The Second Joint Expert Panel Report: Could try harder?

UCU London Demonstration (Pic: Guy Smallman)

The Joint Expert Panel: Could try harder?

The long awaited second Joint Expert Panel (JEP) report on USS was released on Friday 13th December.

The Joint Expert Panel was the outcome of the 2018 industrial action by UCU in response to the attempt by Universities UK (UUK) and the USS pension scheme Trustee Board and management executive to replace the Defined Benefit scheme with a wholly Defined Contribution scheme. The 14 days of strike action led to a compromise settlement, the withdrawal of the 100% DC proposal and creation of the JEP by UUK and UCU, chaired by Joanne Segers.

The first JEP report was widely recognised as a scathing criticism of the mismanagement of the USS scheme. The blame for the 2017 valuation and the largest strike in UK Higher Education’s history, which it generated, was placed squarely at the door of the USS Trustee Board and executive management, UUK and the Pension Regulator (tPR). The details of the crisis within USS have been debated widely within UCU by Sam Marsh, Mike Otsuka, Sean Wallis and the current author along with notable reporting by the Financial Times journalist Josephine Cumbo. This piece does not seek to rehearse these debates and any reader unfamiliar with the detail can look at a variety of sources to examine this history. Some useful starting points include:

In summary, the proposals in the First JEP Report provided a means to complete the 2017 valuation and reduce total contribution rates to a level below 30%. However, its most significant findings were rejected by USS’s Trustee Board and executive resulting in a contribution rate from employers and employees well above that identified by the first JEP report. This has led to a resumption of struggle: a second large strike ballot, renewed industrial action in November 2019, with more to come. The Second JEP Report slams the failure to adopt their proposals in full saying it represented ‘a missed opportunity to resolve the dispute and provide room for a discussion of the longer-term issues facing the Scheme’ (JEP, 2019, p.4)

The Second JEP Report, focusing upon the valuation methodology and scheme governance was expected to be as analytical in its findings, and in some ways it appears to be. However, in other areas the Second JEP Report seems to have failed to openly address the key barriers to change which could ensure that a stable, financially-secure pension scheme emerges in which the interests of the beneficiaries of the pension scheme, current and future pensioners’ and their dependents are foremost.

In the brief commentary that follows the key positive and negative points of the Second JEP Report are examined. All references, unless otherwise stated relate to this report.

Collectivity and Mutuality – A unique aspect of USS

JEP places a strong reliance upon the collective nature of the scheme. While the scheme has grown in terms of the number of employer bodies as members, the vast majority of the assets and liabilities continue to derive from a smaller group of pre-92 HE institutions. The expansion of membership while resulting in a more diverse membership body is not considered to be a risk to the sustainability of the scheme. Some 84% of the scheme liabilities are concentrated on the pre-92 sector (JEP, p.25). With this high concentration of liabilities comes a high concentration of contributions into the scheme. As a consequence there is a high level of confidence that the sector will, and should, continue for the foreseeable future as a primarily pre-92 pension scheme. In conclusion JEP strongly identifies the collective covenant and the insurance this mutuality provides as a major unique strength of the scheme.

Employer led proposals for ‘sectionalisation’ of the scheme are extensively examined in the JEP report (see chapter 10). Despite the benign name ‘sectionalisation’ is a means to break apart the scheme into a variety of independent schemes with differing contribution rates and member benefits. Sectionalisation could be at the level of groups of institutions or at the individual institution level. This would break up the core principal of mutuality and sharing of risks, it would increase costs, and it would fragment the sector. Why then is it even being considered? This is driven by larger employers identifying opportunities for more rapid expansion with greater debt financing in an environment where pension liabilities are reduced on their balance sheets. It reflects the increasing tendency of each university senior management team to see themselves as in cut-throat competition with other employers. JEP rightly rejects such proposals stating it ‘would have serious concerns were sectionalisation to be pursued.’ (p.92). Mutuality, and the associated collective covenant, is essential not only for the long-term stability of the scheme but also for member confidence that their pension contributions will lead to a future pension on retirement.

Affordability and Intergenerational Fairness

Member benefits and the affordability of the scheme is looked at within chapter 9. USS faces a relatively high drop-out rate from new members, ranging from 15-20 per cent of new entrants per annum (Fig 12). These members are disproportionately younger, with higher levels of existing debt and on insecure contracts. JEP tentatively examines alternative approaches to differential contribution rates ‘Tiered Contributions’ and reduced benefits for reduced contributions.

The continuation of the scheme with a positive cash flow is dependent upon the scheme remaining open to new entrants and the contribution rates being affordable to newer members of the sector. Current contributions can then be used to pay for existing pensions and additionally build up assets. These assets represent the intergenerational guarantee that future pensions can be paid for today’s active members. Thus, retaining the scheme as an ‘open’ scheme for new entrants is crucial to this approach. Making contribution rates more progressive towards lower paid staff has attractions in addressing affordability but not if it is at the expense of other members of the scheme. JEP assumes any reduction of contribution rates for low paid members must result in increases for other members. Thus JEP fails to recognise a key feature of the scheme – that it is currently not only cash flow positive but on USS’s own evidence in surplus. JEP does not come to a judgement about the current state of the scheme and instead states that;

‘It has been suggested by some commentators that by applying those same adjustments [contained in the first JEP report ed. note] to the 2018 valuation it would be possible to reach a combined contribution level of 26% with the deficit eliminated. The Panel has not undertaken such an assessment itself and cannot comment on the accuracy of this claim.’ (p.22).

