members&utm_term=_all-members&utm_content=The+Friday+email:+22+September+2017

We will keep you updated as and when we receive more details –

Excerpts from a message from Sally Hunt, President of the University and College Union:

“The future of our profession

During the (recent, Presidential) election, I lost count of the senior staff who approached me to express concern about the fate of the next generation. Locked into exploitative employment with little or no job security, the current model used in …… HE has high expectations of young staff but gives little back to them. They need UCU most, yet their membership density remains low.

With your help, we want to do something about this. Let’s work together and build a trade union culture in low security areas – a culture where the union stands up for staff rights, bargains for better pay and conditions, and helps young staff to get the best out of their careers.

Pushing for better conditions from the bottom benefits both established members and the profession as a whole. We all know that this exploitative employment model is creeping upwards.

Effective from 1 October 2017, if you are a PhD student teaching in HE, ….., UCU will make your union membership free. We think this covers around 70,000 (mostly younger) staff – the majority of whom are struggling at the start of their academic careers.

It is a big offer and valid for four years (or until a more secure job is achieved). We need to remove every possible barrier in the way of young staff joining our union in the hope that positive, valuable, UCU experience will spark a lifetime habit.”

https://www.surrey.ac.uk/doctoral-college/news/free-ucu-membership-all-pgrs

Joining only takes a few minutes: https://www.ucu.org.uk/

Details on UCU CPD can be found here: http://cpd.web.ucu.org.uk/

Dear Members,

We invite you to our next event: Post-Brexit Meeting, Wednesday 10^th May 15:00, LTE.

Our UCU Branch Secretary, Dan Davison-Vecchione, will be chairing the meeting.

All staff and students at University of Surrey are warmly welcome to attend this event.

This event is designed to bring together the staff and students at University of Surrey who may have worries related to Brexit and its implications. There will be an opportunity for open discussion for all those attending, as well as an exploration into potential joint action to support the EU staff and students that are part of the University of Surrey community.

Speakers include:

Professor Vince Emery, University of Surrey Senior Vice-President

Douglas Chalmers, UCU Vice-President elect / UCU President of Scotland

Tai Ademola, University of Surrey SU Vice-President

Neil Jones, Unison Branch Chair, University of Surrey

170307 Professor G Q Max Lu UCU Pensions Representative’s response to USS consultation document

UCU Pensions Representative’s response to USS consultation document

Andrew Mason UCU Pensions Representative
Surrey University
Professor G Q Max Lu
President and Vice-Chancellor

Dear Professor Lu,

I am writing to you as the Pensions Representative for UCU at Surrey University. I know that you were not in the U.K. at the time of the 2014 USS pensions’ revaluation and subsequent downgrading of employee benefits when the scheme moved from a long-established Final Salary Defined Benefit Scheme to the current hybrid scheme which comprises the old final salary scheme, a CRB defined benefit scheme and a defined contribution scheme. In addition to the complexities of having three pension schemes where there once was one there was universal agreement amongst employees who are members of the USS scheme that our benefits and our conditions of employment had been downgraded.

Part of the problem with the last valuation was the methodology, the so-called ‘gilts-plus’ methodology which suggested that the scheme was in a substantial deficit and required extra contributions from the universities and members. This methodology was criticised in many quarters and may not be the most appropriate method of valuing the scheme, particularly at a time of unprecedentedly low interest rates in the wake of massive quantitative easing. It also may not be the most appropriate scheme for a fund which has strong cash flow and a substantial exposure to other asset classes, including the very large exposure to equities. As a former senior investment manager who worked for USS I was astonished at the outcome of the valuation and still find it difficult to believe.
I would however like to reflect the views of the Surrey Branch of UCU, fellow pension representatives at other UK universities and those of UCU and their actuary First Actuarial as an input to the upcoming employer consultation “USS Consultation Document on Methodology and Inputs for the 2017 Valuation” that closes on the 17th of March.

As employees of the university and members of the scheme we are deeply concerned that this flawed methodology is being employed again by the USS Actuaries and also that there may be an underlying shift towards defined contributions even though the current defined contributions component of the scheme has not bedded in. Nor does it provide sufficient information on the underlying investments for scheme members to make an informed choice. The USS pension scheme has been seen as an attractive part of a University remuneration package where salaries have been stagnant and administrative burdens have increased. We all fear another demoralising and unnecessary drive to reduce pension benefits which in the longer term may prove to be detrimental to the recruitment and retention of university staff.

To the best of my understanding there is a wish by the employers association (UUK) to ensure that over the time horizon of the Employers Covenant the contingent reliance on the employers does not increase in inflation adjusted terms.

