How do we know if our pensions are performing well?


Measuring performance is complex

When measuring performance against fixed reference points, determining whether something has performed well is relatively easy. For example, if a train arrives at a station ahead of schedule, or if an athlete beats their personal best time, it would be widely accepted that they had put in a good performance.

In these instances the target is known, but in some circumstances the target fluctuates, so deciding what can be considered a good result becomes a little trickier. For instance, student’s exam results aren’t always directly comparable to those who have taken an exam in the same subject the previous year. The level of performance that may have been worth an A grade in one year may only be equivalent to a B in the next. In these instances, performance is often determined on a relative basis. And this is the case when it comes to measuring the performance of investments.

Measuring the performance of your pension

Therefore, measuring the performance of your pension isn’t quite as black and white as judging the success of an athlete running a personal best time. This is because the performance of any portfolio is dependent on the performance of the financial markets. And with fluctuations in financial markets, what may have been a good performance in 2016, might not be considered a good performance in 2017 (or vice versa).

So, to measure the performance of our USS Retirement Income Builder investment portfolio, we use two benchmarks to indicate whether return on investment can be considered successful for any given timeframe. First, we use a strategic allocation benchmark. This 'reference portfolio’ is made-up of common assets used in both passive and active funds, such as equities (stocks & shares), UK property and Government bonds. The strategic allocation benchmark is expected to provide the investment returns required by the scheme, within the risk parameters agreed by sponsoring employers.

The second benchmark is a 'liability proxy' made up entirely of low-risk Government bonds (or gilts). By comparing the USS Retirement Income Builder investment portfolio to these two benchmarks, we can objectively assess how well it’s performing. It also allows us to set a target for the investment managers to achieve over the long term (for which we use a rolling five-year target). This is why we challenge our in-house team to outperform the 'reference portfolio' by actively managing the scheme's investments and diversifying the portfolio across public and private markets - a little like us creating a 'par' score that changes according to playing conditions in golf.

To help ensure USS can fulfil the benefits promised, the USS Retirement Income Builder funds are invested by USS on behalf of members. Our in-house team manages our investments, continually assessing a host of factors and monitoring the financial markets in the process. Remember, the benefits you accrue in the USS Retirement Income Builder are not dependent on how well the investments of the assets perform.

Measuring the USS Investment Builder (defined contribution) performance is simpler, each fund has one benchmark which is comprised of one or multiple market indicies, for example the FTSE100 index. We publish factsheets each quarter which show members how well the funds have done relative to these benchmarks. Individual fund factsheets are available in My USS.

Our investment performance to date

The good news is that both sections of the scheme have done very well relative to their benchmarks. The USS Retirement Income Builder investment portfolio has outperformed the scheme’s strategic allocation benchmark over all multi-year periods (illustrated in the chart below) and all funds in the USS Investment Builder to 29 September have beaten their benchmark. Find out more about the USS Investment Builder performance in our infographic – 12 months of the USS Investment Builder: the facts

chart Graph

Only during the global financial crisis did the scheme’s assets underperform the gilts liability proxy. Due to the constant fluctuations in the financial markets, we look at performance based on rolling five-year periods, rather than focusing on individual years. This gives a better indication of how well the USS Retirement Income Builder assets are performing for the long-term.

In the five years leading up to 31 March 2017, the USS Retirement Income Builder investment portfolio generated an average return of over 12% per annum. This added an extra £1.1 billion above the strategic allocation benchmark, after investment-related costs. During the five years to 31 July 2017, the scheme’s defined benefits assets have generated c.£10 billion more in returns than the gilts liability proxy.

Want to find out more about our historical investment performance? Take a look at our article by USS CIO, Roger Gray: Investment challenges: the facts.

Keeping track of performance

USS is committed to keeping members informed about the scheme’s investment performance and providing ways for members to keep track of things personally.

For members with USS Investment Builder savings, or thinking about making additional contributions (including the match), My USS allows you to keep track of the performance of your investment choices – including both the lifestyle options (the USS Default Lifestyle Option or the USS Ethical Lifestyle Option) and the 10 investment funds available with the Let Me Do It option. Simply and download the fund factsheets from the Investment Options page to learn more.

To help you understand how the USS Investment Builder works – no matter if you already have savings in this section of the scheme – another of this month’s articles, ‘What did investment performance in year one add up to?’ provides a member example from the first year of operation, showing you the value of a typical member’s savings 12 months on from the launch of the USS Investment Builder.

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To find out more about our investment performance to date, take a look at our further reading options:

Important note: This publication is for general guidance only. It is not a legal document and does not explain all situations or eventualities. USS is governed by a trust deed and rules and if there is any difference between this publication and the trust deed and rules the latter shall prevail. Members are advised to check with their employer contact for the latest information regarding the scheme, and any changes that may have occurred to its rules and benefits. Any references to the trustee or USSL in this document means Universities Superannuation Scheme Limited, the trustee company of Universities Superannuation Scheme and any references to the scheme or USS means Universities Superannuation Scheme. As you review this information, please keep in mind that past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and the return on your investments is not guaranteed.

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