USS deficit threatens to drive up tuition fees

The Universities Superannuation Scheme, which is the second-largest fund in the UK, has revealed a £9.8bn deficit after its liabilities grew 24 per cent from March 2011 to 2012 while its assets put on just 4.4 per cent, leaving it 77 per cent funded.

Independent actuary Hamish Wilson said: “The weight of this liability on universities will inevitably end up costing taxpayers and students.”

In its internal valuation, the USS attributed the deficit to quantitative easing producing “historically low” gilt yields. It also noted its final salary scheme had been closed to new members since October, replaced by a career average scheme.

The soaring costs of funding the scheme prompted an attack from Jim Naismith, a professor of chemical biology at the University of St. Andrews, who issued a statement calling for employers to close the final salary scheme completely and predicted it would have to be closed within 10 years.

A spokesperson for the USS said a recovery plan was in place, which currently involves the employers continuing to pay 16 per cent of salaries.

He said: “There is a variety of options available in order to control costs. It could set higher contribution rates or extend the target recovery period beyond the original 10 years.”

Wilson added: “This level of employer contribution means academic salaries, which are a significant proportion of a university’s costs, are inflated and that’s bad news for tuition fees, especially where they’re below the legal maximum.

“When undergraduates see £9,000 tuition fees, and universities are trying to close deficits caused by final salary pensions schemes, it’s difficult not to see that as tuition fees propping up a broken pensions scheme”, he said.