In this post, I argue that the conditional indexation/revaluation (CI) of improvements to the current level of defined benefit (DB) provides the best means of enhancing the pensions of USS members. It follows that UCU delegates should vote down HE12 at the Higher Education Sector Conference on May 30th.

HE12 calls on UCU “negotiators to cease work on CI and to focus on working to improving members’ DB benefits”. It offers a false dichotomy between the improvement of DB and the introduction of CI. It advances the unsound claim that “CI is more risky to members than DB and will not improve pension benefits”. Halting work on CI would, in fact, abandon the most promising means of improving the DB accrual of members, where this improvement would be no more risky to members than their current DB promise.

Members are now promised the following inflation indexation and revaluation of a pension worth 1/75th of their salary for each year they pay contributions into the scheme: an uprating which fully covers CPI inflation up to 5% and covers half of inflation between 5% and 15%. There is no uprating for CPI inflation above 15%. This is known as a “soft cap” on indexation and revaluation, since it softens without eliminating the impact of inflation when CPI runs between 5% and 15%, before the cap fully sets in when inflation runs above 15%.

With CI, specified inflation-indexed increases in the value of one’s pension are rendered conditional on returns on investments in the fund being good enough. The following is a concrete specification of CI which would improve, without risking, existing member benefits:

1. An improvement beyond the current soft cap of the indexation of pensions in payment, up to full CPI each year, conditional on investment returns being good enough. This would protect members against the erosion of the spending power of their pensions when CPI inflation runs higher than 5%.

2. An improvement beyond the current soft cap of the revaluation of the pensions accrual of active members before retirement, up to full CPI plus x% each year, conditional on investment returns being good enough. If this x% were set at 1.6%, this would match the level of revaluation that members of the Teachers’ Pension Scheme are currently promised.

Whenever investment returns are good enough to warrant increases beyond the soft cap, the conditional indexation and revaluation sketched above would constitute an unambiguous improvement on the current level of DB for USS members.

It is worth emphasizing that, under this proposal, the current soft cap would remain a floor below which indexation and revaluation could never fall. This is, therefore, a version of CI which would pose no risk to members, since it would offer only the prospect of gains beyond the current DB provision, with no possibility of loss to that provision. It is, moreover, an analytic and conceptual truth that risk involves the possibility of something bad happening rather than of something good happening: e.g., the possibility of loss rather than of gain.

We are now in a position to see why HE12 is mistaken in its claim that “CI is more risky to members than DB and will not improve pension benefits”.

CI does not, however, provide the only means of improving on the current level of DB provision. One might instead enhance DB in a manner that is not conditional on investment returns being good enough. One could, for example, promise full CPI indexation of pensions in payment and CPI+1.6% revaluation of pre-retirement accrual, irrespective of investment returns.

Why not push for such unconditional improvements on the current DB offer? Why, in other words, do I maintain that CI provides the most promising, even if not the only, route to the improvement of the current DB provision? Here is my answer:

Introducing such conditional indexation and revaluation would make it possible to shift to a greater level of investment in growth assets rather than index-linked bonds, since the pensions liability would no longer be so closely linked to a promised level of indexation and revaluation. In other words, growth assets would provide a “match” to such conditional indexation and revaluation which they cannot provide to unconditional revaluation and indexation. Growth assets would provide such a match, since indexation and revaluation would be conditional on the returns on these assets being good enough.

A shift to a greater level of investment in growth assets would make it possible to deliver a higher level of expected pension income in retirement per pound of contribution, since expected returns on the assets in which this pound is invested are higher than those of index-linked bonds. To provide an illustration, USS’s consultation documents on the 2023 valuation report that a modest shift from their 60% weighting to a 70% weighting towards growth assets would increase the expected annual return on investments from 3.5% to 3.8% above inflation. It would also bring the DB fund closer to the expected returns on the default growth portfolio for the DC section of USS, which is weighted roughly 80% towards growth assets. Hence, such a move would help to eliminate the drawback of USS DB in comparison with their DC, of lesser expected returns on contributions.

The conditionalisation of indexation/revaluation might also make it possible to engage in a lesser prudent downward adjustment of expected returns in the setting of the discount rate that determines the required level of DB contributions.

If, by contrast, USS were to shift to a greater level of unconditional pension accrual than the current level, that would need to be funded out of roughly the same mixture of growth assets and bonds, and at least the same high level of prudence, that USS requires for the current level of unconditional pension accrual.

Any unambiguous and significant improvement on the current level of DB provision would need to be funded out of an increase in the level of contributions that USS requires to fund existing benefits. That level of contributions — as set by the 2023 valuation, and as supported by monitoring reports updated to the present — is now 20.6% of salary (14.5% employer, 6.1% member), which is much lower than the 31.4% (21.6% employer, 9.8% members) that USS recently charged. Such a 20.6% contribution rate for the current level of benefits is also about as low as it would be reasonable to expect or to advocate for future valuations. It follows that contributions would need to rise above 20.6% to fund an improvement to benefits.

