If you are baffled and exasperated by the terminology or need a concise key to the dispute about your pension, read on.
Contribution rate: The proportion of your salary that goes into the pension scheme, coming from the employer and from you.
Deficit: Despite headline-grabbing ‘deficits’ in 2011, 2014, and 2017, USS is growing, making an annual surplus and currently has massive assets, £72bn of late August. The deficit is a hypothetical calculation based on assumptions that the USS executive has manipulated to its own ends. If the Joint Expert Panel recommendations were applied to the March 2018 valuation, the deficit would vanish.
Defined Benefit or DB: how most pensions used to be. You and your employer pay in during your working life, you know what proportion of your salary you will receive on retirement. These are mutual or collective schemes. There are currently still 10 million people in a DB scheme. The pensions industry and its regulator want to shift risk and costs of pensions onto individuals so they are keen to move people onto Defined Contribution schemes. Final Salary Defined Benefit schemes calculate your pension on your salary at retirement. Career Average Defined Benefit Scheme averages your salary over time to determine your pension.
Defined contribution or DC: how pensions increasingly are. You know how much you pay, you have no idea what your pension will be. You accumulate an individual pension pot of shares, which you receive on retirement. At retirement, you would have to buy an annuity, which would provide you with a regular income (so it is in the interest of the pensions industry to get people onto defined contribution pensions).
‘De-risking’: USS, the Department of Work and Pension and the Pensions Regulator are ideologically committed to ‘de-risking’: moving high yielding equities into government bonds or ‘gilts’, thus weakening performance of the scheme and in-creasing deficit, creating more pressure to move to a DC scheme or increase contributions.
Employer Covenant: The: a credit rating based on a subjective assessment of the employers’ commitment to the pension scheme. Because the USS is backed by multiple employers on a last-person-standing principle it has a uniquely strong employer covenant. The ‘deficit’ jumped from September to November 2017 after a consultation in which employers were asked what their ‘appetite for risk’ was by USS to which they replied that they did not like risk. Consequently, the pension’s regulator deemed the covenant to be ‘tending to strong’ rather than ‘strong’ pushing the ‘deficit’ up.
Joint Expert Panel: this body was established through agreement between the UCU and UUK during the pensions dispute of 2017-8, in order to look at the calculation of the ‘deficit’ (the 2017 valuation of the scheme) and the governance of the USS. It reported on the former in Sep 2018 and it is soon to report on USS governance. The USS executive has effectively ignored the findings of the first report.
Joint Negotiating Committee: The: the negotiating body between the UUK and UCU regarding the USS.
Option 3: Rather than challenging USS to implement the Joint Expert Panel’s recommendations, which, if applied to the March 2018 valuation, would have led to no increase in contributions, the employers opted for a stepped increase in contributions, starting at 9.6% of salary for employees and increasing to over 11% in 2021.
Pensions Regulator: the ‘independent’ watchdog for the pensions industry. But this is a government appointee fully committed to the liberalisation of pensions and has done next to nothing to protect those who have suffered from pensions injustice such as those at Carillion, BHS, British Steel and the Miners Pension Scheme. Bill Galvin, now CEO of USS, was formerly the Pensions Regulator.
Technical Provisions: The technical provisions liabilities must be calculated every valuation (every 3 years) and is a measure of the assets the scheme requires to pay off all its liabilities (i.e. members’ pensions). The estimate depends on life expectancy, inflation, and the ‘discount rate‘. The latter is a major source of contention, with the USS Executive having misrepresented the regulator about this rate.
Test 1: This calculates the assets the scheme will need in 20 years’ time if it is to be closed. The Joint Expert Panel, among others, have debunked Test 1. The Joint Expert Panel report noted that Test 1 drove investment strategy to-wards a low return on investment, higher deficits and greater contributions. Despite being discredited in the Joint Expert Panel, USS used Test 1 in its latest valuation.
USS Executive: The scheme managers who should administer the USS increasingly act in an entirely unaccountable manner. These are finance industry insiders. Bill Galvin, the CEO of USS, is the head of the executive board.
USS Board of Trustees: Because the USS is a mutual scheme set up through agreement between the employers and the union, the board allows for representation for both parties and independent experts. Jane Hutton was recently suspended from the USS Trustees after exposing the fact that the USS Executive had been systematically misrepresenting the position of the regulator on discount rates.
UUK: the university employers’ organisation.
Valuation, 2011: Supposedly designed to protect pensioners from the Robert Maxwell scenario, the pensions’ legislation imposed triennial valuations and has led to one defined benefit scheme closing after another. In 2011, the ‘deficit’ was £2.1bn. Our retirement age raised to 65 and was pegged to the state retirement age. Employee contributions increased from 6.35% to 7.5%. It introduced career average scheme for new entrants.
Valuation, 2014: £5.3bn deficit. From 2016, employee contributions increased to 8% and there was a £55,000 bar upon the final salary scheme, with contributions above this figure going into the Defined Contribution Scheme.
Valuation, 2017: a deficit of £7.5bn. The employers pro-posed a defined contribution scheme.
Valuation, 2020: the scheme is due another valuation ac-cording to the triennial approach