The 35:65 sharing of contribution increases is biased against members

UUK’s 9.1% proposal would more than remedy this

When the cost of providing DB benefits rises and JNC is unable to come to a decision in response, USS’s Rule 76 backstop kicks in. According to this rule, DB benefits remain unchanged in the event of such JNC deadlock, and the increase in their cost is shared 35% member, 65% employer.

In practice, such a 35:65 split is biased against members. Its application increases their share of the total contribution paid. This is because the split has arisen against a baseline of a 30.8%:69.2% member:employer split. See this chart of how the application of the split increases the member’s share of the total.

April 2019 constitutes the first and only application of the Rule 76 backstop. We can see that it gave rise to an increase in the member’s share of the total. It should be emphasised that the scheduled further increases in October 2019 and October 2021 are not applications of the Rule 76 backstop, which kicks in only when the JNC is unable to come to a decision. Rather, they are the result of the active choice of UUK employers to apply a 35:65 split to the increases that arise under their preferred Option 3 of the 2018 valuation, and their success in persuading the independent JNC chair to side with them with his casting vote.

UUK did not need to apply such a 35:65 split to the impending October increase. Such as split was not, for example, called for by any previous agreement between employer and union. UUK were free to propose a different split. In fact they did so. Their alternative proposal is shown on the bottom row of the above table. The 9.1% member contribution rate was chosen so as to match the Joint Expert Panel’s (JEP) proposed member rate.

We can see from the table that, beyond matching JEP’s proposed member rate, UUK’s proposal has the following further merit: it more than wipes out the upward bias in the member’s share of the total to which the 35:65 formula gives rise. We can also see from the table that a 30:70 split would be preferable to the current formula, since its application would not introduce any significant bias in either the direction of employers or members, when measured against the union’s ‘no detriment’ baseline of the 2016 contribution rates that arose from the 2014 valuation.