FAQs on the USS JEP Report and “No Detriment”

(with responses to some technical arguments re. the “no detriment” position at the end)

Q1: What is the JEP?        1

Q2: What has the JEP reported?        1

Q2a: Is this a victory for UCU?        2

Q3: What does this mean for members’ pension benefits and costs?        2

Q3a. Is this the end of the dispute?        2

Q4: Has the JEP explicitly adopted a position on how the increased contributions (based on their valuation estimate) should be shared?        2

Q5. Are there any principled reasons for accepting cost-sharing along the lines of the 65/35 split?        3

Q6. But isn’t there a standing agreement between employers and scheme members to share the costs at 65/35?        3

Q7. Is it tactically mistaken to demand No Detriment?        3

Q8. Do we not need to work with UUK in order to get USS to accept the JEP recommendations?        4

Q9. Surely, fighting over what would be a 1% increase to our members is just squabbling over a trivial matter?        4

Appendix: more technical arguments against negotiating “no detriment” - our answers        5

Q1: What is the JEP?

A valuation of USS in 2017, which is supposed to determine the viability of the scheme, proposed that the scheme is in deficit by over £5billion. This prompted the employers’ organisation UUK to call for  proposals that would replace the current Defined Benefit scheme with a 100% Defined Contribution scheme in which members did not have a guaranteed pension level. The deficit is an artefact of a particular approach to valuation modelling and assumptions in that modelling that are highly contested (along with the ‘deficit’ they produce). UCU undertook the largest HE sector strike in history to preserve the DB scheme and its member benefits. After 14 days of strike action, UCU came to an agreement with UUK to create a Joint Expert Panel charged with reporting on the valuation of of the scheme and to determine whether it is actually in crisis, as the employers have maintained.

Q2: What has the JEP reported?

The panel has now produced its first (September) report in which it takes the methodology of the last valuation to task for its excessively prudent attitude (meaning, for example, that it models whether the scheme could pay all member benefits at a future date following a period of ‘de-risking’ of the scheme). This ‘de-risking’ means moving all scheme investments from stocks and shares to ostensibly low risk, but very low yield, government bonds. The JEP is highly critical of this proposal and other elements of the methodology (such as the use of out-dated mortality rates) that produce the deficit. As an interim measure (not its last word on “de-risking” in the scheme) it makes very slight adjustments to the assumptions that allow USS to adopt an earlier valuation conducted in September 2017 which recorded a lower deficit. The JEP shows that the scheme is not in crisis, and addressing this (interim) deficit would require a more modest increase in contributions into the scheme (a rise from current total contributions of 26% to 29.18% - a total of 3.18%). It is important to emphasise that these are only interim recommendations. The JEP has neither valued the scheme independently nor fully reviewed the valuation methodology, an exercise that it proposes to do in a Second Report once this valuation round is resolved. The de-risking methodology that caused the deficit has therefore not been fully addressed by the First Report in September.

Q2a: Is this a victory for UCU?

Given that the JEP report can be read as showing what independent experts and UCU said all along, that the employers’ position on USS was based on a choice to make the scheme look worse, then this is indeed a victory. The JEP Report would never have been possible, and its work would never have pushed so far, were it not clear that a whole union movement was against the hawkish employers’ position and the USS trustees that supported it by their actuarial choices. It is also a victory for UCU members who pushed our own union leadership from a position of accepting the destruction of most of our DB scheme in March as the “only deal on the table”.

Q3: What does this mean for members’ pension benefits and costs?

In the absence of an agreement, USS trustees triggered a rule of the pension scheme, Rule 76.4-8 over the summer. This initiated measures to increase contributions into the scheme according to their last (large deficit-producing) evaluation of the scheme in November 2017. If this were to go ahead, this  would result in an increase in total contributions from 26% to 36.6% (an increase of 10.6%), which is to be split 65%/35% by employers and scheme members (6.89% increase for employers and 3.71% for scheme members). That was due to be implemented in April 2019 in stages. We believe UCU and UUK should commit to the implementation of the findings of the JEP evaluation and convincing the USS trustees to allow this to supercede the 2017 evaluation. Thus avoiding an unnecessary increase in costs. UCL UCU *fully* endorses the JEP interim report recommendations.

