The UK’s Universities Superannuation Scheme (USS) has rejected a request from employers that it reviews the approach to its 2020 valuation, saying it believed the most productive way forward would be for it to work with the employer body as it developed alternative packages.
Universities UK (UUK), which represents university employers, has said the contribution rate increases outlined by USS would be unaffordable.
In a valuation update in early March, USS said the technical provisions deficit as at 31 March 2020 would be between £14.9bn (€17.5bn) and £17.9bn, with contribution rates needing to rise to 42.1% in the most favourable scenario.
Shortly after this update from USS, UUK wrote to the scheme to request a review of the illustrative outcomes it had presented.
It said “there is a concern” that the position the USS Trustee had adopted took little account of UUK’s technical provisions consultation response, and “appears largely unaffected” by evidence and views presented during a valuation methodology discussion forum.
UUK also said it was concerned with USS “positioning that the valuation outcome is entirely down to the employers”.
UUK this month also wrote to The Pensions Regulator (TPR) to express concern about its influence on USS in the lead-up to its update on the valuation, and suggested USS should “provide further comfort” about the decision-making process followed.
USS: Review not currently justifiable
Earlier this week USS responded to UUK’s request for a review of the 2020 valuation. In a five-page letter, Dame Kate Barker, chair of the trustee, said the scheme noted UUK’s proposals to consult with employers again on covenant support measures, contributions and benefit reform.
She said USS believed the most productive way forward would therefore be for it to work with UUK as it developed alternative packages, and could then “look to assess their impact on the financial assumptions and the overall risk position in the round”.
She also said the board would consider the funding position as at 31 March 2021 in detail when it met in May, which was before it expected UUK to have concluded its consultation with employers and finalised its proposals.
“In light of the points above, and given the extent of professional advice taken to date, we have concluded that until an alternative proposal (or set of proposals) is forthcoming, or until new information materialises, we do not have any justifiable basis on which to review the outcomes illustrated to date,” Barker wrote.
She also said that USS would be willing to consider the matter of reducing the amount of defined benefit (DB) risk building up within the scheme “if and when a specific proposal is put forward by UUK”.
In its letter from 9 March, UUK had said it would be keen to discuss the impact if guaranteed DB accrual were to be reduced, whilst maintaining the hybrid structure.
Employers ‘to keep up pressure’
Responding to Dame Kate’s letter, a spokesperson for UUK said: “We will be keeping up the pressure on the USS Trustee to reconsider its approach and are seeking employers’ views on the USS Trustee’s response to our concerns, as well as the way forward for this valuation. We are exploring all governance options to achieve movement in the valuation outcome.
“As part of our employer consultation, to be launched next week, we will seek views on alternative paths which would reduce the headline costs put forward by USS and give scheme members the best possible level of benefits for more affordable contributions. These alternative potential paths would require the USS Trustee to evolve their assumptions and employers to offer further covenant support, for affordable benefits which include a DB element.”
USS this week also published answers to seven questions raised by UUK in its letter of early March.