Any increase in contributions would be a challenge before the current funding crisis for UK higher education is resolved. But, so long as the cost of providing current benefits remains not much above 20% of salaries, a moderate increase in contributions above that level would allow for an improvement in the current level of benefits.

Given what I have said above, it would be better value for money to devote any such increase in contributions to a conditional rather than an unconditional increase in the level of the DB promise. Such a shift towards conditional indexation and revaluation would also help to unshackle the scheme from a valuation which is so tethered to the gilt yield, in a manner that has given rise to the bust and boom valuations of the recent past, with contributions increased and cuts imposed when gilt yields fell from the 2014 to the 2020 valuations, only to be reversed at the 2023 valuation on account of the recent dramatic rise in gilt yields, which are now expected to fall by the next valuation.

CI improvements on the current soft cap would also have the virtue of fully complying with existing DB pensions regulations. Most significantly, they would meet the automatic enrollment requirement of CPI revaluation of at least 2.5% if such revaluation falls short of CPI or RPI.

As this would fall within existing DB regulations, this would, in fact, be a type of improvement of DB rather than an alternative to DB. It would, in fact, constitute a return to the practice during the heyday of DB in the UK in the 1960s to the 1990s of making indexation conditional on investment returns being good enough.

The “CPI plus” revaluation in pension accrual before retirement (point 2 above) would also mitigate the problem that younger members currently overpay for their DB promise, relative to older members, because the soft cap CPI revaluation of their DB promise is less than the expected investment return on the contributions they pay for that promise.

HE12 would, however, bar UCU negotiators from engaging in efforts to secure the most rational and sensible improvement in DB by means of a conditional improvement in the indexation and revaluation of benefits.

In light of the above, I recommend that delegates to UCU’s HESC on 30 May vote as follows on HE12 and its possible amendments:

• (1) If Sheffield’s B25 amendment to HE12 is ruled in order, then (1a) vote for this Sheffield amendment to HE12 and (1b) also vote in favour of this motion so-amended.
• (2) If Sheffield’s B25 amendment to HE12 is not ruled in order, then (2a) vote in favour of HEC’s HE12A.1 amendment to HE12 to prevent a worst case scenario of adoption of HE12 unamended, but (2b) also vote to reject the HE12A.1-amended version of HE12, which remains seriously flawed.
• (3) If all amendments to HE12 fall, then vote against HE12 to prevent the worst case scenario of adoption of an unamended HE12.

Sheffield’s amendment would completely eliminate everything which is indefensible in HE12 by deleting all of the following:

b. CI is more risky to members than DB and will not improve pension benefits.

c. Members are best served by negotiators focusing on improving DB pensions and investigating CI uses up time and energy that could be better used in working for DB improvements.

Conference calls on negotiators to cease work on CI and to focus on working to improving members’ DB benefits.

…and replacing the above with the following, which is entirely sound:

b. CI is a form of DB which could provide higher expected benefits and a more intergenerationally fair scheme.

c. Members are best served by negotiators continuing to explore whether CI could provide a better model for the scheme.

Conference calls on negotiators to continue to focus on working to improving members’ DB benefits, including through exploration of CI.

By contrast, HEC’s amendment HE12A.1 would simply replace “Conference calls on negotiators to cease work on CI and to focus on working to improving members’ DB benefits” with the following:

Conference calls on negotiators [to]

1. Participate in discussions with employers and USS on CI while taking a very sceptical perspective so as to know their intentions and best defend members’ interests.

and

2. focus on working to improving members’ DB benefits and making the valuation and investment moderately prudent, including by increasing the discount rate and removing or reducing the importance of gilt yields in the valuation and monitoring data.

By removing the call on negotiators to cease work on CI, this amendment would eliminate the worst aspect of HE12. Hence the amendment should be supported, in order to eliminate a worst case scenario in which HE12 passes unamended. But the amended version should be voted down, since it retains the misguided and unsound “b” and “c” clauses of HE12.

Voting this amended version down would ensure that existing sound policy regarding CI remains in place, as spelled out in Sheffield’s motion HE16, which was adopted at last year’s Higher Education Sector Conference.

Below are the first two questions that employers posed in a webinar with USS on the 2023 valuation, plus the responses from Kate Barker, Chair of USS, and Aaron Punwani, the Scheme Actuary. (See this video, from 29 minutes.)

‘The first question asks to what extent the panel think that this dramatic improvement in sustainability over the long term is not simply a freak result of the exceptional economic circumstances over the past year. Some commentators, notably Michael Otsuka, have urged caution over cashing in unless there’s real confidence that the 2026 valuation and beyond won’t take us back to the nightmare scenarios of the last decade. And the second question is a similar theme: The positive valuation outcomes are largely a result of the relatively recent increase in interest rates. Does that also mean that should, when there is economic recovery, with lower long-term inflation and interest rates, future valuations would look less positive — i.e., fortunes could reverse as fast as they improved. Do we therefore need to be more cautious on contributions and future benefits in order to best protect the interests of individual members as well as employer entities?’

