The approach taken by the UK’s £66bn (€73.5bn) Universities Superannuation Scheme (USS) to presenting proposals for its latest valuation was found “unhelpful” by employers, according to their representative body.
Universities found it “incredibly” difficult to make sense of the material presented by the pension scheme in the consultation, Universities UK (UUK) also said in its response.
USS’s covenant assessment, its proposed rule change and debt monitoring arrangements, and recovery plan needed to be resolved before employers could make informed judgements about the valuation, it relayed.
UUK also said further information was needed from the trustee “on the wider perspective”, as many employers noted that it was impossible to answer questions in isolation and that these should be looked at within “a more comprehensive picture”.
UUK said responses were received from employers representing around 88% of USS’s active membership. A large number of employers chose not to respond, or felt unable to respond, to some of the questions.
Launched in early September, the consultation in question concerns the methodology and assumptions to be used in calculating USS’s technical provisions, which is the amount required to make provision for the scheme’s liabilities.
In the consultation, the trustee board set out several potential outcomes, all of which would involve higher contributions to fund a significantly higher deficit than the last time USS went through a formal valuation.
According to UUK, at least some employers felt the outcomes that were presented were “too wide-ranging to be meaningful”. It complained that there was no central proposal.
“The consultation and the illustrative figures within it might appear to some to have been orientated with the objective of securing covenant support measures from employers,” UUK also said in its response.
The employer body also relayed that affordability was a key issue, with most respondents stating that the current level of contributions was already at or beyond the limit of affordability, and that there were concerns about a tight timeline for agreeing on any changes to the scheme to avoid “the higher and unsustainable” contribution rates from October 2021.
From October next year contribution levels will automatically increase, to 23.7% for employers and 11% for members, if no agreement is reached on the 2020 valuation between UUK and the Universities College Union (UCU).
The next step for USS is to finalise its view about the contributions it needs to fund the current benefit structure, taking into account UUK’s response to the technical provisions consultation and further insights about covenant support.
The final contribution rates to be paid by employers and staff will depend on the decision by the joint negotiating committee, which comprises UUK and UCU representatives.
USS has until 30 June next year to file the 2020 valuation with the pensions regulator. It is one of the last private defined benefit pension schemes in the UK that is still open to new members.
USS emphasises covenant commitments
Commenting on UUK’s response to the technical provisions consultation, USS said additional employer commitments to strengthen the covenant were the most urgent issues to address in determining the outcome of the 2020 valuation.
A USS spokesperson said: “We recognise the extreme difficulties UUK face in building a consensus across 340 disparate employers, particularly in securing a uniform and long-term commitment to USS.
“Equally, they must appreciate the difficult position in which their response places the trustee: after 18 months of deliberations, their suggestions for key covenant support measures fall considerably short of the commitments required.
The spokesperson continued: “We will need to work with UUK urgently to see if we can find a way forward on this critical issue. As we have repeatedly made clear over the past year and a half, it is fundamental to the valuation and the uncertainty surrounding it explains why a range of outcomes was illustrated for our consultation.
“As it stands, UUK’s position on supporting the scheme is likely to result in contributions that are unaffordable for employers and members. The Trustee hopes they will reconsider this position.”