A £7.5bn funding hole in the UK’s largest private-sector pension scheme has been halved after tens of thousands of members protested against employers’ claims their retirement benefits had become unaffordable.
On Friday, the £63bn Universities Superannuation Scheme (USS), whose 400,000 members include academics and higher education workers, estimated the plan’s deficit at £3.6bn This compared with £7.5bn in 2017.
The revision came after an independent expert panel found flaws in the scheme’s 2017 valuation, and assessed the fund to be in better financial shape than the USS trustees had calculated. It is likely to stave off further industrial action by thousands of academics and university staff, who in 2017 walked out over proposed cuts to their pensions.
The USS said it had “listened carefully” to the arguments put forward by the Joint Expert Panel (JEP) and subsequently by bodies representing members and employers backing the scheme.
“This is clear from its decision to hold a new valuation and seek a fresh mandate from employers on the level of risk to be taken in funding the scheme’s defined benefit pensions,” said USS.
The improvement in the scheme’s finances came from changes to assumptions for the scheme, including a more positive investment outlook, and reductions to the life expectancy of members, which had the combined effect of reducing the cost of pension promises,
In its 2018 valuation, published on Friday, the USS set out a new schedule of combined contribution rates for employers and employees ranging from “slightly below” 30 per cent to 33.7 per cent of salary. The exact rate would depend on how much “contingent support” employers were willing to offer the scheme, given it was taking on more risk.
This schedule contrasts with the 2017 valuation which saw contributions rising to 36.6 per cent from 26 per cent of salary, adding hundreds of millions of pounds to university sector costs. This valuation triggered the biggest wave of industrial action seen on UK campuses in decades after employers said guaranteed pensions for staff were “unaffordable”.
In its latest valuation, USS did not implement all the changes recommended by the panel last September, which would have brought down the contribution rate to 29.2 per cent.
“We will be engaging fully with employers and USS to seek the full implementation of the JEP report and will be closely following discussions around proposed contingency measures,” said the University College Union, which represents university workers.
Universities UK, which represents more than 350 university employers, said: “We look forward to continuing positive discussions with employers, UCU, the USS Trustee and the regulator, so that a joint solution to the 2018 valuation can be found as quickly as possible.”
USS Briefs, an activist group formed by academics during the year-long pension dispute, said USS had “dismissed the proposals that would require it to accept that it got aspects of the 2017 valuation wrong”.
University employers are now being consulted on the proposals in the 2018 valuation, which must be agreed with the Pensions Regulator.
In a letter to Sir David Eastwood, chair of the USS trustees, sent last month, the regulator said the panel’s recommendations “principally increased reliance on investment performance to fund benefits”.
“It is now up to the Pensions Regulator to hold the line and to demand higher contributions,” said John Ralfe, an independent pensions consultant.