Kate Barker (Chair of USS): ‘I think these are really good questions that get to the heart of what’s happening with this valuation. I want to be clear what the Trustee is doing in setting forward the numbers that we set forward. So, we priced, as we should, the technical provisions where we stand with regard to the promised benefits on the basis of financial conditions at March ’23, and then specifically, at the request of stakeholders, we’ve also priced the benefits that prevailed prior to ’22. But it’s certainly true that the future service costs in both cases are probably rather lower than we might have expected even a few months ago, because gilt yields have of course continued to rise. And it’s also therefore true that a decline in gilt yields … would have potentially quite a big effect on the scheme. Now we’re very clear — and I commented on this in the Forward [to the consultation material on the 2023 valuation] — that none of us has any real idea what’s going to happen to gilt yields in the future. The best we can do, and we do talk about that in the supporting information, we say a little bit about ‘were gilt yields to fall by this [amount], this might be the changed position’. But in terms of how much caution should we take and what form that caution should be — whether it’s caution about improving benefits, whether it’s caution about how much to reduce contribution rates by, whether it’s caution about whether to use some of the surplus in going back to fill the hole that exists between ’22 and ’24 — those are all really important questions, but to my mind they are questions for the stakeholders. So what we’ve done in the pack, particularly in the supporting information, is to try to give estimates which are relatively preliminary, since it’s often quite difficult to make good estimates about what might happen in the future if this changes, to try and show what the probabilities are of making changes. And it’s clear from those that if contributions rates were held as high as 26%, then the chance of having to move contribution rates up is much smaller, clearly if contribution rates are moved down further, then the prospect of going up from there is a little bit higher. But how to balance all the conditions that lie around, and I’m acutely conscious as I talk about this of the issues of the cost of living that affect everybody, how to balance contributions today with the risk of high contributions tomorrow, seems to me as a matter that is properly for the stakeholders to think about, and that’s exactly what they will think about in the Stability Working Group.’

Aaron Punwani (Scheme Actuary): ‘Very much to support Kate’s response there. In terms of the direct question, are current conditions freak economic circumstances, and might they reverse: They might do. There will be just as many commentators who might say the last decade has been an aberration and real yields as they now are, is more normal, and it’s very, very difficult to predict where that is. And that’s why, exactly as Kate has just described, what we’ve sought out to do is provide a balanced, straight down the line, revelation of the results at the valuation date, which does show good news. And then we can all have a collaborative discussion as to how much of that good news to use up versus how much to hold back for stability, through the working group. I think the alternative whereby we held back the good news and presented a less favourable position would have been disingenuous, actually.’

I’d like to encourage UCU branch delegates at Sunday’s HESC conference to vote Yes for HE16 on conditional indexation (CI). It was proposed by the Sheffield branch and has the strong support of Sam Marsh.

1. The first thing to emphasize is that CI is proposed as a potential means of improving on, rather than restoring, the pre-2022 DB promise of 1/75th soft CPI cap accrual up to £60k:

“a. seeking accrual above 1/75th for affordable member contributions is in the interests of all USS members”

The full restoration of the pre-2022 DB promise is achievable without having to introduce CI.

2. Relevant to my first point, the motion describes CI as a “medium-term” rather than a short-term project. It would not be possible, in any event, to introduce CI as an element of the current 2023 valuation, while adhering to the timetable of full restoration of DB by 1 April 2024. And nobody is advocating the inclusion of CI in the consultation on the 2023 valuation.

3. The wording of the motion calls for “more detailed analysis and consultation in the medium-term on models of CI, with no pre-condition of ultimate acceptance”:

Conference therefore encourages UCU JNC negotiators’ engagement in preparations toward more detailed analysis and consultation in the medium-term on models of CI, with no pre-condition of ultimate acceptance.

Only someone who is not open minded to further analysis of this option to assess its potential should be opposed.

For my own part, I think CI holds most promise as a means of improving on the current soft CPI cap (i.e., full CPI revaluation up to 5% and 50% revaluation up to 15% CPI inflation) of the 1/75th accrual rate.

At the very least, it could provide a means of achieving full, uncapped CPI revaluation above the soft cap, when CPI inflation runs higher than 5%.

Going further, it could provide a means of achieving an upward revaluation of the accrual of active members beyond CPI, as in the case of TPS, whose active members’ CARE accrual is revalued by CPI+1.6% during each year leading up to retirement.

Something along lines of CPI+1.6% revaluation of accrual of USS members in the years leading up to retirement would have a number of benefits:

a. It would improve on the pre-2022 DB promise.

b. This improvement would mitigate the problem that younger members currently overpay for their DB promise, relative to older members. Younger members currently overpay for their DB promise because the soft cap CPI revaluation of that promise is less than the expected investment return on the contributions they pay for that promise.

c. Conditional revaluation only above the current CPI soft cap would get around the problem of rendering CI compliant with auto-enrolment requirements.

