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25 July 2018

A year of contrasts for USS

  • Total scheme membership: 418,964 (active: 198,652; pensioner: 69,193; deferred: 151,119); 74,093 active DC members.
  • Funding position: on a monitoring basis (2014 valuation assumptions), the funding deficit has reduced from £12.6bn to £12.1bn (84% funded).
  • DB fund grew by £3.6bn to £63.6bn in 17/18; £25bn in five years to 31 March 2018; DC funds grew by £0.3bn to £0.8bn in 17/18.
  • DB fund outperformed gilts by £5.6bn (five years to 31 March 2018; net of costs; long-dated index-linked).
  • Both one-year and five-year investment benchmarks outperformed (1yr: 1.44%; 5yr: 0.78%).
  • Underlying wages increased by £2.1m due in part to investment in internal investment capabilities which helped reduce overall investment costs (as a proportion of AuM) to 31bps* – 16bps lower than 2013/4 (47bps).
  • Active investment management added £1.7bn of value (net of costs) over five-year period compared to passive benchmark, directly contributing to lower scheme costs for employers and members.
  • CEM global peer benchmarking: investment costs £61m lower (2016); returns 2.6% higher (five years to 31 December 2016, annualised).

*One basis point is equal to 0.01%

Universities Superannuation Scheme (USS) outperformed it strategic investment benchmarks in the last financial year, according to its annual report published today.

The assets of the DB section of the scheme (the Retirement Income Builder) grew by £3.6bn to £63.6bn in 17/18, taking its growth in the five years to 31 March 2018 to £25bn.

The assets of the DC section of the scheme (the Investment Builder) grew by £0.3bn to £0.8bn, with only one of its 14 funds – the UK Equity Fund – underperforming against benchmark since launch in September 2016.

USS’s active management of DB assets (with 76.5% now managed internally – 2017: 73%; 2016: 69%) bettered its strategic one-year and five-year benchmarks (by 1.44% and 0.78% respectively), adding £1.7bn of value to the fund (net of costs) over the latter period.

According to the very latest independent CEM benchmarking report, USS’s investment costs were £61m lower in 2016 than its global peer group average, while its five-year returns were 2.6% higher (to 31 December 2016, annualised).

Its funding position has improved marginally on a monitoring basis (£12.1bn deficit / 84% funded – based on 2014’s valuation). The ongoing 2017 valuation has reported a £7.5bn deficit (89% funded).

Bill Galvin, USS Group Chief Executive, said: “The strategic investments we’ve made in increasing our direct management of investments, and in making our services simpler and easier for members and employers, have been very successful.

“They have enabled us to achieve strong investment returns at much lower costs than our peers, and feedback from members and employers on their experiences with us has been positive. We are now in a very strong position to build on these results in future.

“Absolute returns were markedly lower this year than last and are more aligned to our expected long term returns from markets. This outlook is a key feature of the latest scheme valuation – which has been the subject of significant discourse and debate, and which remains outstanding.

“The trustee company is very much aware of the challenges stemming from the very difficult questions our stakeholders have been posed as a result of the recent scheme valuation, but the longer they are left unaddressed the greater the potential funding challenge could be for future generations of scheme members and our sponsoring employers.

“The path to completing the 2017 valuation – required by law – is set out in the scheme rules shaped by our stakeholders. This requires that the increased costs of future pensions are shared between employers and members.

“We fully appreciate the impact that the cost sharing proposal will have and are hopeful that their representatives can agree a way forward as soon as possible.

“To that end, we have engaged constructively and openly with UCU and UUK’s Joint Expert Panel and await its report on the valuation later this year.”