Birkbeck UCU | News | Members’ Bulletin, 24 October 2018

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Members’ Bulletin, 24 October 2018



Pay ballot

Teaching only contracts/pathways


The Joint Expert Panel report on USS

Deborah Mabbett, Department of Politics, Birkbeck and UCU-nominated member of the JEP

The JEP published a report in September, concluding the first phase of its work, which was to review the basis for USS’s 2017 valuation. This valuation had effectively started the industrial dispute, as it found that the scheme was in deficit and that a large increase in contributions was needed. Employers had sought to mitigate the contribution increase by negotiating a reduction in benefits, which UCU opposed.


The argument about whether the scheme is in deficit revolves around the assessment of and response to risk. Parties to the debate broadly agree that there is a good chance that normal investment returns on the scheme’s funds will be sufficient to ensure that the current level of contributions can cover the scheme’s commitments to pay pensions in the future. The issues are about the ‘downside’ or worst case scenarios, whereby interest rates stay low for a long time, capital gains on assets do not continue to accrue, and/or there is another global financial crisis. The trustees are obliged to be prudent: in other words, they must consider the possibility of bad outcomes.


The 2017 USS valuation

In a defined benefit (DB) scheme like USS, employers stand as guarantors of the pension promises being made. However, we have seen in other private sector schemes that the employer guarantee or covenant was not strong enough to protect benefits. Trustees have to form a view about the strength and size of the covenant: in other words, how financially strong is the employer and what size of deficit would it be able to cover? It is widely accepted that the universities in USS are financially strong overall, despite the travails of a few individual institutions. However, putting a figure on the size of the covenant is difficult. Employers’ willingness to accept the risk of having to pay more into USS, and the amount they would be able to pay, have to be assessed. The JEP took the view that there were flaws in the way that assessment had been conducted, and these meant that the size of the covenant and the extent to which it could be relied upon were underestimated in the 2017 valuation.


This had important implications. If a scheme is thought to be over-reliant on the covenant, trustees have to take steps to reduce that reliance. There are various ways to do this, but the way proposed by USS was to ‘de-risk’ the scheme. De-risking means that investment is switched to less volatile assets, so the extent of reliance on the covenant in a worst-case scenario is reduced. The difficulty is that de-risking means that the central estimate of investment returns goes down, because returns on less risky investments are lower, on average over time. This means that it is no longer the case that the current level of contributions can cover the scheme’s commitments to pay pensions in the future. In other words, de-risking converts the risk of a large deficit into the certainty of a smaller deficit. By challenging the trustees’ view of reliance on the covenant, the JEP was then able to argue against de-risking.


Higher contributions?

The JEP also proposed other reductions in the call for increased contributions flowing from the valuation. The 2016 reform of USS from a final salary scheme to ‘career average revalued earnings’ (CARE) with a cap on pensionable earnings (initially set at £55,000, currently £57,216) means that the cost of the pension scheme relative to universities’ revenue and salary bills will go down in the future. This means that required contributions to fund the scheme will fall. The JEP argued that any increase in contributions needed now should be smoothed over several years. Ultimately this protects the financial health of the university sector and thus the health of the scheme. A similar argument applied to so-called ‘deficit recovery contributions’ which are needed to fund pension promises already made. The trustees had proposed to accelerate the rate at which these contributions would be paid; the JEP took the view that this was not necessary or desirable. Finally, the JEP also proposed updating of the mortality assumptions used to estimate the scheme’s liabilities (the pensions it has promised to pay). Longevity is not rising as fast as previously expected, and this reduces the estimated future liabilities of the scheme.


As a background to this, it is relevant to note that USS is ‘cash positive’: it receives more in contributions each year than it pays out in pensions. This does not in itself mean that the scheme is in surplus: it could be making promises about future pensions which it is not accumulating enough resources to finance. However, it does mean that the scheme’s investment strategy can be less risk-averse, and it also means that it is not imperative to recover any past underfunding immediately. Advocates of de-risking and accelerated deficit recovery could be basing their recommendations on the expectation that the scheme will close, and this would indeed have dramatic implications. The agreement reached to suspend the industrial dispute last March meant that employers took the prospect of closure (and replacement by a defined contribution scheme) off the table.


To conclude…

Bringing all these elements together, the JEP proposed that the 2017 valuation should be redone. Estimates done for the JEP by the actuaries employed by UUK and UCU indicated that a new valuation using the JEP’s revised assumptions would substantially reduce the need for higher contributions. Having made its recommendations, the JEP has now stepped back from the process, as UCU, UUK and, most importantly, the trustees of USS have to formulate their response to the report.


Pay ballot: a large vote for strike action but a modest turnout


The result of the pay ballot was a large vote for industrial action – around 68% in favour in the pre-1992 universities – but on a turnout of around 44% (aggregate figures have not yet been published so these are my estimates from the disaggregated data). Unfortunately the Trade Union Act (2016) requires a turnout of at least 50% for a strike to be lawful and we have failed to reach that threshold. Turnout at Birkbeck was 42.05% with a 68.33% vote in favour of strike action.


The union’s Higher Education Committee will be meeting shortly to consider how to proceed. Whatever course of action is pursued, if any, it is surely incumbent on the union leadership to reflect and perhaps research on the question of why 56% of our membership chose not even to vote in the strike ballot.


Teaching only contracts/pathways


UCU officers recently had a productive meeting with the Vice-Master and the Director of HR to begin negotiations on the college proposal for teaching only contracts/pathways. (The college employs the latter term but we believe that new job descriptions will have the legal status of new contracts).


The union emphasised two key points, choice and status: the transition to a new job description should be entirely voluntary; and the terms and conditions of the new role, including promotion pathways, should be the same as for existing academic contracts. In the course of discussion it became clear there is a broad measure of agreement on these points. In relation to choice, we agreed that a conversation about a new role could be initiated either by the individual her/himself or by their AD. The key point is that the final decision should rest with the individual.


In relation to terms and conditions, there is still considerable detail to be worked out on important issues such as the criteria for promotion. Our sense however is that senior management and the local UCU should be able to negotiate an agreement that will be widely acceptable.


That said, the proposal has generated many questions, concerns and issues and we shall therefore be calling a general meeting to discuss the teaching only proposal: details to follow asap.