A majority (4 of 6) of UCU’s USS negotiators — as well as a majority of UCU’s Higher Education Committee (HEC) — have recommended that union members vote to “NOTE” continuing joint work with UUK, thereby pausing industrial action over USS for the time being. They write:

We do not believe that any further gains can be made from UUK at this stage that would either accelerate the timeline for the restoration of benefits or improve the outcomes for members. [my emphasis added]

By contrast, a minority of two of the six UCU negotiators, who are from the UCU Left faction of the union, are urging members “to continue industrial action to get clear unconditional commitments from employers”, including the following two:

“1. Removal of the condition on employers’ assessment of sustainability.”

“3. An explicit commitment to benefit restoration by individual employers confirmed in the legally-required consultation.”

As I shall explain in what follows, these two demands are highly problematic. This is a continuation of a pattern of their issuing demands which do not withstand scrutiny. [UPDATE: See this Twitter thread for a discussion of the flaws with their other two demands.]

The sustainability demand

Their first demand misrepresents the joint agreement.

There is no condition “on employers’ assessment of sustainability” (my emphasis added). In other words, the joint statement between UCU and UUK does not say that employer assessment of sustainability is a necessary condition of restoration of benefits. Rather, it says this: “we [i.e., UCU and UUK] jointly agreed to prioritise the improvement of benefits to pre-April 2022 levels, where this can be done in a demonstrably sustainable manner;”.

If UUK denies, whereas UCU affirms, that benefits can be restored “in a demonstrably sustainable manner”, this disagreement would ultimately be resolved by the independent chair’s casting vote in JNC, after UCU has tabled and UUK has opposed a restoration of benefits.

Hence, the UCU Left negotiators are mistaken in claiming that “employers could decide that it is not possible to restore our axed benefits in a sufficiently sustainable manner and that would be it for benefit restoration.” Employers lack such unilateral power to block restoration.

Especially given the history of past independent chairs in siding with employers, one would have grounds to fear that the current independent chair would resolve such a dispute in favour of the employers. But it is important to acknowledge that neither side has veto power, under existing agreements and the scheme rules, over whether benefits are restored. They would need the support of an independent chair who has been recently chosen by agreement of both UCU and UUK.

There remains the following case, on the merits, for both sides to have agreed to prioritize restoration of benefits “in a demonstrably sustainable manner”. The minority of negotiators write the following:

We should also learn from the experience of 2018 when we stood down action to get the Joint Expert Panel (JEP) and the next step was our benefits axed in 2022 following the 2020 valuation.

First, it is worth noting that the JEP, which was established as the result of 14 days of strikes in 2018, was instrumental in preserving defined benefits uncut for the next four years. That was a remarkable accomplishment which nobody anticipated at the time.

Second, the proper lesson to draw from this is that one needs to look beyond the current valuation and also try to ensure the likelihood that benefits and contributions can be sustained through the next valuation as well.

That is precisely what both sides are working in concert to achieve, in their agreement “to develop and implement a robust and transparent mechanism for managing risk which can provide more sustainable benefits and contributions for future valuations.”

Such sustainability is in the interests of both members and employers. It would therefore be perverse to launch a marking and assessment boycott to try to strip out the joint UCU-UUK commitment to restore benefits “in a demonstrably sustainable manner.”

The demand for an unconditional employer pre-commitment to benefit restoration

In defence of their third demand, the UCU Left negotiators write:

UUK are also required to consult with individual employers. Many of them have made statements supporting prioritisation of benefit restoration, but there is no guarantee that this will lead to support for benefit restoration in the consultation.

To try to provide the relevant guarantee now, the third demand calls on employers to pre-commit to a particular position arising from the consultation on the valuation before they have had sight of the relevant consultation document in late June at the earliest, for a consultation that is scheduled to run from July to September.

But how does it make good sense to send members out on costly industrial action now to try to force their employers to provide an unconditional pre-commitment to benefit restoration before the costs of such restoration have been spelled out in the consultation document?

Insisting on an unconditional employer commitment to benefit restoration at this stage is especially problematic, given that such a commitment could not be conditional on members agreeing to restoration of the DB/DC salary threshold in a subsequent 60-day member consultation which would not close before December. Why insist on an unconditional employer commitment at this point, rather than one conditional on members also agreeing to such restoration?

Moreover, just as it would be unreasonable to demand that members pre-commit to restoration of the DB/DC salary threshold before they have had sight of the relevant consultation material, it is unreasonable to demand that employers pre-commit to benefit restoration before they have had sight of the relevant consultation material.

Unless one prioritizes sending members out on a costly marking and assessment boycott above all else, there is no fierce urgency to the call for such an unconditional employer commitment NOW.

