The Superannuation Arrangement of the University of London is set to create a new “feeder” defined contribution pension scheme as it undertakes a review of its investment strategy.
The changes, first reported by MandateWire, come to the £4.3bn defined benefit scheme following its latest triennial valuation.
From early 2023, new members will join a DC scheme for the first three years they are in Saul. The move comes in response to the pension fund acknowledging that lots of members only stay in the scheme “for a short time”.
The new scheme will have an employer contribution rate of 16 per cent, and be “more flexible for people who aren’t in Saul for long, and will be easier to transfer to a new employer if they move”, but further details have not been disclosed.
The continuing contribution strain cannot be supported by the surplus in the longer term
Saul
After three years, members of the feeder scheme will transition into the current Saul DB scheme. In its 2021 annual review, Saul stated that it is at the start of the approval process, and key decisions on how the scheme will be run are yet to be made.
Contribution strain
The results of the actuarial valuation, as of March 31 2020, revealed a 94 per cent funding level, with assets of £3.61bn and liabilities of £3.82bn, culminating in a £217m deficit.
The shortfall was partially a consequence of the investment markets crisis caused by the Covid-19 pandemic in early 2020. But, by March 2021, the scheme’s funding position had improved to a £379m surplus, equivalent to a 110 per cent funding level. The contribution strain stood at 11.8 per cent at that time.
The valuation also found that the cost of benefits that will be built up in the future was 35.4 per cent of members’ salaries. Members and employers pay 22 per cent of salaries into Saul, resulting in a difference — known as a contribution strain — of 13.4 per cent.
In its annual report, Saul said that “the continuing contribution strain cannot be supported by the surplus in the longer term” and action must be taken to ensure the scheme’s sustainability, although the scheme is generally in “a good position” and has “enough money to pay the pensions already promised to members”.
As such, employers are set to pay more into Saul, with contributions increasing from 16 per cent of members’ salaries to 19 per cent in April 2022, and then to 21 per cent in January 2023.
Investment strategy review
To supplement this, the scheme is set to undertake an investment strategy review, incorporating member feedback on sustainable investment practices.
Investment performance over the year was “strongly positive” with a 19 per cent return, meaning the value of Saul’s assets increased from £3.61bn to £4.31bn as of March 31 2021, the report stated.
The scheme said that the strong return was largely driven by the performance of its growth assets, as equities recovered from the market lows seen at the start of the year.
Yet changes to the scheme’s funding and investment strategy are to be made to better protect the scheme against the impact of the contribution strain.
Additionally, feedback from the scheme’s annual survey is set to be incorporated into the modified investment strategy. For the first time, members were asked about their attitudes to environmental, social and governance issues.
Eighty-one per cent of respondents said that where Saul invests its money was important to them, particularly around climate change and investing in climate solutions, working conditions at the companies in which Saul invests, board diversity and executive pay.
This year, the trustee board created a Climate Change Working Group to assess and seek to mitigate the financial risks presented by climate change, and the impact investments have on the planet.
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The working group will be making recommendations to the trustee board in 2021-22, which will inform the scheme’s investment strategy for the future.
Meanwhile, an online platform has been “planned and built” to give members individual online accounts, providing them with up-to-date information on their Saul benefits.
The scheme is currently focused on testing the platform and expects to launch the service, after a pilot phase, in early 2022.