Yet JEP has had access to the USS Joint Negotiating Committee papers which, in November 2018, showed that implementing the first JEP report in full on the 2018 valuation would result in a £0.6b surplus and a total contribution rate of 25.5%. That USS is in surplus is not a suggestion of ‘some commentators’ but the confirmed result of a valuation undertaken by USS based upon JEP’s own suggested valuation proposals in the First Report. Under these circumstances lower contribution rates for low paid members are feasible without increasing contribution rates for those higher up the pay scales.

JEP also examines proposals for members reducing their benefits for a reduced contribution rate, a so called ‘50:50 option’. Such an option is not a progressive change, rather a response to the lack of affordability of pensions for low paid, often women in HE. A 50 per cent contribution rate for a 100% benefit accrual should be made available for all staff members for a limited time in their career history to prevent groups, such as those with caring responsibilities, facing discrimination in pension entitlement. In a career average pension scheme, such as USS, any discrimination during a working lifetime is transferred into a discrimination in pension entitlement. USS should be looking toward progressivity not only in contribution rates but also pension outcomes if it is to protect intergenerational fairness.

Governance and Democracy

The report identifies a range of areas where the structure of the USS governance and the Scheme Rules ‘do not foster a cooperative environment within which the Stakeholders [UUK and UCU ed. note] can work well together’ (JEP, 2019, p.4). While the JEP report damningly shares the view that the valuation governance is ‘not fit for purpose’ (p.38) this is in many ways the weakest area of the JEP report. JEP fails to accurately locate the governance crisis within USS and instead seeks to suggest failure is simply a general inability of the mechanism of governance to reach a consensus. The JEP’s starting point of avoiding being ‘critical of any of the organisations involved’ (p.6) means that it’s conclusions occasionally reduce to superficial platitudes rather than guides to long-term change. Still worse there is an encouragement to a reduction, rather than an increase, in democratic control over USS.

USS are reported in 2019 to have identified ‘members and their families’ as the key mission of the pension scheme and JEP strongly support a more ‘member-centric’ move. However, statements without actions of intent are simply examples of what might be termed ‘pensioner-washing’ by the pension scheme. The representative voice of current and future pensioner interest within the governance of the scheme comes from the involvement of UCU as a stakeholder organisation. Yet far from this voice being given greater influence USS has acted to weaken members’ voices. The development of the scheme into a Master Trust, an organisation governed by regulations for a Defined Contribution pension scheme rather than Defined Benefit as USS, is designed in part to minimise member involvement. Master Trust regulations allow UCU to recommend, but not appoint, a Trustee. Similarly, the dismissal of the UCU appointed Trustee Prof. Jane Hutton is not commented upon in the JEP report. Jane provided the only critical testing of the USS executive and was a genuine independent voice on the Trustee Board. Her removal was a direct consequence of her independence and willingness to challenge the USS management executive.

JEP’s primary solution of a set of ‘Shared Valuation Principles’ is insufficient if the USS Trustee Board and its management executive, UUK or tPR intent continues to be to place pensioners interests last. Indeed, the setting out of the Shared Valuation Principles, (fig 7, p.36) itself doesn’t mention pensioner interests only scheme sustainability. Closing the scheme leads to a sustainable outcome not in pensioners’ interests, but this is not ruled out of these proposals.

A final concern is the implication that a consensus failed to emerge simply due to the composition of the JNC. A proposal for a sub-set ‘senior’ stakeholder representatives (pp.50-51) to meet separately would seek to remove those elected UCU members who have fought hardest to retain the union’s policy of no-detriment. Increasing democratic oversight of USS would be a worthy aim but it is only UCU which provides an open democratic mechanism for scheme member involvement in stakeholder policy making.


JEP emerged in 2018 as an independent attempt to resolve the most significant industrial dispute Higher Education has seen in the UK. The attempt to find a technical solution to a valuation in its First JEP Report failed, not due to the inability to introduce JEP’s proposed changes to a valuation but rather a deliberate unwillingness of USS, UUK and tPR to agree to this settlement. As a result a second wave of strike action began in November 2019. The difference this time is that UCU members no longer have trust in a negotiated settlement which fails to recognise the aim of their adversaries in the dispute; namely the theft of their pensions and the undermining of any right to retirement staff may have.

Trust is at an all-time low in the sector as the debt driven neo-liberal marketisation of the sector deepens. The Second JEP Report again provides ample examples of the failures of the USS management of the Scheme and the employers’ intent on breaking apart the arguably most successful collective private sector pension scheme to have emerged post-war. However, it has not recognised the divisions between the differing parties involved for what they are; a struggle over the existence of a collective higher education system, fought out on campuses and picket lines, as well as on the terrain of pension assets and liabilities.

Carlo Morelli

UCU Scotland President, NEC and past UCU USS negotiator

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