The Universities Superannuation Scheme has confirmed that restoring benefits cut last year will cost less than employers and staff are currently paying into the pension scheme.
In the latest USS update, trustee board chair Dame Kate Barker said: “Gilt yields have continued to bounce around since the start of the year. Share prices have risen over the same period, but indices last week were back at levels similar to those seen at the end of 2022. Market measures of inflation also show similar expectations to those at the end of December.
“These fluctuations suggest there is likely to have been a slight increase in the implied cost of future service benefits, and a reduction in the potential surplus, relative to the position at the end of the year.”
The overall contribution rate required for the current level of benefits is unlikely to be in excess of 20 per cent of payroll
Dame Kate Barker, USS trustee board
Barker continued: “But, on [March 23], the board considered the recent market experience and concluded that the guidance it previously provided to stakeholders in respect of the December monitoring report remains valid.
“That is, the overall contribution rate required for the current level of benefits is unlikely to be in excess of 20 per cent of payroll, while the rate that would be required for the pre-April 1 2022 benefit structure, going forward, is unlikely to be in excess of the current cost of future service – which is 25.2 per cent.”
The University and College Union and employer body Universities UK have also agreed to prioritise the reversing of the cuts.
It is expected that the restoration of benefits will be confirmed by the formal valuation, creating a party for employers to do so by April 2024.
Code must reflect USS’s circumstances
UCU, UUK and the USS have also jointly written to the Pensions Regulator urging it to improve regulation for open defined benefit schemes. UCU believes this would help prevent a repeat of the misguided 2020 valuation, which pushed the USS pension scheme into crisis.
“USS is very different to most DB pension schemes in the UK. Most are now closed to new accrual and on their journey towards an endgame,” the letter stated.
“We recognise that the regulatory regime needs to deal with a range of different schemes of different maturities, with very different employer support and levels of member interest.
“The circumstances of USS do, however, need to be better reflected in the code. Inappropriate prudence or an excessive drive to derisking is in no one’s interest,” it continued.
“We would therefore call for the content in the code relating to open schemes to be drawn together into a single chapter. This would both recognise the particular status of open schemes and provide a single point of reference to trustees, stakeholders, advisers and TPR.”
Working in partnership
The letter showcases the new spirit of co-operation between university employers and scheme managers.
UCU general secretary Jo Grady said: “This latest financial monitoring update confirms that, after taking sustained strike action, university staff are set to see their pensions restored within the next 13 months. But the brutal cuts that led to our members being forced on to picket lines must never happen again.
“That is why UCU, employers and the trustee have come together to urge TPR to update its code to account for the open nature of USS, the enhanced covenant support from employers, and the strategic global importance of the UK’s higher education system.”
A TPR spokesperson told Pensions Expert: “Our draft DB funding code consultation included specific messaging and approaches for open schemes.
“We engaged extensively with stakeholders during our consultation, including USS as their letter notes, and will now be carefully considering all responses – as well as the final regulations from the DWP – as we finalise the code.
“We will continue to engage closely with industry during the process.”
