Below you’ll find an update on the USS pension scheme, clearly displayed in FAQ-like sections.
What’s happening to the USS pension scheme?
Our University has a strong commitment to provide the best possible package of benefits for all groups of staff. Our pension schemes are an important part of this.
The Universities Superannuation Scheme (USS) is a national pension scheme for the higher education sector with more than 390,000 members, from over 300 universities and associated institutions. The membership at our University includes the majority of staff at grade 4 and above.
In September 2017 the USS said that the cost of funding future retirement promises had increased by 35 per cent.
Does this mean there’s a shortfall?
The USS trustees are required to conduct a valuation of their scheme every three years. This is a detailed analysis of whether the scheme has sufficient funds (assets) to be able to fully fund an estimate all of the members’ pensions in the future (liabilities).
After the 2014 USS valuation the scheme was found to be in deficit and a recovery plan was put into place. However, the USS trustees have reported that as at 31 March 2017 the funding deficit of the scheme had deteriorated to £7.5bn and therefore further action is required.
The USS Trustees have calculated that if the current level of Defined Benefits are to continue it would cost the equivalent of at least an additional 11 per cent of salaries.
USS employers currently pay 18 per cent of salaries and employees contribute 8 per cent towards USS. However, most employers are not in a position to increase their contribution further, and it is likely that many employees would also find an increase to their contributions challenging too.
A new deficit recovery plan will need to be set out by USS in early 2018 and consulted on with members.
Why is this happening?
This situation is largely because of economic changes which could not have been predicted at the last valuation in 2014, and which have reduced future investment return expectations.
“As expected returns on investments slow, the contribution required to fund future retirement income has to rise to offset this reduction in expected asset value growth. No one saving for retirement is immune to the changes in the investing environment”, said the USS Trustees.
This is a problem not just for USS but also for many other UK pension schemes.
What’s being proposed?
Universities UK (UUK) is the body representing the views of universities. In September 2017, the University responded to a survey carried out by UUK to understand the potential impact of the valuation and our views on some of the options that may be considered by USS as part of the deficit recovery plan.
UUK are not advocating closing the current Defined Benefits (DB) structure entirely. Their proposal has been constructed in order to offer a range of options including the possible reintroduction of DB benefits, if scheme funding improves at future valuations.
Any changes to USS would only apply to the build-up of future benefits, as past benefits are protected under law.
What are the next steps?
Discussions with USS Trustees and employer and member representatives are expected to proceed through December 2017, through a forum called The Joint Negotiating Committee (JNC).
Any proposed changes to member benefits or contributions will require a full consultation with scheme members, which could happen in spring 2018.
USS Trustees are required to sign off the valuation and submit a report to the Pensions Regulator within 15 months of the valuation date (i.e. by 30 June 2018), this will need to include an outcome of the consultation and the proposed deficit recovery plan.
What is the University doing to support staff?
The University is arranging for open sessions for staff to be run in December 2017 by independent pension advisors Mercer. This will be a chance for staff to understand what is being proposed and why and how decisions will be made.
More information about USS can be found on their website.
