Around 193,000 members
(just under a third of our membership) now have DC savings with USS.
The birth of a DC scheme
To mark ten years since the launch of the Investment Builder, Naomi Clark, Head of Investment Product Management at USS Investment Management, reflects on how it came into being – and how it has become an integral part of our offer to USS members.
If pensions are traditionally seen as slow and steady, the creation of the Investment Builder proved the exception to the rule.
On the heels of a challenging actuarial valuation in 2014, USS had little more than a year to design, build and launch an entirely new defined contribution (DC) proposition to work alongside a wider redesign of the defined benefit (DB) part of USS.
Despite the time pressures, we elected not to buy an off-the-shelf platform from an insurance provider but instead chose to build our own investment architecture and operating model from the ground up – bespoke for the needs of the Higher Education sector.
That was undoubtedly the harder option, but there were good reasons for doing it ourselves; reasons that have stood the test of time:
It meant we could build a bespoke suite of fund options and strategies, informed by member insights and tailored to their preferences and risk appetites.
It meant we could leverage the expertise of our established, in-house investment team, which was already serving the DB part of USS and deliver strong value for money to members and employers.
And it meant both parts of USS were in our direct control, and subject to the same standards of governance and oversight.
What may have looked like a bold choice at the time was a carefully considered decision that had the needs of members and employers firmly at its heart.
A bespoke approach
Despite the ambitious timeline, we did not cut corners. We designed the Investment Builder from first principles, using detailed modelling and extensive member research.
We launched surveys and hit the road to hold in-person focus groups with members to understand their risk appetites, risk capacities and ethical beliefs.
We took those insights back to base and used them to inform the core offer, which still holds to this day.
There is the Do It For Me option, where USS manages the investment selections on behalf of members based on where they are in their retirement journey.
And there is the Let Me Do It option, where members themselves can choose from 10 different fund options.
Both approaches include ethical options, which continue to be informed by our regular member surveys.
As well as the core infrastructure, we also built a dedicated suite of guides and information to help members understand how it all worked so that they could make informed decisions and make the most of the options available to them.
Throughout, the core idea has remained remarkably consistent: a flexible savings pot sitting alongside the guaranteed DB pension provided by the Retirement Income Builder.
That hybrid structure matters.
Because members are building both DB and DC benefits, they can take a genuinely long-term approach to investing their DC pot for growth.
Over the past decade, the Investment Builder has become an important part of our offer to USS members.
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£8,000+
The median active member’s pot is worth more than £8,000.
Capitalising on our in-house team
Perhaps the clearest demonstration of the value – to our members and their employers – of choosing to create the Investment Builder ourselves is the licence it has given us to innovate.
In January 2020, USS became one of the first schemes in the UK’s DC market to allocate private market investments to its Default Lifestyle Option. Private markets provide different opportunities from those available in public markets, like shares on a stock exchange. Our private assets are part of the fabric of everyday life: housing, schools, health centres, retail and leisure facilities, motorway service stations, and even energy-efficient street lighting.
We have around £1.8bn invested in renewable energy and clean technology, including wind farms from the far north of Scotland to the south coast of Cornwall. We also invest in gas networks, toll roads, reusable pallet logistics, and even a port.
A key reason for investing in them is the opportunity to earn enhanced returns, including a premium for illiquidity, and to gain additional diversification; our private market assets have delivered strong returns over an extended period.
Investment management fees are often charged annually by pension providers as a percentage of a member’s DC pot. Private market assets have been difficult to provide to DC members in the UK because they are not traded daily and incur high management charges.
At USS, in most cases, members do not pay management fees on their Investment Builder savings because their employers subsidise those costs – meaning more of their contributions go towards building their savings pot.
And having an established in-house Private Markets team already serving the DB part of USS meant we were able to develop a solution for the DC part of USS that came at no additional cost to members or employers.
By 2025, around £350m of private assets sat within the default and ethical lifestyle strategies, with approximately 25% of the growth phase of the Default Lifestyle Option invested in private markets.
Had we gone down the off-the-shelf route, bringing USS’s private market assets into the DC proposition would have been significantly harder – and may never have even happened.
Instead, our success has been held up as a case study in a paper published by the People’s Pension exploring how workplace pension schemes might best approach investing in private markets.
Ten years young
The Investment Builder is now an integral part of USS's hybrid design, with its own investment objectives, governance, and member experience.
Decisions made under pressure in 2015 and 2016 created the freedom for it to keep evolving.
Building the platform ourselves was undoubtedly harder than buying one off-the-shelf; it required USS to create entirely new capabilities and launch them on an ambitious timetable.
But it also preserved the ability to use USS's own investment expertise to drive innovation, value, and good outcomes for members and employers alike.