UPDATE: I have now posted this Twitter thread which discusses problems with the other two demands of the UCU Left negotiators:

Michael Otsuka on Twitter: "In this blog👇, I point out significant problems with the 1st & 3rd of the 4 demands that justify continued IA over USS, according to the @uculeft negotiators in their minority report to UCU members. In this🧵👇I spell out flaws with their other 2 demands. 1/ https://t.co/VdSMGnSZcG / Twitter"

In this blog👇, I point out significant problems with the 1st & 3rd of the 4 demands that justify continued IA over USS, according to the @uculeft negotiators in their minority report to UCU members. In this🧵👇I spell out flaws with their other 2 demands. 1/ https://t.co/VdSMGnSZcG

Yesterday, Kate Barker issued a statement reporting that the USS Board of Directors she chairs ‘concluded’ at a meeting last week that ‘the overall contribution rate … that would be required for the pre-1 April 2022 [i.e., uncut] benefit structure, going forward, is unlikely to be in excess of the current cost of future service (which is 25.2%)’. She also states that ‘there is likely to have been a slight increase in the implied cost of future service benefits, and a reduction in the potential surplus, relative to the position at the end of the year’ — i.e., 31 December 2022, on which USS reported favourably in February.

Since Barker speaks of a ‘reduction in the potential surplus’, we can still anticipate a surplus out of which it will be possible to fund recovery of DB benefits lost in 2022–24. Even if the surplus is insufficient to fully fund such recovery, it should be possible to do so out of a modest increase in contributions above a future service cost likely not to exceed 25.2%, while still reducing contributions below the current overall level of 31.4%.

In short, this is a very welcome confirmation of USS’s February statement regarding the likely required cost and feasibility of full restoration of pre-April 2022 benefits.

It’s worth emphasizing, however, that USS will not firm up such language regarding likelihood of contribution rate until they issue their consultation document on the valuation, scheduled for the beginning of July. If the past is a guide, that document itself will firm up only to an ‘indicative’ contribution rate to restore benefit to pre-2022 levels. Such a rate will be subject to formal confirmation by the board after its review of the responses to the employer consultation on the valuation. As USS writes on its timeline: “October 2023: Having considered UUK’s response, we will inform the JNC of the overall contribution rate needed for the [restored] package of benefits.”

Further industrial action over USS during the next six months will not move USS to make the unconditional commitments that the two UCU negotiators affiliated with UCU Left are calling on members to engage in IA to try to secure. See this Twitter thread where I spell out why the unconditional commitments they seek from USS will not be forthcoming prior to 2024.

Although it will come as a relief that the UCU Left negotiators have finally abandoned their previous demand of full restoration and recovery by 1 April 2023 on the basis of post-2020 valuation experience, it’s disappointing (though unsurprising) that they have now settled upon another futile demand.

By contrast, the majority of UCU’s USS negotiators have come to the following conclusion:

the agreements between UCU and UUK now being implemented by USS are sufficient to stand down (or pause) industrial action over USS. We believe there are no further gains to be made at this stage in the USS dispute.

Please click through to the negotiators’ linked briefing, and read the well-judged, well-argued, informative analysis which backs up this conclusion.

Michael Otsuka on Twitter: "Why the demands of the @ucuLeft negotiators for @ucu would ensure that members are engaged in IA over USS for at least next 9 months: they include the extraction of an unconditional commitment from @USSPensions which they won't provide before 2024. 🧵 1/10 / Twitter"

Why the demands of the @ucuLeft negotiators for @ucu would ensure that members are engaged in IA over USS for at least next 9 months: they include the extraction of an unconditional commitment from @USSPensions which they won't provide before 2024. 🧵 1/10

The UCU Left USS negotiators Deepa Driver and Marion Hersh have posted a new blog on their ‘Reverse USS!’ website. They write:

We must keep up strike action and industrial pressure on employers to ensure we get an unconditional written commitment to restore our benefits in full from 1 April 2024 at the very latest. This needs to cover both full future benefits and what we have lost up to then.

This written commitment must take the form of “a signed agreement with the employer and USS with no caveats or conditions” (emphasis in the original).

If, therefore, this commitment is to be secured now (or in the near future, e.g. by the end of June), it must not be conditional on any of the following:

1. Members expressing support of the rise of the DB/DC salary threshold in the statutorily required 60 day consultation which must take place before full restoration can be implemented. Therefore, a commitment to restore the salary threshold whatever the result of the consultation.

2. The pricing of benefit restoration in the consultation document on the valuation which USS is scheduled to issue by early July, and the employer response to this consultation document. Whatever the cost of contributions set forth in that consultation document, employers must commit, before they have had sight of this document, to restore benefits in full by 1 April 2024. Although their blog post doesn’t make this clear, I assume that employers would be required to absorb any rise in contributions which USS deems necessary to restore benefits in full. Member contributions must not rise. Employers cannot therefore place any limits on the contributions they would be prepared to pay to restore benefits in full.

