Employers 

This section explains the eligibility criteria for institution participation in USS and which employers already participate in the scheme. USS is a centralised final salary scheme, open to employers in the Higher Education (HE) sector only.

USS welcomes new employers into the scheme, new members being the life-blood of any final salary pension scheme. UK Universities and University Colleges are eligible to join as are other employers, although it’s not quite as straightforward for non-university employers.

It is our duty to make clear to you the financial obligation of participating in USS.

Importantly, each employer funds the scheme on a mutual basis. USS has a responsibility to ensure that any employers accepted into the scheme do not have a negative impact on the funding of the scheme.

The great advantage to employers of participating in USS is the shared costs and ease of administration. An employer wishing to establish and run a final salary pension scheme in the UK faces a very heavy financial commitment, both in terms of establishing the scheme, administration and, very importantly, funding the benefits promised.

This commitment to funding the benefits promised must not be entered into lightly. If you are accepted as a participating employer you are then responsible for fully funding the benefits promised for all members (current and former) who are or have been employed by you. This is exactly the same as though you had established your own final salary arrangement; employers cannot come in and out of the scheme and walk away from their commitment to secure the benefits promised.

The funding of the scheme is reviewed at least every three years and the employer contribution is determined after each valuation.  The rate varies over time depending on the funding position of the scheme. Here is a history of employer contribution rates to date:

Employer debt regulations

In September 2005 the government introduced legislation that an employer may not withdraw from a multi-employer scheme without funding (to a specified level) its share of any pension liability in the scheme.

The funding level specified is the amount required to buy-out the liabilities with an insurance company, and is commonly known as the ‘buy-out debt’ or ‘section 75 debt’.

The buy-out debt is a more onerous funding requirement than the scheme’s own cautious assumptions and the sums involved can be very substantial indeed.

How the employer debt regulations are activated

A buy-out debt will fall due to the scheme when one of the following events occur (referred to as ‘cessation events’):

• An institution’s last remaining active member of the scheme ceases to be active for any reason.
• An institution’s identity changes and its assets and undertakings transfer to a new organisation or entity.
• A merger or amalgamation takes place between institutions and one is absorbed by an other, or where two institutions become a single new institution.
• An institution withdraws from the scheme, as it no longer wishes to participate in USS (which would cause all of its members to cease to be active members of the scheme).

The above is not an exhaustive list. The debt due to the scheme is calculated as at the cessation date and unless the scheme is fully funded on a buy-out basis there will be a sum of money due to the scheme from the institution.

Where an institution is aware that it is likely to trigger a cessation event in the near future, USS can provide provisional calculations to give an indication of what the debt might be.

Approved Withdrawal Arrangements (AWAs)

It is possible to enter into an AWA with the agreement of the trustee company and the Pensions Regulator to modify the amount of the debt which is payable immediately on the occurrence of the cessation event.

Where an AWA is established, the remaining debt (to the buy-out level) is deferred until such time that the Regulator or the trustee company requires it to be paid, or the scheme commences wind-up.  This is usually a more acceptable solution in many cases and USS will liase with you if this ever affects you.

How much will the debt be?

It is almost impossible to give a realistic figure until a cessation event.  The scheme will carry out a valuation of the benefits promised for members and former members at the date of exit, or the date on which the employer ceased to have any employees.

This valuation of the benefits is then compared with the funding position of the scheme. If the scheme is in deficit the employer must make good this deficit as a lump sum payment to USS.

Under current regulations this would apply even if there were simply a gap between the last eligible employee leaving and a new eligible employee being recruited, although there can be a period of grace of up to 12 months whilst a new eligible employee is recruited. 

This can obviously be a very large payment in certain circumstances and each prospective employer should consider very carefully whether it is willing to accept this level of potential liability.

Guarantees

In light of these new regulations and the continued commitment of USS to protect members’ interests, it is a requirement of participation for non-university institutions that a guarantee is provided.

In many cases this can be obtained from a host institution/s as many new companies wishing to participate are associated with a University, although each case will be considered on the security of the guarantee.

However, with many applications no such association exists and in these cases a bank/alternative guarantee must be provided before a new employer can be accepted as a USS institution.

Our experience to date has shown that a bank guarantee may not be feasible as the amount being guaranteed is not set; the value can vary widely over time and under different market conditions and membership movements.

USS is willing to consider other guarantees, possibly from other non-university bodies and each case will be considered on its merits having a view to the financial strength of both the employer wishing to participate and the guarantee being provided.

These guarantees can be difficult to meet, especially where no suitable host institution exists to provide a secure guarantee. Regrettably, if no suitable guarantee is available applications will be rejected and employers will need to make other arrangements.

• Participation FAQs