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Making pensions easy
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We want to make our investments easy to understand. Take a look through the explanations below to help you get to grips with the terms that come with it.
A
Absolute return
This is the amount an investment has earned or lost over a period of time.
Annualised return
This is the amount an investment has earned or lost on average each year, over a period of time.
Annuity
Purchasing an annuity with your defined contribution (DC) savings (like the Investment Builder) means you’ll buy a regular income for life when you retire. The rate received will depend on a number of things, like the amount of money in your DC pot, market conditions, your age and health, whether or not the income will increase once in payment, and whether a pension will be provided to your dependants when you die.
Assets
These are the different types of investments held within USS. Our assets may include company shares, UK government bonds, property, infrastructure and cash. Our assets, and earnings on those assets, are used to pay the benefits due to members.
Asset classes
An asset class is a grouping of investments that have similar characteristics and are subject to the same laws and regulations. Equities (stocks), fixed Income (bonds), cash and cash equivalents, real estate, commodities are examples of asset classes.
Active management
Active management is the buying and selling of investments with the intention of outperforming a specific investment market or benchmark.
B
Benchmark
Our investment benchmark (or the reference portfolio) is the hypothetical amount of returns our market assets (such as equities, credit and property) should achieve for us to meet the benefits members have earned – and still be within risk levels agreed to by the employers. The benchmark acts as a guideline for the level of risk our in-house investment team will target in its portfolio. It also shows how well an investment has performed. By investing in more diverse assets, our in-house investment team aim to deliver returns over the benchmark and still target the same (or a lower) level of risk.
Bonds
Bonds come in two types: corporate bonds (loans to companies) and government bonds (loans to a government). Investors typically receive a fixed return on their investment or ‘interest’ on their loan, except for index-linked bonds, which is linked to inflation.
C
Composite benchmark
This is a group of benchmarks put together to provide the overall benchmark of the fund. We use this approach as no standard market benchmark is a fair representation of the fund.
Corporate bonds
Corporate bonds, otherwise known as credit, are an important part of our assets. Corporate bonds invest in the debt of companies and provides a regular income stream.
Cumulative return
This is the total change in the price of an investment over a set period of time. It’s the total figure, not a yearly rate where the set period is longer than 12 months.
D
Defined contribution (DC)
A DC pension arrangement is a savings pot based on how much you (and sometimes your employer) put into it. The money in your pot is invested and the value of your pot can go up or down – it all depends on how your investments perform. Your savings can then be used in a variety of ways when you come to take them. The Investment Builder is a DC arrangement.
Watch our short video for some pensions basics, how they work and the benefits of saving for your future.
Direct private equity
These are investments in companies or assets with leading market positions, high-quality management teams and with stable cash flows. This includes core infrastructure, renewables and lower-risk private equity. For example, Heathrow Airport and MOTO service stations.
Do It For Me Option
An investment option for members with Investment Builder savings. If you choose this option (or don’t make a choice), we’ll manage your investments for you.
We invest your savings into a mix of funds. As you get closer to your Target Retirement Age, we gradually move your investments from funds with higher potential for growth but higher risk into funds that have less risk but less potential for growth. This aims to protect the value of your savings as you get close to taking them.
Watch our short video on investment choices and any decisions you need to make – such as whether you’d prefer us to manage your investments, or whether you want to make investment choices for yourself.
E
Environmental, social and governance (ESG)
Environmental, social and governance are non-financial factors that are considered when measuring the impact of an investment. Environmental criteria consider how a company performs as a steward of our natural environment. Social criteria examine how relationships are managed with employees, suppliers, customers and the wider community. Governance looks at a company’s leadership, board composition, and executive pay.
We integrate environmental, social and governance (ESG) considerations both before and after we invest. This is important in our direct investments as we expect to own them for many years – so we have the ability to directly influence board structure, strategy and remuneration.
Equities
Equities are shares in UK and overseas (Global) companies. Equities expect to generate higher rates of return in the longer term than bonds or cash but carry a higher investment risk because the value may rise and fall rapidly. Equities may be more suitable for those members who aren’t planning to retire for several years as there’s time to ride out the rises and falls of the stock market.
Equity fund
An equity fund is a fund that invests predominantly in shares and stocks of companies. The benefit of this is that you invest in numerous equities instead of just one.
F
Flexi-access drawdown
This is one of the flexible ways you can take your defined contribution (DC) savings (like your Investment Builder pot) from age 55 (rising to age 57 in 2028). With drawdown, you can take up to 25% of your pension savings tax-free upfront. The rest can remain invested and then be taken as income when it suits you. This income may vary depending on investment performance and it isn't guaranteed for life.
G
Government bonds
This is debt issued by governments typically in developed markets and are nominal or inflation-linked, but can be debt issued by emerging economies too.
I
Illiquid
Illiquid refers to assets that cannot be easily sold, for example on the stock market. Land is an example of an illiquid asset.
Investment Builder
If you earn above the salary threshold, have made additional contributions, or transferred in from another pension arrangement since October 2016, you’ll have an Investment Builder pot – the defined contribution (DC) part of USS.