3. tPR not deeming the valuation unacceptable and taking enforcement action. USS must unconditionally commit now to restoring benefits in full on the basis of this valuation, whatever tPR’s response to that valuation.

4. Complexities regarding the unwinding of DC contributions into pensions above the £40k salary threshold between 2022–24. There must be an agreement now, whatever these complexities, to unwind these contributions by 1 April 2024.

5. Conformity with various legislative requirements and regulations (including a requirement about how members must not be affected unequally on the basis of certain characteristics). USS always includes such caveats regarding the need to confirm such conformity. But it must not do so now.

6. Submission by 1 April 2024 of the 2023 valuation on which the schedule of contributions to restore benefits would be based.

7. Etc., etc.

There is no chance that USS will provide the unconditional agreement demanded of this proposal. Such refusal would be based on sound legal advice.

Employers would also have excellent grounds to refuse to provide a commitment which is unconditional on any of the above — e.g., unconditional on the result of the member consultation.

So this is a proposal to “keep up strike action and industrial pressure” for as long as it takes to secure unconditional commitments that USS would refuse to provide, and on sound legal advice, and which employers also have excellent grounds to refuse to provide.

I cannot think of a better way to demobilise members. This in spite of the fact that they maintain that failure to nail down these commitments “will demobilise the very campaign that members need to defend their pensions”.

As their blog post has been extensively edited and revised since the 19 March posting date, here is an archived version of their post on which I comment above at time of the writing of this blog (21 March 2023, 9:56 GMT)

Please have a careful look at the following FAQ, which tries to explain how it will be possible to employ the threat of ‘hard-hitting industrial action’ to force restoration of the DC threshold by 1 April 2023:

Can USS make the changes to restore the DC threshold by 1 April 2023?

Yes, but UCU will need to ask for it very quickly (ideally, before 11 Jan 2023) to do this. This then puts the ball in the employers’ court, which branches can back up by lobbying VCs to support the idea in principle.

One of the best ways to do this would be to ensure that there is real pressure on the employers to support UCU in this demand by members being ready to take hard-hitting industrial action.

Note that this is a readiness to engage in indefinite strikes from the beginning of February. But this is ‘hard-hitting action’ after that point (namely the 31st of January) at which it has become mathematically impossible to complete the required 60-day consultation by the 1st of April.

As has been extensively discussed in the literature on nuclear deterrence, there are serious problems with a threat to do something that is known in advance to be inefficacious at the point at which the threat would be executed. To get around this problem, one needs to make it credible that one will follow through in doing something that makes no sense once the threat fails to deter.

One way to do so is to make one’s opponent believe that one is impervious to reason and will therefore carry through with the threat at this point, however irrational. If this is how supporters of restoration of the DC threshold by April plan to make their threat credible, I must at least acknowledge that you have been doing a convincing job of conveying an imperviousness to reason in clinging to your proposal even after its timetable has shown to be absurd.

Members, however, will probably not be too keen to be sent out on indefinite strikes on behalf of a goal which is known by all to be impossible to realise at the point at which those strikes begin.

This post provides four brief rejoinders to the attempt in this linked ReverseUSS! FAQ to show that Driver’s and Hersh’s proposal would not in fact set a dangerous precedent

As I spell out in Section II of this blog post, this the dangerous precedent that I and others have argued that their proposal would set:

(II) Restoring benefits on the basis of a positive funding position between full actuarial valuations would set a dangerous precedent for calls to cut benefits or increase contributions on the basis of a negative funding position between valuations.

1.

Here is the most egregiously false FAQ response to this objection:

Reduced benefits cannot be imposed on members intra-valuation.

If only that were true. There is, however, nothing in scheme rules, legislation, or regulations that would prevent USS from issuing a revised schedule of contributions which is based on intra-valuation updating of a valuation. It is, in fact, precisely this possibility on which Driver’s and Hersh’s proposal relies!

Not only could JNC restore benefits intra-valuation on the basis of this new schedule of contributions. They could also cut benefits on this basis. Driver’s and Hersh’s proposal in fact calls for one such cut in benefits — namely, the elimination of DC contributions into pensions pots on salaries between £40k and c. £60k!

Of course, such cuts trigger the requirement of a 60 day consultation. But we know from bitter experience that such a requirement doesn’t stop USS from imposing cuts to benefits.

2.

The following FAQ claim is also clearly in error:

when UUK proposed delaying the cut in inflation protection for two years in March 2022, no-one questioned this (positive) precedent. Why then are we questioning a reasonable request from UCU members to return benefits that were taken away without good cause?

UUK tabled this to JNC in February 2022, not March. It was an element of the package of cuts to benefits that were pushed through JNC in late February. Like everything else in this package, this two-year delay was costed on the basis of the 31 March 2020 valuation. It was not costed on the basis of an updating of the valuation in the light of post-valuation experience. Hence, this is no precedent for making changes on the basis of an updating of the valuation.

