Universities Superannuation Scheme (USS) completes a check every three years to ensure that it can afford to pay its members’ pensions and other benefits such as ill-health when due. This formal valuation is carried out by the USS trustee with the support of the scheme actuary, an appointed specialist who reports to the board, as legally required.
The valuation which was completed in 2017 identified that the USS deficit had risen to around £7.5 billion and the future cost of providing the current benefits had risen by over a third.
Who is involved in changes to the USS pension scheme?
The Universities Superannuation Scheme (USS) pension is used by 350 employers nationally and it is the scheme that staff grade 6b and above are eligible to join. It is the second largest private pension scheme in the UK by fund size. The legal obligation on USS trustees is to ensure that the pension fund is financially stable in accordance with rules set by the Pensions Regulator.
- The Pensions Regulator
The Pensions Regulator is a public body, sponsored by the Department for Work and Pensions, set up to protect people’s savings in workplace pensions. One of the Regulator’s key priorities is to reduce the risk that pension schemes will require taxpayer support to meet their obligations.
- Universities UK (UUK)
Universities UK (UUK) represents 350 employers (not all of them universities) in the pension scheme.
University and College Union (UCU) represents over 110,000 members of staff working in universities, colleges, prisons, adult education and training organisations across the UK.
- Joint Negotiating Committee
No individual institution can negotiate independently or have control over what is decided. The USS reform was discussed during national negotiations through the Joint Negotiating Committee (JNC) which is made up of 10 nominated members, five from UCU, five from Universities UK, and an independent chair. The scheme trustee establishes how much money needs to be paid to maintain the current level of benefits in the scheme. The JNC must decide on how the cost of the increase can be met. This could result in a change to future benefits, future contributions, or both.
Answers to some frequently asked questions about the 2017 valuation are detailed below. You can also read more about the challenges of the 2017 valuation on the USS website, including USS's role and what changed between the 2014 and 2017 valuations.
- Why is USS required to undertake a valuation?
USS is subject to the Statutory funding objective and is legally required to:
- ensure it can pay member benefits in the future (known as technical provisions)
- set out a policy for meeting the objective
- determine the level of contributions due to a scheme (schedule of contributions).
- What did the 2017 valuation find?
The 31 March 2017 valuation identified a deficit of around £7.5 billion. As a result USS is legally required to produce a recovery plan which will reduce the deficit and ensure that the scheme's funding position is sustainable.
- What is the financial strength of the sponsoring employers of USS (including UCL)?
The basis of the valuation is an assessment of the financial strength of the sponsoring employers (including UCL). It demonstrates to the scheme trustee how much support the employer can provide to the scheme and how much risk can be taken.
- How well have USS investments performed?
USS have outperformed the scheme’s strategic allocation benchmark over all multi-year periods whilst minimising its investment costs to £34 million a year lower than their global peers. Further information on the performance of the USS investment team is available on the USS website.
- Can I assess how well my investments are performing?
You can visit MyUSS to view the current level of your Investment Builder fund.
Proposed changes – Jan 2018
Agreement on proposed reform to tackle the deficit identified in the 2017 valuation was reached by the Joint Negotiating Committee (JNC) on 23 January 2018. If accepted, this would have reduced the scheme deficit to £6.1 billion. A formal consultation with USS members was announced to begin in March 2018, however, industrial action in response to the proposed changes took place in February and March 2018.
University and College Union (UCU) disputes the valuation and the consequent need to move from a defined benefit pension scheme to a defined contribution scheme – in which pension payments would depend on investment performance.
ACAS-mediated joint negotiations – March 2018
ACAS-mediated joint negotiations took place between UUK and UCU. On 12 March, following six days of talks with ACAS negotiators both UCU and UUK agreed to a proposal consisting of:
- current pension benefits being built up until 31 March 2019
- a revised level of defined benefit pension build-up from 1 April 2019 for three years
- contributions increasing to 19.3% for employers and 8.7% for members from 1 April 2019 for three years
- a joint expert panel being set up to review the valuation methodology and assumptions of the USS trustee
- continuation of meaningful discussions, taking into account the findings of the Joint Expert Panel, to explore risk sharing alternatives for future pension build-up from 2020.
The first three proposals arising from the ACAS agreement were rejected by the UCU membership but there was an agreement to set up the Joint Expert Panel.
Cost sharing rule and the USS consultation 2018
In the absence of an agreement from employers (UUK) and members (UCU), USS trustees reverted to the cost sharing process under scheme rule 76.4-8. Cost sharing is a process under the USS rules that takes a view of the amount needed to restore the financial health of USS where there is no other agreed way forward and shares the increase in cost between employers (two thirds) and staff (one third). The scheme rule was first introduced in 2011 and updated in 2016.
A formal consultation on the proposed changes ran from 3 September to 2 November 2018.
Joint Expert Panel (JEP)
The Joint Expert Panel was set up to review the methodology and assumptions in the current valuation, and consider the questions raised about the valuation by some scheme members and employers, with the aim of building confidence, trust and increasing transparency in the valuation process.
The Joint Expert Panel reported back in September 2018 with the following recommendations:
- A re-evaluation of the USS employer attitude to risk.
- Adopting a greater consistency of approach between the 2014 and 2017 valuations, which affects the scale and timing of deficit recovery contributions.
- Ensuring fairness and equality between generations of scheme members by smoothing future service contributions.
- Ensuring the valuation uses the most recently available information which means taking account of recent market improvements, new investment considerations and the latest data on mortality for example.
The panel are now working on the second phase of work on the USS valuation which has two parts; the first is concerned with the valuation process and governance, the second with the long-term sustainability of the scheme.
October 2018 – Universities UK (UUK) conducted a consultation with USS pension scheme employers on the Joint Expert Panel's recommendations. The consultation closed on 30 October 2018, and received responses from 127 employers – accounting for 94% of the active membership of USS. UUK has published detailed analysis of the results of the consultation with scheme employers on USS's website.
UUK then wrote to USS' Chief Executive, Bill Galvin, to confirm that employers support the recommendations of the Joint Expert Panel, subject to acceptance from the USS trustee and The Pensions Regulator, and the need for further information for employers on risk and its implications. UUK also confirmed that they supported the trustee’s suggested approach of commencing a new 2018 valuation, to allow for the most recent data and for any developments on risk as envisaged by the JEP report to be addressed.
March 2019 – UUK carried out a further consultation, where UCL was asked to respond to three specific questions for the 2018 valuation consultation.
June 2019 – UUK consulted on proposed alternative contribution structures.
July 2019 – A further consultation on option 3 of the proposed alternative contribution structures was carried out in July 2019.
September 2019 – UUK consulted with employers on the Schedule of Contributions and Recovery Plan for the 2018 actuarial valuation.
October 2019 – The 2018 valuation has now been concluded and from 1 October 2019 the contribution rate for employees increased to 9.6% and the contribution rate for employers to 21.1%. Without this decision, much higher contributions would have been due in October 2019 and April 2020 for both members and employers.
- Read UCL's responses to all consultations.