UUK’s incandescent February statement regarding the contribution holiday
[UPDATE 28 August 2018: Click here for more on the ‘contribution holiday’.]
In February, Tom Pike, Vice President of Imperial’s UCU circulated an open letter to his Provost and Head of Finance, which included the following:
Older staff also question the validity of your claim to UUK that 18% represents the very limit of pension affordability to College. Imperial paid in 18.55% to USS alongside all the other employers in USS for nearly 14 years between 1983 and 1997, at a time when surpluses were a much smaller percentage of income. In fact the reduction to a 14% employer contribution level in 1997 with the benefit of hindsight can be seen as the source of the current technical deficit — if employers had maintained an 18.55% contribution there would be another £7 bn in the fund, based on the known subsequent net levels of USS investment return. I’m afraid your claim that College has increased their share of pension payments “by nearly 30%” is risible, given that such an increase does not even represent a return to the level prior to 1997. Even that 18% is not quite what is claimed, as 2.1% is for belated past deficit reduction payments rather than contributions for new pensions.
Imperial sought a reply from Universities UK, and this is the incandescent response they received:
It is quite extraordinary to see the publication of comments that suggest that employers have in the past taken a ‘contribution holiday’, and that this is a factor in the development of the scheme deficit. These comments are entirely misinformed, and Universities UK believes it is irresponsible to put such information in the public domain at a time when proposed changes to USS are being proposed.
The USS employer contribution rate of 18.55% payable for over a decade during the 1980s and 1990s was a special rate which not only met the cost of the future benefits then accruing, but also met the shortfall in funding terms relating to the way that rights in USS’s predecessor scheme, known as FSSU, were counted in USS. In effect, before the days of scheme deficits in the form introduced by the Pensions Act 2004, the employer contribution rate reflected catch-up contributions to make-good the funding for those rights which had been transferred to USS when it was created. So, contrary to a specific point mentioned in the recent article, the 18.55% did include provision for the funding of earlier pension rights.
However the greatest irony, and the area of most startling error, is that far from taking a contribution holiday — which employers could reasonably have done — in the late 1990s, employers chose instead to utilise the then scheme surplus to further strengthen the assumptions underpinning the scheme, bolstering the security of members’ rights. Despite many employers in private sector DB schemes taking contribution holidays at that time, USS employers carried on paying a substantial contribution of 14% of salaries — given that back-payments for earlier rights had now been funded — rather than take a contribution holiday, which can only have improved the funding position today compared to what it would otherwise have been.
We hope this puts the record straight, and once again, we regret that such misinformation has been posted in the public domain.