3.

The second paragraph in the FAQ which I quote below is a word salad which is apparently intended to establish that USS provided assurance that they would restore benefits on the basis of an updating of the valuation if post-valuation experience was positive. USS has never made any such assurance. Proof: nobody will be able to provide any evidence that they have.

When USS Ltd makes cuts in benefits or increases in contributions, it tells members that the valuation is expected to be re-run in three years’ time, with interim changes possible were the cuts to be deemed unjustified. Before the current round of cuts, we were assured that were the Scheme position to improve, the changes could be reversed or moderated. That is why there is a rule permitting interim changes to the scheme by agreement. In other words, they argue that the changes are necessary due to financial constraints.

4.

Finally, the opening sentence of this FAQ constructs a strawman:

Does the Reverse USS cuts proposal set a precedent that can be used to force through detrimental changes?

Choosing not to reverse the April 2022 cuts would instead create a very dangerous precedent, implying that pensions would not be improved no matter how much scheme funding improved.

The proposal of the majority of negotiators does not involve a choice not to reverse these cuts. Rather, it involves a choice to reverse them by means that stand a realistic prospect of success — the 2023 valuation — rather than by the following means that stand little or no prospect of success: on the basis of an updating of the 2020 valuation.

If there were ever a group for which collective responsibility among its members made sense, it would have to be a group of union negotiators. But a minority of one of the five UCU negotiator on JNC and one of the two UCU alternates to JNC think otherwise. These two “UCU Left USS negotiators” have launched a public campaign in favour of a proposal to restore all pension benefits by the 1st of April 2023. This in spite of the fact that they have been unable to persuade any of the other five JNC members and alternative that their proposal is anything other than hopelessly unrealistic.

Branch UCU members are being asked to support a motion backing this proposal. If anyone asks you to support this motion, please ask them to explain how it will be possible to overcome the difficulties listed below in completing the 60-day member consultation in time. Please ask them to address the specific problems listed below rather than responding with vague generalities.

In order, as proposed, to restore the DB/DC salary threshold to c. £60k by the 1st of April, employers would be required by law to first complete a member consultation lasting at least 60 days. (The other elements of the proposed restoration — accrual rate and inflation protection — do not require member consultation.)

For this consultation to be other than a sham, some time would be needed to analyse and produce a report on the consultation responses, for the USS Board and JNC to consider. Let’s optimistically pretend that this could all be compressed into the last 7 days of March. On this optimistic assumption, the consultation would need to be launched no later than Monday the 23rd of January.

For such a launch to occur, the following would first need to happen:

The branch motion calls on HEC “to adopt the ‘Reverse USS’ proposal as the basis for negotiation” at its meeting on Thursday the 12th of January and to “push for its adoption by the USS JNC”. (This HEC meeting could not occur sooner, since it needs to receive a report on the feedback from the Branch Delegate’s Meeting scheduled for the 10th of January.)

The branch motion declares that:

there is a short time window before USS Joint Negotiating Committee (JNC) meets on 8 February 2023. This is a crucial meeting at which it would be possible to agree pension changes to take effect from the start of the new scheme year, 1 April 2023.

Unfortunately, by the 8th of February it will be mathematically impossible to complete the 60 day consultation before the 1st of April.

Rather, all of the following would need to be completed within the 11 days between the 12th and the 23rd of January:

JNC would need to agree during this period to restore benefits by the 1st of April.

In order, however, for JNC to be in a position to agree to this, the USS Board would first need to authorise new costings which reflect 2020 “post-valuation experience”. In the absence of such revised costings, the contributions required to fund such restoration would be exorbitant.

USS has made clear on numerous occasions that they would refuse to authorise costings on this basis (see, e.g, here, here, and here). It is especially clear that they would refuse to do so even before they have completed their “deep dive” analysis of funding conditions as at 31 December 2022. This will not be completed before February.

The board would need to be persuaded to reverse its position. Even if it could be persuaded to do so, it could and would not be persuaded to do so on the spot. The USS executive would, in consultation with the scheme actuary, need to prepare papers making the case for such a reversal of position. It is extremely unrealistic, both to think that the board would reverse its position and that it would do so swiftly.

Only after the Board has reversed its position would JNC members know how much it would cost to restore benefits and hence be in a position to come to a decision regarding the authorisation of this restoration.

At this point, the UUK members of JNC would reasonably insist on sufficient time to consult their members regarding the restoration of benefits at this cost, before they would be in a position to support this restoration and the accompanying required consultation at JNC.

Only then would USS be in a position to launch the consultation.

In order to do so, USS would need to do the following:

Provide all employers with more than 50 members with sufficient notice of the launch of the consultation. They have said in the past that they need to provide employers with several months’ notice of a 60-day member consultations.

The consultation material would need to be drafted and the wording approved. For members to be well informed, there should be a consultation modeller. For the last consultation, two months proved to be insufficient lead time to complete all this.

