Investing for a purpose: the Retirement Income Builder

All members of USS are building up a guaranteed income for life in retirement in the defined benefit (DB) part of USS, which is why it is named the Retirement Income Builder.

As trustee, we have a legal duty for this part of USS to invest in the best financial interests of members and beneficiaries, so that we can pay pensions long into the future.

This shapes how we invest. Given our members’ pensions are guaranteed, we have to be sure the scheme will have enough money to meet its liabilities (the amount we need to pay the pensions promised to members now and in the future).

Our intention is, therefore, to achieve the returns USS needs to safeguard members’ promised pensions long into the future – not by targeting absolute returns above all else but by, over time, outperforming the scheme’s liabilities.

Seeking greater investment returns can support the affordability and stability of the benefits offered by the scheme and the contributions required of members and sponsoring employers to fund them.

However, the value of growth assets like stocks and shares can fluctuate out of sync with the scheme’s liabilities, which can drive volatility in the funding position in the short-term.

This could result in the need for higher contribution rates and/or changes to the benefits offered in future. We want to avoid this where we can.

In addition, our sponsoring employers in the Higher Education sector effectively underwrite the pensions being promised to members, so we need to make sure we are not taking more investment risk than they can support.

All of this means we have to strike the right balance between taking investment risk and making a return.

With our liabilities spanning multiple decades, we don’t just look to make a quick return in a week, month or even a year. We invest for the next 10, 20 or even 30 years.

And with no crystal ball to tell us what might happen in that time, we need a balanced and diversified portfolio that is resilient in all weathers – just like someone walking from Land’s End to John o’Groats will have to plan differently to someone running in a 10k.

We are able to withstand considerable economic and geo-political shocks because our balanced portfolio is not over-exposed to any one country, company or sector.

Our highs might not be as high as a particular asset class at a given moment – but that’s not the goal.

Comparing the returns achieved by our diversified portfolio, which has multiple objectives, to a single asset, asset class or public market benchmark overlooks a fundamental point: our approach will look different to someone investing for a different purpose.

Roughly 60% of the scheme’s DB assets are invested in growth assets like equities and the balance is invested in corporate bonds and other liability matching assets.

• In practice, we invest in a diverse range of assets across the world, but most of our assets will – at a high level – fall into one of these two categories. Some of our private markets investments offer a bit of both; they are growth assets that may also provide some long-term liability matching elements to their returns.

For example, in the financial year to 31 March 2025, our growth investments performed comparatively well, outperforming some broad equity market benchmarks.

The value of some of our liability matching assets fell – as did the value of the scheme’s overall liabilities.

The net outcome is that the funding position improved.

The scheme’s assets outperformed our liability proxy by 14.1% per annum over the five years to 31 March 2025 and, at the end of March this year, we were tracking an estimated £10.1bn funding surplus (which is up from the estimated £9.2bn funding surplus we reported at 31 March 2024).

That is a healthy position and gives us a good buffer against market shocks.

The outcomes listed above indicate that our investment strategy, which was broadly supported by employers who responded to a consultation last year, is doing the job it is designed to do.

And they follow member contributions being reduced last year from 9.8% of pay to 6.1% – one of the lowest member contribution rates in the 50-year history of the scheme, employer contributions reducing from 21.6% of payroll to 14.5%, and benefits being restored to pre-April 2022 levels.

The purpose and nature of the scheme will inform our investment approach, and our approach will continue to focus on the long-term goal of achieving the returns USS needs to safeguard members’ promised pensions and reducing volatility in the funding position.

You can read more about our investments at how we invest.