Universities face extra costs in pension funding

The Universities Superannuation Scheme, for academics and senior administrators in pre-1992 universities, went through its triennial valuation, a legal requirement, on 31 March.

The USS board has now finalised its proposals on the assumptions to be used for assessing the scheme's "technical provisions" - judging whether its assets are strong enough to cover its liabilities in all pensions owed.

Universities UK, the official employer representative in the USS, informed the 67 member universities of the results last week.

Nicola Dandridge, UUK's chief executive, writes: "If the proposed assumptions for the scheme's technical provisions were adopted, they would reveal a funding deficit in the scheme as at 31 March 2011 of approximately £2.9 billion."

Ms Dandridge states that the USS would be judged as having assets with a market value of £32.4 billion against liabilities of £35.3 billion, leaving it 92 per cent funded - down from 103 per cent at the previous valuation in 2008.

She adds that turbulence in the world economy has "led to a fall in asset values as well as to reductions in the yields on fixed interest government securities, which are used in the measurement of the scheme's liabilities".

The Pensions Regulator will require the USS to implement a recovery plan to address the deficit.

John Hanratty, head of public-sector pensions at law firm Pinsent Masons, said: "I think it is going to be an increase in contributions from universities - it has to be."

He said the pressure on member universities would be increased by the financial situation in the sector.

"In the past, (universities) took a fairly laissez-faire view in that the belief was a university would never fail and its liabilities have to be taken on (by other member institutions)."

He added that in the current climate, there was "nervousness" that these assumptions may be incorrect.

The employers are likely to use the valuation result as ammunition against the UCU, which says that changes to the scheme implemented on 1 October go too far.

john.morgan@tsleducation.com.