UK universities have agreed to accept more investment risk for their industry-wide pension fund after months of heated debate over the scheme’s valuation.
In a statement yesterday, the £60bn (€67.8bn) Universities Superannuation Scheme (USS) said it would begin the formal actuarial valuation process using data from 31 March 2018, after its sponsoring employers agreed to more risk.
The valuation will update market data and longevity statistics, among other information, and result in a fresh proposed contribution schedule.
USS’s 2017 valuation resulted in a proposal to close the defined benefit section of the scheme to new contributions and switch all members to defined contribution arrangements for future pension accrual. This was strongly opposed by the University and College Union (UCU), which called nationwide strikes in protest.
An independent panel of industry experts was convened earlier this year in an effort to resolve the disputed valuation. One of its recommendations was to re-evaluate the sponsoring employers’ attitude to risk, which it said could have “a material impact on the valuation and resulting contribution increases”.
USS said yesterday: “The panel’s proposals would require employers to take on greater risk, and both members and employers paying higher contributions, than we were advised they were originally willing to support.”
Universities UK – which represents employers – recently reported that universities were willing to support the panel’s proposals, “subject to [USS] providing more information on the additional financial risks involved – and if and how they could be managed, and mitigated”.
However, in an open letter to USS in October, a number of consultants warned that increasing the scheme’s long-term equity exposure would not solve its deficit problem.
USS said that, following the valuation process, UUK members would be consulted during December and January, with the aim of finalising updated contributions for employers and employees in early February.
However, contribution rates were still set to increase automatically in April 2019, USS said, as part of a default process that kicked in when it became evident that UCU and UUK could not agree on an approach.
Further contribution increases are scheduled for October 2019 and April 2020, but USS said it hoped the new valuation and subsequent consultation would mean these could be avoided.