Q3a. Is this the end of the dispute?

UUK are currently consulting their members, but since accepting the report is in their immediate interests, it seems unlikely that they will not wish to go forward on this basis (although wishing staff to pick up a third of the cost for their actions). However, it is not clear what the USS trustees will make of the JEP report. A major stumbling block might be the USS trustees, for whom admitting the JEP report is right would mean admitting they were wrong at best and negligent at worst. Nothing is guaranteed, so, there is a matter of keeping the pressure and threat of industrial action ready to place pressure on them.

Q4: Has the JEP explicitly adopted a position on how the increased contributions (based on their valuation estimate) should be shared?

No. The JEP Report says on pp. 60-61 of the report: “Based on the Panel’s understanding of cost sharing, the contributions without matching could result in member contributions of 9.11 % and employer contributions of 20.071%. It will ultimately be for the JNC [the USS Joint Negotiating Committee] to determine how any new contribution rate is split between employers and Scheme members.” In other words, how the increase in contributions is distributed is in fact a matter for negotiation. Contrary to the statements of some commentators, “fully accepting” the results of the JEP *does not* require anyone to accept that the contributions cost should be split 65/35.

Q5. Are there any principled reasons for accepting cost-sharing along the lines of the 65/35 split?

No. The 65/35 split is the agreement for the default cost-sharing Rule 76.4-8. All other changes are the result of negotiations.  Between 1997 and 2009, the employers had a “contributions holiday” in which they reduced their payments into the scheme. After a 1996 valuation showed a surplus of £0.8bn, employer contributions went down form 18.55% to 14%. After the 2008 valuation, in 2009 employer contributions went up to 16%, and then reached their present level of 18% in 2016, following the 2014 valuation. In all this time (with reductions amounting to an estimated £7bn) no member contributions were reduced. Indeed, member benefits were reduced significantly in the last 2014 valuation (and the final salary part of the scheme closed to new members) on the basis of the same kind of methodological approach that the JEP has now said is deeply flawed. As a matter of fairness and principle, then, there are no grounds for saying that the 65/35 contributions split is justified. The employers wholeheartedly supported these changes that would have meant the death of the DB part of the scheme and provoked 14 days of strike action (and the resulting lost pay and sacrifice that meant). The fair result would be if they swallowed this additional cost, which arises from an evaluation approach they have supported. Indeed if we were to concede this point, we could be accused of encouraging more attacks on USS in the future.

Q6. But isn’t there a standing agreement between employers and scheme members to share the costs at 65/35?

No. As shown by the “contributions holiday” the employers took, and the more recent increase they accepted without members being forced to accept it (given the cost to members in *benefits* of the last changes), cost-sharing happens under certain circumstances but not all circumstances.

Q7. Is it tactically mistaken to demand No Detriment?

No. On the plus side for UCU, UUK is in a difficult position. If they do not accept the JEP findings re: the valuation, they will be facing the USS (pre-JEP) valuation and its much greater contribution costs (with the employer share reaching double the total amount of the JEP proposal). They will also face further industrial action on campuses as UCU will ballot its members if we are made to pay 40% more into USS for no reason! Indeed, what moved UUK to accept the JEP was industrial action last year, and the resolve of UCU members in the face of their attempt to destroy our pension scheme. That same resolve has not gone away, and they are aware of the new industrial relations climate post-strike. The Union has a strong position with which to go into JNC negotiations on how the costs are split (if USS agree to implement the JEP recommendations). Furthermore, forcing the employers to pay the full costs of their choices in valuation terms (the artefact of a deficit based on risk aversion they supported in USS) would give them another incentive: to accept changes to the methodology itself and thus reduce their additional contributions to nothing in the future.

Q8. Do we not need to work with UUK in order to get USS to accept the JEP recommendations?

Yes. However, as established above, the recommendations concerning the valuation in the JEP report are a distinct matter from the issue of the contributions split. It is perfectly possible, and right, for UCU to work with UUK to get the JEP recommendations implemented, whilst leaving the contributions share to be negotiated on the JNC. In fact, as we have said above, the employers have a bigger incentive to accept the JEP recommendations than not to do so. That incentive would not be cancelled out by paying the contributions increase as a whole. If they refuse to support the JEP recommendations they pay 6.9% instead of 3.2%, and they face a strike by staff. If they accept them, they solve both problems in one go.

