USS pension valuation

Many University and College employees who are members of the Universities Superannuation Scheme (USS) will be aware that the USS triennial valuation is underway. Regular three-yearly actuarial valuations are required by the Pensions Regulator. The valuation involves the trustee working closely with the scheme actuaries to produce figures that show the value of the liabilities and the value of the assets, which will highlight any consequent deficit or surplus. The scheme’s current funding position has prompted significant discussion within universities and in the media.

The University of Cambridge – along with the other 355 sponsoring institutions that are part of USS – has recently responded to a survey on the USS trustee’s assumptions for the 2017 valuation. The trustee’s assumptions can be read in full in the document USS technical provisions consultation. The trustee is responsible for the management and administration of the scheme. The survey also asked universities for their views on levels of acceptable risk, the cost – to employer and employees – of maintaining current benefits, and whether the overall benefit structure needed to change.

The University wishes to engage with staff who are members of USS as the valuation process continues, and has decided to publish its response to the employer survey conducted by UUK. This accompanying note provides important contextual information and highlights some key points.

It is important to note that the valuation relates to USS only. Other pension schemes available to University members, including the Cambridge University Assistants’ Contributory Pension Scheme, the Cambridge University Press pension schemes, the NHS Pension Scheme, the MRC Pension Scheme, and the Cambridge Colleges Federated Pension Scheme, are not covered by this valuation and so are not addressed here.

Members of the University who do belong to USS should understand that the survey deadline was tight, that answers were in outline and responded to proposed assumptions. These assumptions are yet to be finalised and could change. If there were to be any changes to future benefits, this would of course be subject to a full consultation with employees.

Current pressures on USS

Based on the trustee’s current (but not yet finalised) assumptions:

• USS has a deficit of £6.1bn. The trustee defines ‘deficit’ as being “the difference between the amount of assets held along with the money gathered in contributions and anticipated future investment returns, and the amount of money estimated to be needed to pay the pensions”
• Total contributions – currently set at 26 per cent of salaries (18 per cent for employers and 8 per cent for employees) – would need to increase to at least 37 per cent (an increase of more than 40 per cent) to maintain the same level of benefits in the future.
• The risk borne by the scheme, as expressed through the employer covenant – the legal obligation and financial ability to pay current and future pensions – is at the threshold of acceptability. The University would like to see the level of risk reduced. This is particularly important because USS is a mutual scheme where each employer is responsible for not just the deficit relating to its own staff but to the entire deficit if other universities cannot put in their share.

Staff may also have read recent media reports that since the assumptions for the 2017 valuation were shared with employers, the Pensions Regulator, the public body charged with protecting workplace pensions, has challenged the trustee’s assessment of the strength of the employer covenant of the HE sector as a whole. This has resulted in an even more challenging outlook for the scheme.

These funding challenges, coupled with an uncertain economic outlook and expected lower investment returns, mean that proposals for benefit reform are likely to be brought forward early in the new year. USS benefits accrued to date would of course not be affected.

The University of Cambridge’s position

The University is mindful that it is only one of more than 350 sponsoring institutions that pay into USS. The UUK survey on the 2017 valuation, and the funding challenges that USS faces, are likely to elicit a range of responses across the higher education sector. However, the University would like to highlight the following key themes in its response that it hopes will provide reassurance to staff:

• The University is committed to providing its staff with access to high-quality pensions. This is an integral part of our overall remuneration package and an important way in which we attract and retain academic and professional talent
• The University would like to see any proposals for benefit reform consider greater flexibility of provision. It believes there is an opportunity to create a greater range of pension and reward benefits to better appeal to the range of employee needs across the USS membership. For example, USS in its current form may not suit Cambridge’s highly mobile overseas postdoc community (a significant staff constituency) in a way that other, more flexible benefits might
• In any future model the University would wish to preserve the protection benefits, such as ill health, incapacity and death in service, currently offered as part of the USS pension.

Universities UK proposal

UUK, on behalf of USS employers, has now proposed changes to the USS. UUK’s proposal is to move to defined contribution saving (through the USS Investment Builder) for all employees, on all salary. However, the proposal has been constructed in order to offer a range of options (including the possible reintroduction of defined benefits) if the scheme’s funding situation improves at future valuations.

Employers also propose maintaining the provision of death and incapacity benefits on a defined basis, so that employers continue to carry the risk in the most difficult of circumstances.

Any potential changes to future member benefits or contributions are negotiated within the Joint Negotiating Committee (JNC) and once decided upon in the JNC, any proposed changes will be subject to a full consultation with all affected employees.

Please note that members’ accrued pensions (those built up prior to any future changes in USS pension provision) are protected under law and will not be affected by any future change.

Next steps

University employers (through UUK) and members (through UCU) will discuss proposals for reform through the Joint Negotiating Committee. There will be a full and open consultation with affected employees on any proposed changes in spring 2018.

The University is committed to ongoing communication with members of USS. Look out for updates on these pages and in the monthly UAS bulletin.