The valuation shows us our funding position. That means, it shows us how much money we have at a particular point in time, and how much we need in order to pay the pensions promised to our members.
If there’s a gap between what we have and what we need, we tell the Joint Negotiating Committee (JNC). The JNC is made up of an equal number of UUK and UCU representatives and an independent Chair. The JNC is responsible for deciding how any change in the overall contribution rate should be shared between members and employers and/or if any changes should be made to benefits.
We did our last valuation in difficult circumstances, with volatile financial markets and low interest rates showing us a challenging funding position. That’s why contributions from members and employers went up.
The valuation we’re doing now looks at our funding position as at 31 March 2020. At this point in time, due to the impact of COVID-19, financial markets were very depressed, and they look set to remain challenging as we move forward.
So, our valuation’s likely to show us that the outlook for investors means we probably won’t raise as much money in the future as we expected to. If this is the case, it will mean that the cost of paying the pensions promised to our members has gone up.
That’s why we’re working closely with our stakeholders, keeping them up to date on our progress and helping them to think about ways to address the challenges ahead – the hard but unavoidable truth is that defined benefit pensions are expensive and are likely to remain so in a post COVID-19 world.
What employers have told us about the valuation
As part of our conversations with stakeholders, we shared a discussion document with employers, so they could provide feedback on the proposed methodology for the 2020 valuation.
The feedback we got tells us that employers broadly support our proposed approach to the methodology. However, we’re still talking around these and other issues, including ways to strengthen the ‘covenant’ – the financial backing that employers give the scheme.
The covenant plays an important role in many areas, including setting the level of risk when we think about investment strategy, and working out the contributions we need from members and employers in order to pay the pensions promised.
The employers, along with other stakeholders, are playing an active and important role in the valuation and are working hard to support the process.
What happens next
The next milestone will be a formal consultation with UUK, who will represent employers’ views. We expect to start that consultation in early August. Once completed, the costs of both addressing our funding position and continuing to provide the level benefits that members build up now in USS will become clearer.
In the meantime, we’ll continue to keep you up to date with the latest information on the 2020 valuation on our website.