The Trustee of USS has today launched a consultation with Universities UK (UUK) on key aspects of the pension scheme’s 2020 valuation.
USS is the UK’s largest private pension fund, and one of only a small number of defined benefit (DB) pension schemes still open to accrual in the UK outside the government sector.
The trustee company’s consultation covers the proposed methodology and assumptions to be used in setting the scheme’s ‘technical provisions’. This will, in turn, determine the contributions required to fund the benefits promised to its members by employers in the UK’s Higher Education (HE) sector.
The consultation document, and supporting papers, are available on the USS website.
The trustee company’s primary legal duty is to ensure it can pay the benefits members have been promised by their employers. The consultation covers a wide range of potential outcomes, reflecting issues still to be resolved on employer support to the pension scheme, and uncertainties for the higher education sector and financial markets. The responses from employers on appetite and ability to support investment risk taking in the scheme will be critical to the overall outcome.
Based on the proposals put forward for the consultation and depending on the extent to which employers are able and committed to supporting the scheme, the fund’s deficit at 31 March 2020 could range from £9.8bn to £17.9bn.
Similarly, the illustrative cost of continuing to offer the current benefits (the ‘future service cost’) ranges from 29.4% to 37.6% of payroll. When the cost of repairing the deficit is considered, the total contributions required could range from 40.8% to 67.9% of payroll. However, these potential contribution ranges have only been illustrated to support the consultation on the technical provisions. They will be subject to separate consultations later in the valuation process.
Bill Galvin, USS’s Group Chief Executive, said:
“Employers promise our members retirement benefits regardless of what happens to the economy in the future. These promises are highly valued by our members, and our responsibility is to ensure that a USS pension remains a valued promise of security in retirement.
“The hard reality is that persistent low interest rates and greater uncertainty of future investment returns have created an environment where such promises have become increasingly expensive. With the Higher Education sector already facing considerable challenges, we are acutely aware of just how unwelcome the prospect of paying more for pensions will be.
“We fully recognise that the contribution rates we’ve illustrated are unlikely to be considered affordable or sustainable by either employers or our members. We are committed to working with our stakeholders, UUK and UCU, as they consider how to respond to these challenges, and to working with stakeholders to ensure USS is a sustainable scheme.”
Employers will have until 30 October 2020 to provide UUK with their feedback on the consultation. UUK will then have until 11 November to provide USS with a consolidated response.
Thereafter, the Trustee will finalise its view of the contributions needed to fund the current benefits structure, having regard to the outcome of the consultation and any progress on the covenant support measures more generally.
UUK and University and College Union representatives on the Joint Negotiating Committee (JNC) will then determine how any change in the overall contribution rate will be met and shared between employers and members. If no decision is reached by the JNC, the scheme’s cost-sharing provisions will come into play.
By law, the USS Trustee has until 30 June 2021 to file the 2020 valuation with the Pensions Regulator.