UCU have successfully negotiated a change to the methodology to be used for future USS Pension Scheme valuations which will benefit all members.
For several decades UCU has argued that the valuation method used to assess whether the USS pension scheme has enough money to meet its obligations is faulty. Traditionally, USS has relied on a so-called “gilts plus” method, where the valuation has focused on government borrowing costs (the “gilts”) plus an assumed degree of over-performance (the “plus”). This meant that after the 2008 financial crisis, when government borrowing costs reached record lows, USS appeared to have enormous deficits. This, in turn, led our employers to propose cutting pension benefits and, in 2018, to suggest that our defined benefit pension scheme should be closed entirely. Those who follow these matters closely will recall that the Financial Times described the gilts plus valuation method as “insanely pessimistic”.
UCU’s position has always been that the long-term performance of USS’s investments — which include long-term investments in infrastructure (USS owns a share of Heathrow Airport, for example) — is unlikely to be highly correlated with short-term government borrowing costs. Since 2010 the union has consistently argued, with the support of its actuarial advisors, that the valuation method should instead be based on a “best estimate minus” approach, by focusing on the scheme’s expected investment returns (the “best estimate”), with a degree of prudence built in (the “minus”).
It has now been agreed by the USS Trustee that a version of this “best estimate minus” valuation method will be implemented for future valuations. If this method had been in place during the 2010s it is possible that no periods of industrial action would have been necessary. For instance, the 2017 valuation, which led to the long-running 2018 strikes, in fact showed a best estimate surplus of £8.3bn. The change therefore also significantly reduces the likelihood of future disputes with all of the financial and emotional toll they bring.
This change is a major achievement by UCU’s negotiating team and national officials, as well as all members who had voted for and taken the strike action which has unfortunately been necessary to focus the minds of employers and keep this on the agenda. Everyone who works in the pre-1992 university sector will benefit.
Further details: https://www.ucu.org.uk/article/14381/USS-valuation-methodology-changes-agreed—with-more-to-do