UK higher education’s biggest pension scheme has reported a surplus after years of forecasting multibillion-pound deficits, in a development that is likely to intensify calls for cuts to benefits to be rolled back.
The latest monthly monitoring report from the Universities Superannuation Scheme estimates that it is £1.8 billion in surplus – a shift from a deficit that stood at £2.1 billion just three months ago, and at £14.1 billion at the same point in 2020.
Over the past two years, the fund’s assets are thought to have increased in value by £11.1 billion to £77.6 billion, while its liabilities have decreased by £4.8 billion to £75.8 billion.
The USS now estimates that it could balance the books longer term with contributions from employers and members of 21.2 per cent – far lower than the current rate of 31.4 per cent.
This is likely to add to members’ complaints that the last full valuation of the fund, which reflected the situation at the end of March 2020, represented the worst possible time to judge performance, just as the Covid-19 pandemic hit global economies – and that the cuts to benefits that were pushed through as a result were ultimately unnecessary.
After 13 days of strike action last year, members of the University and College Union are being balloted for a further sector-wide strike over cuts to the USS, with walkouts planned for November. The union estimates that the cuts to benefits will cost members tens of thousands of pounds every year in retirement.
In a note accompanying the monitoring report, USS chief executive Bill Galvin acknowledges the “positive picture” ahead of the next formal valuation due for March 2023.
“If the trustee finds, via the 2023 valuation, that the overall contribution requirement has indeed reduced, the joint negotiating committee may be able to consider some element of reduction to contributions, enhancements to benefits, or a combination of the two,” Mr Galvin writes.
However, he notes, the monitoring report is “not a prediction of the likely outcome of a full actuarial valuation”.
“Firstly, increased uncertainty on forward inflation and interest rates has led to much financial market volatility and care must be taken with any individual reading. Secondly, it is not clear that the monitoring approach (necessarily a relatively crude approximation) takes full account of expected inflation,” Mr Galvin says.
He adds that if adjustments were made for the increase in inflation since March, the fund could actually be in deficit, although the future contribution rate would still need to sit at only about 22 per cent.
Jo Grady, general secretary of the UCU, said the union had said “time and again that USS is an extremely strong pension scheme with excellent long-term prospects”.
“News that the scheme is in significant surplus is just the latest vindication of our position,” Dr Grady said.
“The March 2020 valuation and the devastating cuts Universities UK forced through were acts of theft from hundreds of thousands of workers. UUK and vice-chancellors must now make plans to withdraw their cuts, restore benefits and echo our calls for a new transparent, evidence-based valuation.”
In his note, Mr Galvin continues to say that the next valuation will “take place in parallel with important longer-term planning for the scheme”.
“For example, further exploration of conditional indexation models over the autumn may demonstrate potential for more flexibility in the approach to [defined benefit] funding requirements,” he says.
“The investigation of lower-cost options by the stakeholders may provide opportunities for participation in the scheme to those who find the cost of contributions prohibitive, an issue of particular significance in the current environment but of concern for some years now.
“The first of these is of potentially long-term strategic significance, the second urgently required, and the trustee is working closely and intensively with our stakeholders on both initiatives, as well as on the preparations for the 2023 valuation.”