UK university scheme consultation flags possible contribution hike
Funding future pensions promised by the UK’s universities pension scheme could require an increase of contributions of six to seven percentage points, according to the trustee of the £60bn (€67.1bn) Universities Superannuation Scheme (USS).
The information was revealed as the trustee launched a consultation on its proposed assumptions for the latest triennial valuation.
These put the USS deficit at just over £5bn, which the trustee said was similar to the figure from March 2014.
However, the cost of funding future pension benefits had increased by 35%, it said.
The assumptions it was proposing would require an increase in the proportion of pay that employers and members contribute for the current package of benefits offered, it added.
Currently, active members and employers pay a combined contribution rate of 26% of pay, with the former paying 8% and the latter 18%.
Under the proposals being consulted on, the combined required contribution rate would have to increase to 32%-33% of pay, a spokesperson for the scheme confirmed.
In a statement, the USS trustee said: “The increase proposed is a significant challenge for our stakeholders, [Universities UK] and University and College Union to address.”
The £5bn deficit identified by the USS trustee is considerably lower than the £12.6bn deficit figure the scheme reported in its annual accounts, based on what it calls a monitoring approach. Its annual report and accounts had also revealed a £17.5bn deficit, based on accounting rules. In a follow-up to the publication of the annual report, USS chief execuitive Bill Galvin had said this was not the figure driving benefit and contribution decisions for the scheme.
According to the trustee’s consultation statement, USS was expected to grow by £30bn in assets over the over next 20 years. During this time the scheme would continue to reduce its equity allocation proportionate to the growth in the scheme “to ensure that the risks inherent in funding the scheme remain within affordable limits of all the employers”.
USS’ investments are currently broadly half in equities, one third in bonds and the balance in infrastructure, property and other assets, the trustee noted.
Expectations for future returns were significantly lower than at the time of the valuation, it said.
Based on the assets USS plans to hold over the next 20 years and beyond, the trustee is assuming an average annual rate of return to value future pension benefit payments of inflation (Consumer Prices Index) plus 0.9%.
This was the main reason why the required contribution rate had increased, it said.
The consultation, which is with Universities UK (UUK), the representative body for USS employers, runs until 29 September. The trustee has proposed to keep employer contributions towards the deficit at the current 2.1% of pay.
Decisions on any changes to future benefits or contributions will follow later in the valuation process. Any changes would have to be subject to a full consultation with all affected employees by their employers.
Once decisions on future benefits have been made the length of the recovery period will be consulted upon.
The consultation comes as the parliamentary Work and Pensions Committee, a cross-party group of politicians from the UK’s lower house, has written to the USS trustee board to inquire about its plans to plug the deficit.
The committee has also written to The Pensions Regulator and UUK. Its involvement comes as some commentators have raised concerns that tuition fees may need to be raised to fund the deficit.
A spokeperson for UUK said: “It is inconceivable that one of the options would be for the tuition fee cap for undergraduate students in England to be increased to address the USS deficit.”
“Over the coming months, USS will work with employers (through Universities UK) and employees (through the University and College Union) to understand the options that are available for dealing with both the deficit and the wider increase in pension costs outlined at the 2017 valuation,” she said.