Hundreds of universities in the UK and their staff face “unaffordable” rises in their pension contributions after the deficit in the sector’s retirement fund quadrupled to more than £14bn.
The Universities Superannuation Scheme said on Wednesday that contributions for more than 200,000 members and 350 supporting university employers would need to rise from 30.7 per cent of payroll to up to 56.2 per cent.
This means contributions for the combined university sector, hard hit by the pandemic, could rise to more than £2bn a year, with lecturers paying hundreds more a year for the same pension.
In 2018, a £3.6bn funding hole was identified in the USS fund. But a health check in 2020, which took place in March as markets plummeted during the pandemic crisis, found that this deficit had blown out to £14bn-£18bn.
“Trends in financial markets have made the valuable pension promise offered by USS — a set inflation-linked income for life in retirement, regardless of what happens to the economy in future — much more expensive today than in the past,” said Dame Kate Barker, chair of the USS trustee board.
“We fully recognise the scale of the challenge facing the scheme and sympathise with our employers and members in light of the difficult decisions that lie ahead.”
University employers contribute 21.1 per cent of employee salary to the USS, which is a defined benefit scheme, with members contributing 9.6 per cent.
The USS has set out a range of options for universities to limit the rise in combined contributions to 49.6 per cent of payroll, if they agree to a range of commitments. Without these extra commitments the contribution cost would rise to 56.2 per cent.
A spokesperson for Universities UK, on behalf of USS employers, said the increases were “unaffordable” and “unprecedented”.
“The very high prices for current benefits put forward by the USS Trustee are unaffordable for employers, risk pricing even more staff out of the scheme, and undervalue the collective and enduring financial strength of the participating employers,” said a spokesperson.
“Employers and scheme members need a stronger and clearer justification from the USS Trustee for the very high pricing decisions. Without this justification, employers and scheme members will be concerned that the scheme is facing an unnecessary level of reform.”