USS looks to scrap final salary over deficit concerns
One of UK’s largest pensions fund, the Universities Superannuation Scheme (USS), is looking to close the doors to its final salary plan for active members following serious concerns over a substantial deficit.
In March last year, the scheme revealed a deficit of £11.5bn, but its actual deficit to date will not be known until later this year when it completes its triennial valuation.
Although USS was unable to give any further indication on just how much the funding black hole would be, it said the trustees expected to report a “continuing, substantial funding deficit later this year”.
To help tackle this deficit, a potential closure of the final salary plan for active members could be on the table.
USS said it will decide in June next year on whether the final salary scheme will close and insisted that at this stage it was just an option and not a proposal.
The closure of the final salary scheme would could affect around two-thirds of the 150,000 member base, and see them shifted into a career average revalued earnings (CARE) scheme, in line with the remaining third.
This would also fall in line with other public sector schemes in the UK, such as the Local Government Pension Scheme (LGPS), which became career-average from April this year.
CARE schemes are still defined benefit models, but calculate payable pension based on the member’s average salary, rather than the final amount.
The majority of UK companies and organisations in the UK have been forced to ditch their ‘gold-plated’ final scheme over the last few years to help tackle costs associated with people living longer and poor market performance.
Career-average or defined contributions plans have been put in place instead for pension provision to remain sustainable.
“The trustee is working with employer and member representatives to consider the options available to respond to the ongoing funding position.
“However, at this stage of the process it is premature to discuss any specific proposals,” USS said in statement.
The Employers Pensions Forum, which represents Universities UK, Guild HE, and the Universities and College Employers Association, said there could be changes to pension benefits for future service and changes to contribution rates for both employers and members.
It said negotiations, discussions and consultations will take place in the coming months with a Joint Negotiating Committee (JNC), which consists of eleven members - five appointed by Universities UK representing the employers, five appointed by UCU representing individual members and an independent Chair, Andrew Cubie.
Michael MacNeil, head of bargaining, at the University and College Union, said: “The deficit valuation should not come as much of a surprise to anybody involved with the scheme.
“Although disappointing, it is also no surprise that closing the final salary scheme is one proposal. However, we will be speaking with the employers a lot more over the coming weeks and we hope that the USS Board and the employers recognise that any changes ensure the scheme remains sustainable and attractive.”
The changes must be agreed by the JNC before being put forward to the trustee.