The UK’s biggest pension fund could be subject to a parliamentary inquiry over its record funding shortfall.
“The prospect of students incurring higher tuition fees and student debt to cover the burden of historic pension entitlements that they can never hope to enjoy in their own future careers is an important issue of intergenerational fairness.”
Frank Field, chair of the Work and Pensions Committee, a cross-party group of politicians from the UK’s lower house, has written to the Universities Superannuation Scheme’s (USS) trustee board regarding its plans to plug a £12.6bn (€13.7bn) deficit.
USS chief executive Bill Galvin warned following the publication of the scheme’s latest annual report that expected lower future returns would lead to a rise in the cost of future pension benefits. Commentators have expressed concern that this could lead to higher tuition fees for students.
Field has also written to the Pensions Regulator (TPR) and Universities UK, which represents employers in the sector, requesting information about the situation.
In his letter to Sir David Eastwood, chair of USS’ trustee board, Field said: “The large and growing funding gap gives rise to serious concerns about how USS intends to address this deficit and the implications for sponsoring institutions and their funding model. The prospect of students incurring higher tuition fees and student debt partly to cover the burden of historic [defined benefit] pension entitlements that they can never hope to enjoy in their own future careers is an important issue of intergenerational fairness.”
He asked each of the three parties for their views on the adequacy of recovery plans agreed following the 2011 and 2014 valuations, as well as details of discussions between them and their views on the strength of the employer covenant.
Field also requested information about asset allocation decisions, interest rate and yield assumptions, and the likely shape of the recovery plan currently being negotiated as part of the scheme’s formal 2017 actuarial valuation.
The politician – who led the Work and Pension Committee’s inquiry into the collapse of BHS and the subsequent effects on its pension scheme – asked TPR for information about the role of USS chief executive Bill Galvin in discussions with the regulator. Galvin was chief executive at TPR for three years before joining USS in 2013.
The £60bn pension fund for the universities sector reported a 20% investment return for the 12 months to the end of March 2017, but this failed to keep pace with liabilities, which grew by more than 21% according to the scheme’s latest annual report.
In a website post following the publication of the annual report, Galvin said USS’ position was “within the affordable limits of the employers”.
Last year, USS launched a hybrid benefits structure in a bid to reduce the expected future costs of the scheme.
In addition to his letters to TPR, USS, and Universities UK, Field wrote to Jo Johnson, the universities minister, recommending that the Office for Students (OfS) also be involved in the scheme’s governance.
“I would suggest that [OfS] looks in particular at the performance of those vice-chancellors who seem to have been steering university pension schemes into trouble,” Field wrote.