Reminder: What is the 2020 valuation?
All pension schemes are required by law to carry out regular valuations. A valuation provides a snapshot at a point in time, to show whether a scheme is expected to have enough money to pay the benefits that have already been promised to members. It also shows whether the combined member and employer contribution rate will be sufficient to fund the level of benefits currently provided to members.
The 2020 valuation of USS will be based on a snapshot of the scheme’s funding position on 31 March 2020, but the process itself will run well into 2021, as there’s a number of different steps to complete. By law, we must complete the valuation by 30 June 2021.
The next step
In September, we began a consultation with Universities UK (UUK), the nominated formal representative for over 340 of the USS employers.
The consultation, covers key aspects of the valuation, including the methodology and the assumptions that we’ll use to calculate the scheme’s ‘technical provisions’. This will, in turn determine the contributions needed to pay pensions and other benefits promised to members by employers in the UK’s Higher Education (HE) sector.
The window for employers to provide UUK with comments on the ‘technical provisions’ consultation closed at 5pm on Friday 30 October. UUK will then have until 11 November to provide us with a consolidated response.
That response will inform our view of the contributions we need to fund the current benefit structure and should help us identify how much financial support employers are collectively able to provide in the future to the scheme.
It’s important that we know how much financial support employers can provide because it will inform the decisions which we will take later in the valuation process, which will include working out the level of risk to apply to our investment strategy, setting our funding target and determining our deficit recovery plan.
In early December, we should be in a position to give you an update on the consultation response and our next steps, so keep an eye out for our next member email.
After the ‘technical provisions’ consultation
We’ll use the results of the ‘technical provisions’ consultation to calculate the cost of providing the benefits that our members are building up at the current level. We will then inform the Joint Negotiating Committee (JNC) of the contributions needed to fund the current benefit structure as early as we can in the process.
As Trustee, we are not involved in setting the benefits promised to our members or the structure of the scheme. Nor do we decide how any overall increase to contributions are split between our members and employers.
These decisions are the job of the JNC. The JNC is made up of an equal number of representatives from UUK and member representatives from the University and College Union (UCU). It also has an independent Chair.
The JNC decides how any increase to the overall contribution rate should be shared between members and employers and whether any changes should be made to benefits or the structure of the scheme.
A pension scheme for everyone
Defined benefit pension schemes, like the Retirement Income Builder, give members an income for life when they retire. This is a valuable benefit that’s becoming increasingly rare.
We want everyone who's eligible to join USS to be a part of the scheme, but we know that some people leave (or don’t even join) because of the cost of contributions.
But maintaining a scheme like ours is increasingly challenging. As well as the cost to our members, the cost to employers is significant, especially with current market conditions and the challenges facing the HE sector.
The cost of providing benefits is rising too because of factors like life expectancy, long-term low interest rates and the outlook for investments, generally, in the future.
In fact, the rising costs of providing defined benefit pensions has seen the number of private sector schemes in the UK reduce from 3,500 to less than 800 in the past 15 years.
We understand that everyone has different financial goals and priorities at different times in their lives. We also believe that education is the single biggest investment a society can make in its future, so at USS we’ll continue to work with Higher Education employers to build a secure financial future for our members and their families.