Here we invest savings from you and your employer based on your investment choices (or into our default option if you don’t make a choice). These savings, plus any investment returns, build up in your pot. Then, from when you reach age 55*, you can choose when, and how, you want to use these savings.
Watch our short video on An Overview of USS and how the two parts work side by side.
*The government has announced they’ll raise this to age 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.
L
Let Me Do It Option
An investment option for members with Investment Builder savings. This option puts you in control of all your investment decisions, so you’re in charge of keeping track of how your funds are doing.
There are 10 funds for you to choose from and you can invest in one or more of them. They range from lower risk funds with possible lower returns, to higher risk funds, with potential higher returns.
Watch our short video on investment choices and any decisions you need to make – such as whether you’d prefer us to manage your investments, or whether you want to make investment choices for yourself.
Liquidity
Liquidity refers to deposits and short-term loans and can be used to protect the value of your money when other assets, such as equities or bonds, are behaving in an unpredictable way. However, liquidity typically provides lower rates of return in the long term and there is still a risk that liquidity investments can go down in value from time to time, particularly after allowing for the effects of inflation.
M
Market comparator
The defined contribution (DC) Growth and Ethical Growth funds aim to produce a positive return in the long-term and we vary the asset allocation accordingly to meet this long-term objective.
To help explain what these returns may look like in the long-term, the objectives for the return on investments have been translated into a simpler portfolio benchmark (using equities and bonds).
Market volatility
Volatility is the frequency and size of movements in the investment price, up or down.
Multi-asset funds
We offer diversified multi-asset funds that you can invest your Investment Builder savings in. These are the USS Cautious Growth Fund, the USS Moderate Growth Fund and the USS Growth Fund. The Ethical Growth funds are also multi-asset and available for the USS Ethical Lifestyle Option. They combine a number of different asset classes such as shares, bonds and cash together into a single fund.
P
Passive management
Passive investment management (sometimes known as index-tracking) is the process of buying and selling investments with the intention of matching the returns of a benchmark or index.
A passive manager is attempting to match the index and so will hold almost all the different shares or bonds/gilts making up the index. This means passive investments should closely follow the market index returns whether the index goes up or down.
Passive funds usually have lower investment charges than active funds and can be less volatile relative to benchmarks or average return for the relevant market.
Property investments
We make investments with long-term goals in mind and property is a perfect example of this, due to its stable returns.
We invest in supermarkets, nurseries, hotels, industrial estates, residential property, offices, petrol stations and more. It’s important that we add value to our properties where we can, by closely managing them – we do this by refurbishing, redeveloping or re-letting them.
Private credit
Private credit specialises in providing finance across a variety of strategies including infrastructure and long-duration real estate lending, structured credit and private asset-backed securities. We work in partnership with counterparties to provide tailored and innovative financing solutions.
Our typical deal types include infrastructure lending, fund financing, structured credit, long lease and ground rents, specialist mortgage, and strategies where the investment outcome is typically uncorrelated to other asset classes and therefore a good source of diversification.
We look to invest globally, but with a particular focus on the UK, Europe, Australia and the US.
Private markets
These are privately held assets that are bought and managed for a long period of time. They aren’t bought and sold on the public market or stock exchange, so the price is expected to remain more stable over time.
Examples of these investments include property, infrastructure, such as toll roads and airports or funding private companies.
Public markets
These are investments which are traded publicly on exchanges or other recognised marketplaces. The types of investments this includes are bonds and equities.
R
Relative return
This is the amount an investment has earned or lost over a period of time, compared to its benchmark.
Return
The return is the amount of money earned or lost on an investment.
Risk
Risk is the possibility that investment objectives won’t be achieved. For example, that expected investment returns do not materialise.
S
Subsidy
This is the admin and investment management costs that employers have made a commitment to cover for the foreseeable future.
Members who transfer other pension savings into USS don’t benefit from the subsidy on that transfer and will pay the full investment charge. The subsidy does apply to any additional contributions or contributions based on your salary above the salary threshold. View A guide to investing in the Investment Builder for more information on fees.
T
Target Retirement Age (TRA)
This is the age you plan to start taking your Investment Builder savings. Your TRA only applies to any savings you have in the Investment Builder. It doesn’t have to be the same age that you start taking your Retirement Income Builder benefits and you can set or change it whenever you want to in My USS. Find out more in our pensions glossary.
U
USS Default Lifestyle Option
This is one of the two lifestyle options available within the Do It For Me investment option. It’s designed to allow members to leave some or all of their Investment Builder savings invested to be taken at a later date, whilst also being appropriate for those who take it as tax-free cash (up to a HMRC limit). If you don’t make a choice, your savings will be automatically invested here.
USS Ethical Lifestyle Option
This is the other lifestyle option available in the Do It For Me investment option. This option invests in funds that meet our ethical investment guidelines, there’s more information in the ethical guidelines we follow in My USS. You can choose for your savings to be invested in this option in My USS.