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25 July 2022

USS publishes 2021/22 Report and Accounts

  • £90.8bn – total value of assets under management
  • 7.8% – average per annum investment return for the defined benefit fund, over five years
  • £101m – how much lower the scheme’s annual investment management costs were than its peers
  • £1.5bn – estimated Technical Provisions deficit as at 31 March 2022
  • 92% – proportion of employers who rate their relationship with USS as good/very good

Universities Superannuation Scheme has published its annual Report and Accounts, covering the financial year to 31 March 2022.

At 31 March 2022, total assets under management were £90.8bn (2021: £82.2bn). Its defined benefit (DB) fund stood at £88.9bn (2021: £80.6bn), while its defined contribution (DC) assets totalled £1.9bn (2021: £1.6bn).

The scheme’s estimated DB funding deficit stood at £1.5bn on a Technical Provisions basis, based on monitoring1 of key financial measures since the 2020 valuation. The funding ratio on the same basis was 98%.

USS’s membership grew by almost 25,000 to 500,584 (212,306 active, 207,201 deferred, 81,077 retired).

All members of USS are part of the scheme’s DB section. USS members account for over a fifth of the fewer than one million people in the UK who are still actively paying into private DB schemes2. USS is in the 11% of the remaining DB schemes that are open to new members.

Due to its innovative hybrid structure, around 97,000 members had supplementary DC savings with the scheme at the end of March 2022. USS was one of the first pension schemes in the country to introduce private market assets to its DC funds – and an employer subsidy means members pay no management fees.

The scheme’s DC funds have broadly kept pace with their respective benchmarks since their inception in 2016.

In the year, a 9.55% return on the scheme’s DB assets was 2% above benchmark. USS Investment Management (USSIM) outperformed the scheme’s five-year benchmark by 0.6%p.a., which added £2.3bn of value to the scheme’s assets (net of costs) over the five-year period – helping deliver DB fund returns of 7.8% p.a. or the equivalent of £27.5bn in that time.

By managing the majority of its investments in-house, USS saves money compared to the expense of external management. According to the latest independent analysis, the scheme’s annual investment management costs were the equivalent of £101 million lower than its global peer median3. This is a long-term trend; over the last five annual independent benchmarking reports, USS has been assessed as being 24% less expensive – equivalent to £384m cheaper over that period.

A new ‘value for money’ supplement provides more analysis on the cost of running the scheme.

Other key information published alongside the Report and Accounts includes our latest Taskforce for Climate-related Financial Disclosures (TCFD) report – which demonstrates the progress made by USS in its ambitions to ensure the scheme is as resilient as possible to the effects of climate change. This is our first mandatory TCFD report – having reported voluntarily in 2018 – and we are among the first schemes to publish (the deadline for submission is October 2022).

Notable developments

  • In May 2021, USS stated its ambition to be ‘Net Zero’ for carbon by 2050, if not before.
  • In January 2022, USSIM announced a climate ‘tilt’ to a £5.6bn portion of its equity investments – expected to reduce Scope 1, 2 and 3 emissions of this portfolio by at least 30% from day one (compared to the broad equity market) and which will deliver further reductions in its carbon intensity of 7% each year thereafter.
  • In February, it established targets to cut the emissions generated by companies in its investment portfolio by 25% by 2025 and by 50% by 2030 (relative to a 2019 baseline). It also introduced a £500m sustainable growth mandate that will be invested globally in high growth, privately owned businesses that are developing technologies and services that will help companies and the broader economy to decarbonise.
  • Also in February, in response to the rising cost of funding DB pensions identified in the 2020 valuation, the Joint Negotiating Committee decided to introduce changes to the benefits offered by the scheme in future. The changes came into effect on 1 April 20224 and included: lowering the amount of salary on which DB is accrued (from c.£60,000 to £40,000); changing the DB accrual rate from 1/75 of eligible salary to 1/85; and, adjusting the cap on annual inflation-linked DB increases to 2.5% (for accrual from 1 April 2022, effective from 1 April 2026 onwards).
  • In March, following the invasion of Ukraine and having already significantly reduced its Russian investments, USSIM placed a moratorium on new long positions taken in all Russian assets.

Bill Galvin, USS Group Chief Executive, said: “The scheme is in a significantly better position in many different ways at the end of 2021/2022. While market conditions have been volatile, strong investment returns outpaced the growth in liabilities and the funding position has improved. Our operating model continues to ensure we manage our assets at a materially lower cost than our peers while delivering very good performance. We have also made significant advances in our response to climate change, and to the service levels to our membership – improving our members’ digital offering, for example, and offering free guidance calls to members over 50. We understand that, for members, all of this is set against a background of higher contributions and reductions to benefits. While their (and employers’) feedback on our service to them has consistently been very positive, the challenges and changes arising from the 2020 valuation have impacted their overall satisfaction. We completely understand these sentiments and are committed to working together with our stakeholders to deliver the best possible outcomes as we look forward to planning the scheme’s future against a less difficult backdrop than in the recent past.”

Dame Kate Barker, Chair of the USS Board, said: “Over the past year, we have wrestled with significant issues and difficult decisions, but the benefit changes introduced this year – as unwelcome as they were – have put the scheme on an affordable and more stable footing. For the first time in some years, recent data indicate we could be on track to achieving a more robust funding position and our hope is that conditions improve over time, sufficient to allow more positive discussions in future. As we turn the page on a difficult chapter in the scheme’s history and look ahead, we continue to focus on the ways USS can evolve and maintain its position as one of the best private pension offerings in the country. We are committed to working with UUK and UCU as they consider some important programmes of work: exploring lower cost options, considering different benefit structures (such as conditional indexation), and reviewing the scheme’s governance arrangements. These are important initiatives to improve the resilience of the scheme and support a wider range of the academic community we serve.”

1 The monitoring basis reflects conditions between valuations on a pre-agreed methodology with limited judgement being applied. It is only indicative and is not a prediction of the likely outcome of a full actuarial valuation at any particular date.
2 According to the Pension Protection Fund

3 According to the latest independent analysis by CEM Benchmarking; investment management costs (as a proportion of assets under management) of schemes of a similar size and complexity to USS, covering calendar year 2020
4 Benefits earned before 1 April 2022 are unchanged