USS pension costs tip universities into multibillion-pound losses

UK universities tipped into the red to the tune of billions of pounds last year, but much of the shortfall has been blamed on “volatile” valuations of the Universities Superannuation Scheme pension fund.

In the 2021-22 financial accounts for more than 100 higher education providers examined by Times Higher Education, about three-quarters of institutions reported a deficit, with losses totalling more than £3.6 billion. The remaining few dozen reported a combined surplus of £388 million.

Many of those recording deficits explained that they were the result of an increase in their provision for the USS – UK higher education’s largest pension scheme – which has reported multibillion-pound deficits in recent years.

A recovery plan agreed with employers included a commitment to fund the past deficit and account for the liability in its accounts.

For example, King’s College London reported a £245 million deficit for 2021-22, but only after a £284 million increase in USS provision.

It said that the scheme had again “overshadowed” the financial performance of the institution, and was not “representative of the university’s underlying operational financial performance in the year”.

Similarly, UCL, which recorded a £240 million deficit, said that its operating surplus was in fact £91 million when USS pension charges were excluded.

As a result of the charges, the proportion of institutions recording shortfalls has risen sharply. In 2020-21, less than one in three providers reported deficits, which totalled £783 million, while seven in 10 reported surpluses that were collectively worth £3.6 billion.

This is not the first time that shifts in USS valuations have driven large numbers of universities into deficit, with a similar phenomenon seen in 2018-19 – and a bounce back the following year.

Ben Waltmann, a senior research economist at the Institute of Fiscal Studies, said the USS valuation was “hugely volatile” because of changes in market conditions, making it a “sort of wildcard” for university finances.

However, although not the “final word”, he said the latest data indicated that the USS has now gone into surplus, with rising interest rates helping the fund’s finances on paper.

“I don’t know what the future will hold, but that is certainly good news in terms of the affordability of these schemes,” Dr Waltmann added.

If the USS was not wholly to blame for a university’s 2021-22 accounts, it was often attributed as being partially responsible.

When it was excluded, the University of East Anglia’s deficit of £74.1 million was reduced to £13.9 million. The institution has announced plans to cut jobs and courses following lower-than-expected student recruitment.

The University of Kent’s £65 million deficit reduced to £12 million once the USS was excluded, while the pension fund was accountable for about half of Middlesex University’s £23.1 million loss, with the rest blamed on “challenging” student recruitment.

Phil McNaull, formerly finance director at the University of Edinburgh and an ex-chair of the British Universities Finance Directors Group (BUFDG), said boards of governors would be concerned about increasing pension costs.

“Staff costs are the biggest item of expenditure in most universities,” he said.

However, Erica Conway, BUFDG’s current chair and director of finance at the University of Birmingham, said that pension-driven deficits on their own were not a huge concern, particularly given the USS’ long recovery period.

“Don’t panic, but focus on the cash. Cash is king,” she said.

patrick.jack@timeshighereducation.com