Active members: People who are currently paying into the scheme (or have contributions paid on their behalf) and are building up new benefits.
Assets: The cash and investments the scheme owns – like shares, property and government bonds – in order to pay benefits and expenses now and in the future. Assets can also mean the total value of our investments as a figure in pound sterling.
Covenant: The legal obligation and financial ability of employers to financially support the scheme now and in the future. When the scheme takes risk, it is relying on the covenant for support if (for example) investment returns are lower than we expected.
Deferred members: People who were members in the past and still have benefits due to them from USS but aren’t currently paying in to USS or building up new benefits.
Discount rate: A number that is applied to all the benefits that members have already been promised to calculate their present-day value. We work out this rate using a forecast of investment returns and a margin for prudence.
Dual discount rate (DDR): An approach to setting the Technical Provisions that uses one discount rate to value the benefits of pensioners and another for non-pensioners (both active members and deferred members).
Eligible members: People who qualify to be a member of USS.
Employers: The sponsoring employers of USS – the institutions whose employees or ex-employees are members (or prospective members) of USS.
Future service cost: An estimate of the contributions required to meet the ongoing cost of new benefits.
Liabilities: An estimate of the money that the scheme will have to pay out in benefits that members have built up so far. When talking about scheme funding, we express liabilities as the present value of the money we will have to pay out from the valuation date onwards.
Methodology: The way we process information to produce the valuation outcome. The information that the methodology processes is about members, employers, the Higher Education sector, global financial markets, and the global economy.
Prudence: An allowance for prudence increases the probability of the scheme having enough money to pay the pensions being promised. Prudence in the context of the proposed Technical Provisions is achieved by an adjustment to our best-estimate funding assumptions. We are required to choose individual assumptions, the prudence of which is consistent with the level of prudence appropriate for the Technical Provisions as a whole.
Recovery Plan: A plan to repair any funding shortfall (‘Technical Provisions deficit’) at the valuation date in a set amount of time through the payment of deficit recovery contributions (DRCs).
Risk appetite: Willingness to take risk in the way the pensions promised to members are funded, now and in the future, while continuing to comply with legal and regulatory obligations. This can be the willingness of employers, the trustee , or members.
Risk capacity: The financial ability of the employers as a group to withstand risks. This reflects the total amount of money that we could call on to respond to risks materialising, if we need to.
Schedule of Contributions: A schedule setting out the rates of contributions we need for the Recovery Plan (if applicable) in respect of the benefits promised up to the valuation date, plus the contributions we need to fund new benefits that will be promised after the valuation date. The schedule must also set out the dates by which the contributions should be paid.
Self-sufficiency: The assets and low-risk investment strategy that provide a 95% chance of paying all built up benefits without the need for additional contributions, while maintaining a high funding ratio.
Technical Provisions (TP): An estimate of the scheme ’s liabilities – i.e., the benefits promised up to the valuation date. The liabilities are calculated on a prudent basis, as is required by law. They are driven by the benefits members have already earned and the actuarial assumptions we make about what will happen in the future.
Valuation: An assessment of the scheme’s financial position. It is carried out by the trustee, who must take advice from the Scheme Actuary, an appointed independent specialist who reports to the USS Board, as required by law and under the Scheme Rules. A valuation is a budgeting exercise that establishes a plan for how, at the valuation date, the scheme will generate enough money to be able to pay the pensions that members are expecting, now and long into the future. The trustee must carry out formal valuations at least every three years.
Valuation date: The date we use to calculate the scheme’s Technical Provisions when we carry out a formal valuation. For the 2023 valuation, this is 31 March 2023.