Q9. Surely, fighting over what would be a 1% increase to our members is just squabbling over a trivial matter?

Those who oppose No Detriment have resorted to some strange claims to characterise the demand as somehow unworthy. Let us be clear, resisting a 1% increase in contributions on the basis of a botched Employer assault on USS is not an unworthy principle. It is based on the premise that ‘you break it, you pay for it’. This increase is also not a trivial amount. It is a 14% increase in total contributions (1.12 / 8). It is worth reminding ourselves that we have a long-term battle to defend USS and the outcome of this round will have implications for the future. he role of a trade union is not to engage in compromises (a sacrifice here, a gain there) to stay on good terms with employers. It is to negotiate on behalf of, and protect, our members, especially the most vulnerable and those in the worst conditions, from any unnecessary loss to their interests. To do otherwise, unforced, would be a dereliction of our duty of solidarity between members. As far as we can ascertain, there is nothing forcing that option on to us right now. So, starting negotiations with a concession up front is not just bad industrial relations strategy, it is an abandonment of lower paid members. Add to this 1% in increased contributions the real-terms pay cut the employers are trying to force on us, and the damage to lower paid members’ salaries starts to look very serious. We may win the pay dispute, but the employer’s position is currently to impose a real-terms pay cut, which would be on top of the USS extra contribution by members. This also highlights an important way that a union views disputes of this kind: they are not one-off disputes insulated from future moves or past form from the employers. A concession must be added to all the possible future attacks we may see. The employers do not see this as a matter of honour and restraint - if they can push through a detriment now or in the future that is in their interests, they will be thinking about how to do it. This whole dispute, and their stance on pay, is evidence of that.

What follow are some technical responses to a specific set of technical arguments raised against the “no detriment” position. If you do not wish to read the detail, our position against these arguments and in favour of no detriment can be summed up in these bullet points:

• The JEP are not negotiators for the future of the USS but actuarial experts. The remit of the report is not to make recommendations for how the parties engage in cost-sharing as this is beyond their remit.

• UCU has a valid case for declining to pick up the tab for the employers' attacks on USS (and for allowing low-paid members to pick up part of that tab). Crucially this rests on the fact that it is the UUK's own actions that have generated the current deficit, and therefore conceding cost sharing for this additional cost is both unethical and, worryingly, the action most likely to encourage more attacks on USS in the future.

• Our ability to take industrial action is the ultimate determinant as to whether UUK accept the JEP report and whether they accept the costs of their actions, or threaten further attacks on USS benefits. It is also the greatest political leverage over all other players including the USS Board and Pension Regulator.

Appendix: more technical arguments against negotiating “no detriment” - our answers

Q10. Some colleagues have read texts by UUK as implying they might seek to reduce the 1/80 DB accrual as broadly "comparable" to the current 1/75 provision, while also keeping contributions at an "affordable" 19.3%.^[1] Is this a danger and will UCU undermine its own ability to argue that it is not in the spirit of the JEP report if we insist on rejecting the “modelled 35:65 cost-share, and splitting 0%-3.2%”?

This is a convoluted argument. Firstly, it is based on a false premise. The JEP is a group of actuarial expert nominees from UUK and UCU. They are not UCU negotiators nor UUK negotiators. The text uses the term “prominently modelled” to describe the cost sharing option, as if the JEP made this sharing a condition or integral part of their model. As the JEP explicitly says (pp. 60-61), that is a matter for the JNC (see quote in response to Q4 above). Of course they use it as the current model because currently no other has been agreed. Secondly, the idea that one makes one’s position morally stronger by sticking to something that is outwith the remit of the JEP report defies logic. Finally, whether or not the employers go for this accrual rate move (again, pure speculation) is open to question, but ultimately they will be persuaded not to do so according to the resolve of UCU members to take action if necessary to defend our USS benefits. That same strength forced them to accept the JEP, not goodwill gestures giving away our members income!