This reliance on the employers covenant is a residual figure based on an estimate of future liabilities and future assets (and other factors such as demographics of the workforce which are not relevant
UCU Pensions Representative’s response to USS consultation document to this discussion). The size of this shortfall or residual is totally driven by the underlying assumptions primarily the discount rate which is used to discount assets and liabilities and the assumed rate of return. When interest rates (discount rates) are so low, a very small change in the assumed discount rate or rate of return will have   large effect on the final outcome. There also may be a move to derisking – a shift from equities (risk & return bearing assets) into bonds (assumed to be a lower risk lower return asset). The timing of such derisking could have a significant impact on the fund as we have experienced an unprecedented period of very low interest rates (very high bond prices) and it would be disingenuous to assume that a major correction in this asset class may not occur over the timescale of the employers’ covenant. Thus a prudent strategy, which is not necessary for a cash flow positive fund, may hold significant implementation risk.

I apologise for the technical nature of the rest of the letter which is based on discussions of the proposals which have taken place at other forums but which outline some key issues in the current
debate. I have attached First Actuarial’s (UCU’s actuary) document released in Dec 2016 given which argues that given how expensive it now is to generate income from gilts that a significantly greater
weighting of a self-sufficiency portfolio toward equity than gilts plus 0.5% would be a more efficient means of delivering self-sufficiency. We also believe that USS’s best estimate of returns on equity
must be assuming very modest real dividend growth, much lower it is than First Actuarial’s best estimate, which assumes 1% real growth over RPI. I would also like to draw your attention to the updated cash flow projection chart from First Actuarial, (PDF attached) which suggests that, as a result of the recent cuts to employees DB pensions, the scheme will remain in positive cash flow for the next 60 years. For reasons which are mentioned below in numbered excerpts from First Actuarial’s submission to the 2014 valuation, such positive cash flow greatly diminishes the risk of remaining invested in return-seeking assets such as equity.
I have also attached Aon Hewitt’s UUK’s submission for the 2014 valuation, as a means of avoiding needlessly layering prudence upon prudence. Such flexibility still involves a commitment to a substantial level of prudence which is inherent in USS’s Test 1 which relates to the technical provisions the reliance on the employers’ covenant.

The following points have been made by UCU, their actuaries and Pension representatives from various universities:
i. While the net cash flow is positive, there is no need to sell any assets and therefore no disinvestment risk to the USS. Low market prices are beneficial during this {…} period of positive net cash flow [because assets are being purchased more cheaply], so a measure of risk which suggests a market fall is a problem would be giving a wrong message.
ii. While there is no requirement to sell assets, volatility from market value fluctuations is not a concern for the USS: the main concern is the volatility in asset income. Measures of risk and funding level which are market value sensitive, as opposed to asset income sensitive, are likely to be inappropriate in this context and should be given little attention.
i. In the >99% likely scenario of USS continuing as an open scheme sponsored by employers
with a robust covenant, the issue of very high relevance is the rate of growth of asset
income. Income uncertainty, not market value volatility, is the key issue for the scheme.
UCU Pensions Representative’s response to USS consultation document

As we can see, moreover, from graphs such as the following, dividend income from equity is much more predictable and less volatile than the asset price:
So long, therefore, as the scheme is valued in a manner that is sensitive to these more modest fluctuations in investment income rather than the greater volatility of asset prices, it seems unlikely that an in extremis scenario would emerge in which a funding shortfall becomes so great that employer contributions would need to rise to the level of 25%. First Actuarial has proposed an Internal Rate of Return (IRR) method of valuing the scheme that tracks changes in income rather than prices. See p. 7 of the attached document prepared by First Actuarial for some modelling of this approach, as applied to USS.

During communications with other Pensions Representatives it seems that not all employers/Universities accept the USS view of the world and the potential impact for employers and employees contributions. We urge you to get further clarification and supporting evidence from USS with regard to the level of risk and some explanation for their adherence to a possibly flawed valuation methodology. We feel that the case outlined above, maintaining contributions and benefits at least until 2020, provides a sensible and prudent means of sustaining our current defined benefit scheme and should not be rejected on the grounds that it may, under extreme circumstances, expose employers to further risk.

I look forward to hearing from you

Yours Faithfully
Andrew Mason

Ps This is an open letter which will be distributed to all members of the UCU Surrey Branch and I trust you will not object to your response being distributed to members
Attachments:
Aon Hewitt UUK 2 Dec 2014 response to AV consultation
uss_firstactuarial_2017valuationinput_reportforucu
First Actuarial’s USS 2017.03.01 cash flows
UCU Pensions Representative’s response to USS consultation document