How is it anything other than a fantasy to think that all of the above would be completed within 11 days?

That is the question you should pose to anyone who asks for your support of this proposal. They will not answer this question, because they can’t.

See also the following earlier posts on the “Reverse USS!” proposal.

‘How the USS cuts cannot be reversed: A critique of the UCU Left negotiators’ proposal to restore benefits by 1 April 2023'

‘An Achilles Heel of the “Reverse USS!” FAQs’

These FAQs are a muddled mess, shot through with false or misleading claims. To offer one fairly egregious example, they assert the blatantly false claim that “Reduced benefits cannot be imposed on members intra-valuation.” I will not address all of its errors in this initial post in reply. Rather, here I will simply point out the most obvious respect in which these FAQs fail to show how it would be possible to implement their proposed restoration of benefits on such a tight timetable.

An Achilles heel of the FAQs is displayed in the following Q&A:

USS may put up obstructions which prevent quick changes. How do we force the Board to comply?

These changes are agreed by the JNC not the Board. USS is also very concerned about its public image and member confidence. This is why we need a broad public campaign, including USS members who may not be members of UCU. USS will be worried about bad publicity if it causes delays or puts up unnecessary obstacles.

This is conspicuous in its failure to acknowledge that the USS Trustee Board must agree to the costings or funding of any proposal to restore benefits. At present, the costings in force are the exorbitant costings of the 31 March 2020 valuation. For the restoration of benefits to be possible without a huge hike in contributions, the Board would need to agree to revise their costings. This fact is ignored in the following sentence in the FAQs:

Thirdly, benefits and contributions rates are decided by the Joint Negotiating Committee (JNC), not the Board or The Pensions Regulator.

Although it is true that JNC determines the rate of contributions that employers and members will pay, it lacks any authority to determine what level of pension benefit will be provided at that level of contributions. Rather, such costings of benefits must be approved by the Board.

The FAQs state that:

Our augmentation is proposed on the basis of what USS terms the ‘post-valuation experience.’ This is based on the entire period from the valuation to the current point in time, not simply a single monitoring dataset. The changes would be enacted at the end of the valuation period, i.e., by the time they are implemented in April 2023, we can rely on monitoring data from the bulk of the period for which the 2020 valuation applies.

It is not, however, within the power of JNC to update costings on the basis of such post-valuation experience. Rather, this power rests with USS’s Board. Moreover, USS has made clear on numerous occasions during the past few months (see, e.g, here, here, and here) that they will not agree to revise their costings on the basis of 2020 post-valuation experience. In so doing, they have made reference to broader trends and not merely single points in time. Rather, USS has made clear that revised costings will need to await the more thorough and comprehensive analysis of the 31 March 2023 valuation.

How do the FAQs propose to overcome USS’s much-repeated opposition to revising costings on the basis of post-2020-valuation experience? Here, all they say is the following, which is contained in the FAQ from which I quoted above:

USS is also very concerned about its public image and member confidence. This is why we need a broad public campaign, including USS members who may not be members of UCU. USS will be worried about bad publicity if it causes delays or puts up unnecessary obstacles.

USS is now undertaking a “deep dive analysis” of the 31 December 2022 monitoring updating of the 2020 valuation. The outcome of this analysis will not be available before the beginning of February. By that point, it would be a mathematical impossibility to complete all of the following that would be necessary fully to implement their proposal by the 1st of April: authorise, prepare, notify employers of, launch, complete, analyse, and implement the outcome of a 60-day member consultation on the increase in the DB/DC salary threshold.

Is the proposal therefore that a “broad public campaign” be launched which manages to convince USS, not only to drop their commitment to waiting for the outcome of the 2023 valuation and instead decide to issue new costings on the basis of post-2020-valuation experience, but also to base these costings on this experience even before they have completed their analysis of the most recent monitoring data?

One needs to descend into the realm of pure fantasy to think a “broad public campaign” among USS members could be launched in time to accomplish this. Public campaigns have been launched to correspond to various USS consultations in the past. They had broader support among the membership, and more time to build, than this proposal that is conspicuously lacking in the support of the well-informed majority of UCU negotiators over USS. These campaigns went nowhere. USS was unmoved. This in spite of the fact that they were far more well grounded in evidence and sound arguments than these FAQs. It is therefore naive to think a campaign to convice USS to restore all benefits within the next three months on the basis of post-2020-valuation experience, which would need to come to fruition by the middle of January*, would fare any better.

The FAQs begin by correctly noting that it might not be possible to restore benefits by means of a 2023 valuation. But they go off the rails in proposing that we should therefore try to restore benefits by the different means of an updating of the 2020 valuation which is definitely bound to fail.

[*See this further post for more on the absurdity of the proposal’s timetable for restoration: “The absurd timetable of the Reverse USS! proposal: The 11-day question which supporters of the proposal cannot and will not answer”.]