Q11. Why waste time starting with a negotiating position of 0% “given the absurdity of holding out for a saving of 1.1% over just 3 years, rather than "engaging fully and constructively with the JEP proposals" straight away?

As we have shown above, engaging fully and constructively with the JEP proposals says nothing about the cost-sharing matter. The JEP itself specifically and explicitly brackets that as a question for the JNC - a matter for negotiation. So it is perfectly, conceptually, and in principle possible to identify a *valuation* question, what the JEP recomments, and an *industrial relations* question, of how this is implemented in terms of costs and benefits.The industrial relations question is not “absurd” for our members, especially low-paid members, for whom the 1.12% increase is not trivial (amounting to an increased 14% increase in pensions contributions).

Q12. Will the industrial relations position of refusing detriment to our members make it more difficult to argue that UCU and UUK should remove any trustees from the USS trustees board that refuse to implement the JEP recommendations? Do we not have to work together with UUK to pressurise USS and the Pensions Regulator, a matter made more difficult by rejecting the 65/35 cost sharing split?

Once again, accepting the findings and recommendations of the JEP Report is a distinct matter from the distribution of the costs. The first is a matter of valuation methodology, and the second a matter of industrial relations and negotiations (as the JEP Report itself explicitly says on pp. 60-61). The latter, industrial matter, has no bearing whatsoever on whether the trustees of USS accept the evaluation recommendations of the JEP Report. If they do not want to accept them, a negotiation on cost-sharing will not alter that fact, if they do want or are open to accepting them, the negotiations on cost sharing will follow as a separate matter, at a separate body to the trustees: the Joint Negotiating Committee of USS. What shapes the result of that negotiation is simply a matter of industrial leverage, and our members’ explicit resolve. Approaching the JNC by declaring up front that the employers can have what they want is to show no leverage, or resolve, and to signal to them they are in a position of strength - a disastrous position for a trade union.

Q13. Are the JEP proposals not already “highly advantageous” to our members, thus rendering attempts to negotiate “no detriment” as “quarrelling” and “squabbling”?

This is quite disrespectful to members and fails to understand the point of a union. We are not a kindly association that aims to be on gentlemanly terms with employers “giving and taking” on some kind of “your turn next” basis. We are a trade union, and as such our primary and fundamental goal is advancing the interests and rights of our members (within the law and ethics). For a trade union to give away a rise in costs from our members’ salary because what they already have is already “highly advantageous” defeats that purpose. It gives up on low paid members, and it sets a precedent about what the union is prepared to do, even when it does not have to. It is astonishingly naive.

Q14. Would it be perverse if UCU decides to reject any of the JEP proposals in order to hold out for a “marginal” improvement?

Again, this fallaciously conflates the evaluation recommendations of the report with the industrial relations question of what settlement should be negotiated on contributions. It should strike trade unionists as perverse that their union would give up advantage for their members if it does not have to. Declaring up front that we are willing to sacrifice 1.12% of our members salaries, unforced, is not a marginal improvement. For some members especially, it is a significant amount. But more importantly, it would set a precedent we cannot afford to set. It would invite further attacks.

Q15. Does hard negotiating on this by UCU give the employers and excuse to do some “cherry-picking” of their own and so is a disservice to the whole union?

This is slightly confusing. All negotiations involve bottom lines. The key determinants of the results in industrial relations are the strength and leverage on either side. If the employers see an advantage in cherry-picking, they will do it anyway. No moral code of fair give-and-take will constrain them just because UCU is showing pay restraint against the interests of its members.

Q16. Is it the case that “It would be widely regarded as unreasonable and antagonistic if employers now reject the proposals of the panel they had pushed to establish” but if UCU do that first, it would permit this move by the employers?

This is a repeat of the above point (the accrual rate point and the cherry picking point), and makes exactly the same mistake. It confuses valuation methodology recommendations from the JEP with negotiations over contributions by members and employers. The JEP Report itself does not make that point but explicitly brackets the two questions, see pp. 60-61. It is perfectly logically and politically consistent to hold UUK to their agreement to abide by the recommendations of the JEP Report and to then negotiate strongly over the contributions payments at the JNC. Not only that, as we have said, if employers see a negotiating advantage in adopting a certain stance, they will do so. Failing to do so will fail our members.